SOUTH African consumers can expect to feel a pinch at the till with higher food prices, economists say, after Indonesia banned the export of palm oil, a commodity widely used in food production.
Last week, Indonesia banned the export of palm oil, a move which will have profound price implications for the global vegetable oils market. Indonesia explained its decision was to ensure the protection of domestic consumers from rising prices.
FNB Agribusiness senior agricultural economist Paul Makube said on Tuesday in an interview that South Africa was currently a net importer of vegetable oils and did not have the capacity or environment to produce palm oil.
Palm oil was widely used in manufacturing in both food and non-food, and its ingredients could be blended with others to achieve certain product qualities.
FNB Agri-Business said that the unfortunate outcome of the situation was the inflationary pressure due to the spill over increase in global prices of vegetable oils, which would see consumers definitely paying more for the product in the medium term.
Makube said not much could be done now, given the limited capacity, as the opportunity lay in other areas of the world that could produce palm oil sustainably.
"The trend is upwards, and consumers will feel the pinch at the tills," he said.
Palm oil accounted for about 35.4 percent of the total global vegetable oil, followed by soybean oil at 28.3 percent, rapeseed oil at 13.3 percent) and sunflower oil at 10.3 percent when using the 2021/22 season figures.
"This means about 45.7 percent of the global availability of vegetable oil rests in two commodities that have suddenly faced trade challenges in terms of the Russia-Ukraine conflict in the case of sunflower oil and the palm oil export ban by Indonesia," Makube said.
Indonesia alone accounted for 58 percent (5-year average) of the global palm oil production, followed by Malaysia at 26 percent, while the individual share of the rest of the other countries being less than 5 percent and collectively just 14 percent.
He said that the impact was tightening supplies and the consequent upswing in prices.
The indicator of price levels of vegetable oil as measured by the Food and Agriculture Organisation (FAO) already showed a sharp elevation in the March 2022 price index by 23.2 percent month-on-month and 56.1 percent year-on-year to 248.8 points, which Makube was the highest on record.
He said what was, therefore, expected that this trend would continue in the medium term given the tight availability on global markets.
South African farmers produced sunflowers, which was processed into sunflower oil and have only increased their output by 42 percent year on year in the 2021/22 season at 963 000 tons, which was the highest level in 24 years.
Average sunflower production for the past 20 years was 694 129 tons, which Makube said was not sufficient to meet local demand.
Oxford Economics Africa South African analyst Jee-A Van Der Linde said in an interview on Tuesday that palm oil was widely used in food production, and an increase in prices could lead to higher costs for food manufacturers, which in turn, were likely to be passed on to consumers.
Van Der Linde said local households would increasingly be on the lookout for cheaper alternatives, with food inflation expected to push higher over the coming months.
However, with regards to the domestic edible oil market, South Africa had been fortunate with good harvests lately, Van Der Linde said.
The Department of Agriculture data showed that domestic sunflower seed output was likely to reach 959 450 tonnes this season, 41.5 percent higher than last year.
"The production forecast for soya beans for 2022 is 1.9 million tonnes, 0.6 percent lower than last year’s record harvest. Meanwhile, South Africa is expected to yield a record canola crop of 197 000 tonnes, 19.2 percent more than the year before.
“Although domestic households will not be spared from the impact of high prices, favourable crop estimates for the current season and sufficient stock surpluses at least suggest that South Africa should be less reliant on food imports,” he said.
Pietermaritzburg Economic Justice and Dignity Group( PMBEJD) Programme Coordinator Mervyn Abrahams said that it was unclear how the Indonesian decision would impact cooking oil – other than increasing the prices of the other kinds of oils because of market forces.
"Having less oil on the market while demand remains the same will lead to increased prices," Abrahams said.
PMBEJD said regarding price fluctuation of cooking oil, they had seen prices steadily increasing over the past year, and for that reason, the increases were not confined to the Russia/Ukraine conflict and the Indonesian decision.
"What these other factors driving prices in South Africa are unclear to us."
given.majola@inl.co.za
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