Indonesia’s announcement to ban cooking oil export in the context of partial shortages and rising prices has increased crop protectionism around the world.

According to Bloomberg, the world supply of cooking oil, which has been “tightened” because of the geopolitical crisis in Eastern Europe, is getting to be scarce.

And in this “hot water” situation Indonesia adds one more hit when the country is stopping its palm oil export despite high inflation, severe weather, and scarce supply.

The current shortage of cooking oil is making the world hunger crisis worse than ever. (Photo: Internet)

A kick from Indonesia

Two months after the February event in Eastern Europe caused the global agricultural trade to a standstill, Indonesia announced to ban oil export in the context of partial shortages and rising prices, increasing the protectionism around the world.

Indonesia accounts for more than a third of global vegetable oil export. India and China – the most populous countries, are two of the largest oil buyers.

Mr. Carlos Mera from Dutch multinational banking and financial services firm Rabobank said the world “cannot replace” Indonesia’s cooking oil supply. “Indonesia’s cooking oil supply to the world is “irreplaceable. It is a big hit, ” he insisted.

Indonesia is the world’s largest producer of palm oil, the most consumed cooking oil in the world.

Indonesia’s announcement of a ban in April has caused the price of the US’s oil futures tied to soybean oil, a substitute for palm oil, to go up to the highest record for the third day in a row.

In the UK, some supermarkets are limiting the purchase of cooking oils such as sunflower, olive, and rapeseed.

Russia’s move in February has left the sunflower oil market in chaos and is tightening the supply of other vegetable oils used in food, biofuels, and personal care products.

Weather uncertainties around the world have also made the world’s major oil producers fears shortages.

Soybean production in South America – the world’s largest producer – goes down due to drought.

Drought in Canada also reduced rapeseed oil production and left available supply much little.

Limited supply and high prices can make inflation more serious for food items such as oil salad mixes and mayonnaise in major economies such as the US. Meanwhile, developing nations like India will be impacted the hardest. Because they depend on palm oil import – vegetable oil is cheaper than soybean oil, sunflower oil, and rapeseed oil.

“We are deeply shocked by Indonesia’s decision and do not expect a ban like this,” said Mr. Atul Chaturvedi – President of India’s Solvent Extraction Association and Cooking Oil Trade Group.

The high cost of core food also led to the biggest controversy in a decade over the use of farmland for fuel production.

The American Bakery Association is warning about empty grocery shelves.

According to specialist Brice Dunlop at Fitch Solutions, price changes can lead to social uncertainty, especially in India. “India used to have a lot of riots related to food shortages, while vegetable oil is the main ingredient of a lot of food here,” he warned.

The tension between food and fuel is breaking out in other areas, including Indonesia.

According to Mr. Tosin Jack – Director of Commodity Market Research at Mintec – the world’s leading provider of global commodity price data in the UK, Indonesia’s latest decision is sure to make everything more serious than the already record high level of food inflation.

For producers of packaged food such as potato chips, Indonesia’s move made them more miserable.

People line up to buy affordable cooking oil in Palembang, Indonesia on February 24th. (Photo: AFP)

It’s not just Indonesia

Besides Indonesia, other governments are also coming into play.

They restrict exports, control prices, and prevent hoarding. However, these moves cannot stop prices from rising, forcing consumers to cut down on spending.

The price of US soybean oil has nearly doubled since the beginning of 2021, partly due to the higher demand for materials for biofuel production. After that, prices rose to a record high level following the February event in Eastern Europe, which interrupted consignments of sunflower oil and created the demand for substitutes.

Canada’s rapeseed oil climbed to the all-time highest level last year when drought caused crops across the North American prairies to narrow.

Palm oil in Asia has increased by about 50% and rapeseed oil in Europe by 55% over the past 12 months.

“Despite record-high prices, demand for vegetable oil remains high because vegetable oil is an essential part of the diet in all countries and especially in countries such as India, Pakistan, or Bangladesh,” said Mr. John Baize, an independent analyst and a consultant for an American soybean firm.

He called Indonesia’s restriction on palm oil export a “big deal” but expected this restriction would not last long.

Currently, Indonesia’s ban even raises concerns about the country’s food supply shortages and escalating prices. Because other countries can also make the same move if the crisis in the world continues to prolong.

Expert Mera from Rabobank said: “We can see a few other products being banned from export. This may cause the concern to expand. ”