Affordable cooking oil (e.g., sunflower, soy, canola, palm) is really beneficial for consumers in countries that love fried foods (e.g., fish and chips in the United Kingdom). But it’s a matter of life or death for consumers in the poorest countries in the world, who have few alternatives when the prices of these commodities rise. In this way, the implications of the recent drastic jump in prices are global, broad, and deeply detrimental.
Understanding the complex causes of this price increase demands a global perspective too. The supply of sunflower oil has been greatly disrupted by the attacks on Ukraine by Russia—two countries that accounted for 75 percent of all sunflower oil production. Bad weather in Canada diminished canola oil production, and a drought in Argentina reduced soy oil supplies. Faced with all these shortages, consumers in various countries switched to alternatives, such as palm oil.
Palm oil prices promptly rose, due to the heightened demand. But in Indonesia, which accounts for more than half of the world’s total supply of palm oil, these rising prices represent a serious threat to domestic consumers’ welfare. When the price of a liter of oil rose by 50 percent, the country’s relatively poor population protested vigorously. In response, Indonesia’s President Joko Widodo banned exports, to ensure his constituents would have enough oil for their needs, before serving other countries. Some buyers turned to Malaysia, the second-largest palm oil producer in the world, but it cannot ramp up production fast enough to cover the massive gap in supplies.
Along with these immediate crises, vegetable oil demand has been increasing over time for other reasons, such as growing efforts to rely on biofuels as an environmentally responsible alternative to conventional fuels. That is, prices already were creeping up; a complete ban on exports of palm oil from Indonesia, when buyers and consumers had no recourse to other types of oil, intensified that trend to unprecedented levels.
For manufacturers of cosmetics, chocolate, and soaps (some of the many products that include palm oil), the lack of supply will hinder or even bring to a halt their production capabilities. But even more worrisome are the implications for consumers, especially those who represent the poorest global populations. Food prices worldwide already have risen by an average of 30 percent—increases that few people living on incomes of just a few dollars per day can sustain. If, as the World Bank predicts, those prices keep rising, by an estimated additional 20 percent, people will literally be unable to feed themselves. The oil shortage, by further intensifying these pressures, makes it likely that even more people might die.
- Should prices of commodities like cooking oil be regulated?
- How can (a) more developed and (b) less developed nations address global shortages in cooking oil? Are their most appropriate responses the same or different?
- As a consumer, how are you dealing with rising food prices?
Source: Rajendra Jadhav, “Indonesia’s Palm Oil Export Ban Leaves Consumers with No Plan B,” Yahoo Finance, April 25, 2022; Paddy Hirsch, “How Palm Oil Prices Are Affecting the Global Economy,” NPR, May 3, 2022; Yuka Hayashi, “World Bank Projects Elevated Energy, Food Prices, Keeping Upward Pressure on Inflation,” The Wall Street Journal, April 26, 2022