From the war in Ukraine … to the ban on palm oil exports

From the war in Ukraine ... to the ban on palm oil exports


Indonesia imposed a temporary ban on all palm oil exports on Thursday. This decision, taken in response to the war in Ukraine, is likely to have repercussions around the world, underscoring the importance of this oilseed, which is often criticized for its environmental costs.

Indonesia added fuel to the fire. Amid rising food prices, the government has banned the export of palm oil – of which it is the world’s largest producer and exporter – since Thursday, April 28. “I hope everyone understands the need to take this urgent measure to protect all Indonesians,” said Muhammad Lutfi, Indonesia’s trade minister.

State of emergency due to the war in Ukraine. This temporary cessation of exports is, in fact, a perfect reflection of the butterfly effect of a war involving two countries thousands of miles apart. “This is the beginning of a domino effect that could have economic and political repercussions” far beyond the Indonesian border, according to The Diplomat, an Asian news website.

From Ukrainian sunflower oil to Indonesian palm oil

Palm oil is actually present in more than 50% of the packaged products available in supermarkets, reminds the CNN channel. And a shortage could eventually deprive the consumer of a whole range of items, from their favorite ointment to most shampoos.

Indonesian President Joko Widodo did not make this decision for fear of a shortage in the domestic market. “The reasons are not agronomic, as local production is much higher than consumption: 49 million tonnes are produced annually, compared to the 15 million tonnes consumed by Indonesians,” said Alain Rival, a Jakarta-based researcher at the Center for International Cooperation. Agricultural Development Research (CIRAD).

To understand this option, it is probably necessary to turn to sunflower oil. Russia and Ukraine are the main exporters and together they supply almost 80% of the world demand. But the war went on, and “the fall in exports had the effect of substituting for palm oil, which resulted in a sharp rise in demand and prices in the international market,” said Alain Rival. Thus, palm oil costs 75% more than a year ago in the same period, notes Gro Intelligence, a US financial intelligence company in a note on this cut in Indonesia exports.

This increase also appears in a more general context of rising vegetable oil prices, which had a difficult start to the year. “There have been staffing issues in Malaysia [deuxième producteur d’huile de palme, NDLR]droughts in Argentina [premier exportateur d’huile de soja, NDLR] and in Canada [principal exportateur d’huile de Colza, NDLR]”, The Guardian points out.

An increasingly unacceptable price pressure for Joko Widodo. Palm oil is not only the main ingredient for cooking in the most modest homes. “It is also increasingly used in Indonesia’s energy mix, especially as biofuel, and much of the increase in domestic consumption of palm oil comes from there,” explains Victor Baron, an independent agricultural researcher.

Take action before Eid al-Fitr

Since January, Jakarta has stepped up efforts to curb rising prices. Indonesia imposed restrictions on palm oil exports in January and then introduced aid to poorer households to protect their purchasing power.

And now, the complete export ban. If the government has decided to do so, it is also because the Eid al-Fitr holiday – which marks the break of the fasting month of Ramadan – takes place on 2 and 3 May in Indonesia and that “the authorities wanted to ensure that “There was plenty of affordable palm oil in the country with the most Muslims in the world,” CNN said.

While Joko Widodo hopes to buy social peace with this measure, the world is preparing to suffer the consequences. In fact, there is no real alternative in Indonesia, which alone accounts for 56% of total palm oil exports. Malaysia – with just over 33% of total exports – lags far behind.

And Kuala Lumpur can hardly increase its production. First because of Covid-19, which pushed the country to lay off a large number of palm forest workers. But apart from the lack of human resources, “there is no more land available in Southeast Asia,” said Alain Rival of CIRAD. Which, in addition, is good environmental news, as “therefore we should not expect a repeat of deforestation,” he added.

“Africa is a clear loser in Indonesia’s decision”

“All countries will suffer,” warns Rasheed Jan Mohd, director of the Pakistan Edible Oil Refinery Association, when interviewed by the Guardian. Indonesia’s decision “will further boost inflation starting with food prices,” explains Trinh Nguyen, an analyst at Natixis bank.

All products containing palm oil will become rarer and therefore more expensive, while demand for substitute products (either other vegetable oils or products that do not contain palm oil) is in danger of exploding, which will also push prices up.

The result should first be felt in India, China and Pakistan, the three largest importers of palm oil, reminds Trinh Nguyen.

But the impact is likely to be particularly painful on the African continent, according to Reuters. In fact, it is highly dependent on this traditionally cheap oil. “Africa is a ‘net’ loser from Indonesia’s decision as the continent imports about 16 times more palm oil than it exports. “As there are more consumers than producers, the balance is frankly negative in the very short term,” said Tancrède Voituriez, a Nigeria-based CIRAD researcher.

In addition, “the continent is less autonomous worldwide than other regions in finding alternatives to palm oil,” says Victor Baron. There is no local substitution and everything has to be imported, unlike in South America, for example, which can always rely in part on soybean oil production.

Africa, however, is not a monolithic continent. “Ivory Coast, for example, produces 543,000 tonnes of palm oil a year and exports only 240,000 tonnes. Therefore, it should be less affected than other African countries “, say Fabienne Morcillo and Sylvain Rafflegeau, CIRAD correspondents for the palm oil sector.

For the countries that have the most to lose, the only hope is that Indonesia will quickly lift this ban. This is very likely because Indonesia remains financially heavily dependent on its palm oil exports. “They brought in $ 20 billion in 2020, and depriving that income for too long risks having a significant impact on the country’s finances,” said Trinh Nguyen.

And then, Jakarta “can quickly run out of space to store all the palm oil that will not be consumed locally,” says the note of Gro Intelligence experts. “The country generally exports 2.3 million tonnes of palm oil a month and can only store 2 million,” the financial intelligence firm said. He believes the government should lift the export ban in a month at the latest.

However, even in a month, this indirect consequence of the war in Ukraine is likely to cause great damage, especially to the poorest populations for whom palm oil has remained the cheapest means of cooking.



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