Global cooking oil prices, particularly palm oil, are predicted to stay elevated for the foreseeable future due to a combination of factors, including slower production growth and increased use of palm oil for biodiesel in Indonesia. This shift is expected to eliminate the historically low prices of palm oil, which has traditionally kept overall vegetable oil prices down, reports The Business Standard.
Palm oil, a staple in many products from food to cosmetics, has long been a cost-effective option, particularly in developing nations like India. However, industry analysts now believe that those days of significant price discounts are over. “Those days of $400-per-ton discounts are gone,” stated Dorab Mistry, a director at Godrej International. “Palm oil won’t be that cheap again as long as Indonesia keeps prioritising biodiesel.”
Indonesia, the world’s leading palm oil producer, is increasingly diverting its supply towards biodiesel production. The country has raised the mandated blend of palm oil in biodiesel to 40% this year and is considering further increases. This push to reduce reliance on fossil fuel imports is expected to significantly reduce palm oil exports. Eddy Martono, chairman of GAPKI, Indonesia’s largest palm oil association, estimates that exports will drop substantially by 2030.
This shift has already led to palm oil prices surpassing those of rival oils like soybean oil, causing buyers to adjust their purchasing habits. In India, a major consumer of vegetable oils, palm oil has been trading at a premium for the past six months, a stark contrast to the substantial discounts seen in previous years.
The rising cost of vegetable oils has significant implications for global inflation, potentially impacting consumers in both palm oil-dependent and other oil-reliant countries. Last week, Indians paid $1,185 a ton for crude palm oil, a huge increase from 2019 prices.
Historically, palm oil production saw rapid growth, nearly doubling every decade. However, this growth has slowed due to factors like limited land for new plantations, deforestation concerns, and slow replanting efforts. Global production growth has now decreased to about 1% annually, with projections indicating a continued slowdown in the coming years.
Analysts also point to labor shortages, aging plantations, and diseases like Ganoderma fungus as further challenges to production. Oil palms, which lose productivity after 20 years, require replanting, a process that can take several years and deter farmers.
Replanting efforts in both Malaysia and Indonesia have fallen short of targets, leading to lower yields. In Indonesia, yields have dropped by 11.4% in the past decade.
While other countries are increasing palm oil production, it is not enough to meet rising demand, particularly for biofuel. Industry experts, including Mistry and Thomas Mielke of Oil World, are urging Indonesia to resume issuing permits for new palm oil plantations.
“If Indonesia keeps the moratorium on new planting, there will be periodic shortages and spells of very high palm oil prices,” said Mistry, warning of the impact on billions of consumers in developing nations.
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