Food price solutions a priority
Food prices are on the rise everywhere in the world. In Thailand, prices of limes have been at historical highs for months, now as much as 10 baht each in wet markets. Instant noodle makers want to hike their prices by up to 20% as raw material costs have surged, but Commerce Minister Jurin Laksanawisit insists they can’t.
And with diesel now poised to rise beyond the 30-baht per litre cap as the government can no longer afford subsidies, I’m sure retail prices of many more items will follow suit.
In Vietnam, manufacturers have raised prices of many basics — instant noodles, rice, sugar, fish sauce and cooking oil — since late March amid skyrocketing costs of fuel and raw materials.
But what could really destabilise the global food market is Indonesia’s decision to ban all palm oil exports, aiming to curb stubbornly high cooking oil prices at home. The blanket ban, effective from last Thursday, sent edible oil prices surging and ignited further worries over global food prices already exacerbated by the Russia-Ukraine war.
Indonesia produces 56% of global palm oil output, with one-third consumed by its domestic market. Recent shortages of domestic supplies had led consumers to queue for hours to buy the essential commodity at subsidised rates.
The months-long shortage has been exacerbated by poor regulation and producers who are reluctant to sell at home because high international prices make exports more profitable. Authorities fear scarcity and rising prices could provoke social tensions.
Last year, Indonesia produced 47 million tonnes of crude palm oil and exported US$28.5 billion worth, contributing to a rare trade surplus for a second straight year.
Jakarta plans to resume exports when the price of bulk cooking oil in local markets has fallen to 14,000 rupiah (97 cents) per litre, having rocketed 70% in recent weeks to 26,000 rupiah ($1.80).
Vegetable oils are among a number of staple food items for which prices have hit record highs since Russia invaded Ukraine, according to the Food and Agriculture Organization (FAO).
Russia and Ukraine together account for more than one-quarter of all traded wheat, and around three-quarters of world exports of crude sunflower oil. Russia also accounts for nearly one-tenth of fuel exports and, together with Belarus, one-fifth of world fertiliser supplies.
The FAO’s food price index in March showed significant across-the-board rises for everything from cereals to sugar, pushing the weighted average up 12.6% from February. Vegetable oil prices jumped 23.2%.
Indonesia’s sudden ban will have serious repercussions for India and other major consuming nations, including China and Pakistan. About 16% of Indonesian palm oil exports go to India, 15.5% to China and 9% to Pakistan.
Malaysia, meanwhile, says its palm oil output is unlikely to meet world demand though it is expected to benefit from Indonesia’s drastic action. The world’s second biggest palm oil producer, facing a pandemic-induced labour shortage, can raise output by only 5% at most if it can bring in more foreign workers.
Malaysia, which accounts for 31% of global palm oil supply, needs to ensure local demand is not neglected while fulfilling global demand, said Malaysian Palm Oil Board Ahmad chief Parveez Ghulam Kadir.
Perhaps it’s time for countries to reconsider their food and fuel priorities to ease global palm oil supply tightness. Indonesia and Malaysia make it mandatory for biodiesel to be mixed with palm oil, at 30% and 20% respectively. They have not changed those rules despite soaring palm oil prices.
Other countries, including Thailand, also make biofuels from edible oils, and demand has boomed as drivers seek greener fuels.
While Indonesia’s export ban is driven mainly by concerns over social tensions, the price increase could be eased by better management of supply locally, including increasing productivity and efficiency. Export curbs could worsen rising food prices globally, and there’s no guarantee domestic prices will drop as the government expects, food industry sources say.
The current spike in food prices comes on top of pandemic-related challenges, economic downturns, climate-related shocks and conflicts. It could exacerbate the hunger already faced by millions of people.
The UN World Food Programme (WFP) estimates that 145 million people will need food aid in 2022, 17 million more than in 2021. Around 660 million may still face hunger in 2030, and this does not yet take into account the impact of the war in Ukraine.
Ensuring better access to food is the way forward to tackle record food prices. For trade policymakers globally, food security has become an issue of utmost urgency.