Commodities

Cooking oil, soap shortage looms in palm export ban

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Prices of cooking oil have been rising after a ship with palm oil was hijacked by pirates. A fresh consignment of the raw material arrived this week. File

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Summary

  • The shock move by the world’s biggest palm oil producer to ban exports from Thursday this week, manufacturers warned, would cause difficulties accessing the important ingredient.
  • Pwani Oil, the makers of edible vegetable oil products such as Fresh Fri and Salit cooking oil, said Indonesia’s ban will not only pressure prices further up but hurt availability.
  • Production in Malaysia, the second-largest producer, has been hurt by labour shortages, further straining supply if Indonesia enforces the export ban announced last Friday.

Manufacturers of cooking oil, soaps and cosmetics are staring at raw material supply shortages after Indonesia threatened a ban on palm oil exports, raising fears of future rationing of the products whose prices have gone through the roof.

Cooking oil prices have already increased by more than 30 percent since late last year, with popular brands such as Elianto disappearing from supermarket shelves.

The shock move by the world’s biggest palm oil producer to ban exports from Thursday this week, manufacturers warned, would cause difficulties accessing the important ingredient.

Pwani Oil, the makers of edible vegetable oil products such as Fresh Fri and Salit cooking oil, said Indonesia’s ban will not only pressure prices further up but hurt availability.

Production in Malaysia, the second-largest producer, has been hurt by labour shortages, further straining supply if Indonesia enforces the export ban announced last Friday.

Reuters, however, reported Monday afternoon that the ban will only affect shipments of refined, bleached, deodorised (RBD) palm olein but not crude palm oil, quoting officials in the Ministry of Trade.

“The only solace we have is that the ban is now only restricted to by-products and derivatives of palm oil and not crude. If that news is confirmed, we should be okay in terms of supply,” said Pwani Oil Commercial Director Rajul Malde.

“If not, we are in for a rough ride in terms of availability, forget about pricing.”

Palm oil makes up about 60 percent of global edible vegetable oil exports, with Indonesia accounting for a third of the exports, reports indicated.

Other sources of edible vegetable products such as soybean, sunflower and rapeseed oil are in short supply, a development that has seen prices of cooking oil surge as much as 50 percent over the last several months.

Soybean production in South America has been affected by drought, the war in Ukraine has halted sunflower oil production, while soy oil and canola oil supply has been hurt by adverse weather in Argentina and Canada, respectively.

Mr Malde said the cost of importing palm oil into the country has jumped by about 45 percent in the February-March period this year compared with a similar period the previous year.

That has prompted the Mombasa Road-based manufacturer to raise retail prices by 35 percent on average.

“We have tried to minimise the cost to consumers by being creative and innovative with other parts of the supply chain, but overall we have had no choice but to increase the prices,” Mr Malde said.

“We have managed to reduce costs in other places in the supply chain by 10 percent. But now we are also getting problems from scarcity of dollars in the market, which is increasing the exchange rate and it may now not be possible to keep these costs down.”

The tight vegetable oil market last month saw countries in the 27-nation European Union start rationing cooking oil per customer, a move that has also been adopted by retail chains in the UK.

Pwani Oil says switching to alternatives such as soybean — also in short supply due to drought in South America — is a more expensive option for Kenya.

“Palm is the cheapest edible oil in the world today. There’s no cheaper substitute. Even if we were to look for a substitute like soybean from South America it will be more expensive,” Mr Malde said.

Kenya is a large importer of vegetable oils such as sunflower oils, soybean, corn oil, and commonly used crude palm oil mainly from Malaysia and Indonesia, which produce more than 90 percent of global supplies.

Weak production over the last six months in Malaysia due to labour shortages coupled with flooding has seen Kenya depend on Indonesia’s palm oil.

Cooking oil is also bought in bulk for industrial use in the making of detergents and foodstuffs such as bread.

Ukraine, which accounts for 76 percent of global sunflower oil exports, has cut its supplies after its invasion by Russia in late February.

Soybean oil supplies have been affected by the two-year drought in Argentina and Brazil due to La Nina.

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