Indonesia, the world’s top producer and exporter of edible oil, sent shock waves through the market on Friday when it announced it would impose a ban from April 28.
Global edible oil supplies were already stifled by inclement weather and Russia’s invasion of Ukraine, and global consumers now have no choice but to pay top dollar for supplies.
Disruptions caused by conflict have exacerbated rising food prices, which were already hitting 10-year highs in the Food and Agriculture Organization of the United Nations index, threatening to push up malnutrition world.
“Both exporting and importing countries need to have the right priorities, now is the time to temporarily reconsider the priorities between food and fuel,” said the director general of the Malaysian Palm Oil Board, Ahmad Parveez Ghulam Kadir.
“It is very important that countries ensure that available oils and fats are used for food and … temporarily stop or reduce their biodiesel mandates,” he said, adding that countries could resume biodiesel mandates once supply normalizes.
Palm oil, the most widely used edible oil, is also used as a feedstock for biodiesel.
Palm oil crisis: High prices will benefit farmers and businesses, says Nadir Godrej
“We are India’s largest palm oil producer; we will benefit from the high prices with the farmers,” says Nadir Godrej, Godrej Industries, of Indonesia’s ban on palm oil exports. Listen.
Indonesia and Malaysia mandate the blending of biodiesel with a certain amount of palm oil – 30% and 20% respectively – and last month said they remained committed to those mandates, despite rising oil prices. the Palm.
Other countries also make biofuels from animal fats and vegetable oils like corn and soybeans, and have imposed mandates. Demand for these biofuels has skyrocketed thanks to climate change mitigation efforts.
Malaysia accounts for 31% of the world’s palm oil supply, second only to Indonesia’s 56%.
Although Malaysia stands to benefit from Indonesia’s drastic policies, growers are facing a pandemic-induced labor shortage and have said they cannot fill the global supply gap.
Malaysia also needs to review its stock and production forecast to ensure local demand is not overlooked while meeting global demand, Ahmad Parveez said.
Investors expected Malaysia to bring tens of thousands of migrant workers to staff plantations and increase production. However, the Malaysian Palm Oil Association (MPOA) said the influx of workers would only boost production by a maximum of 1 million tonnes.
“The reality is that we can increase our production, but that still wouldn’t be enough to meet global demand,” MPOA chief executive Nageeb Wahab said.
The association, which represents plantation giants like FGV Holdings and Sime Darby Plantation, said the Indonesian ban made tackling labor shortages more urgent and would urge the government to speed up recruitment .
Indonesia’s ban is poised to shift demand to Malaysia, making it a rare seller’s market, Nageeb said.
“We are in a very rare situation, I think this situation will continue… Sellers decide who to sell to and what product to sell, whether it is crude or refined palm oil.”