Fears of a palm oil shortage are driving up food prices globally

Vegetable oil is in demand.
Vegetable oil is in demand.
Image: REUTERS/Mohamed Abd El Ghany/File Photo
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Food prices continue to rise around the world, according to the United Nations’s Food and Agricultural Organization (FAO) index of food prices. The index climbed another 1.1% in January from the month before, reaching its highest point since 2011. The index measures the monthly change in average prices of the food categories meat, dairy, cereals, vegetable oils, and sugar.

What’s driving up food prices?

Vegetable oil prices saw the sharpest increase, up 4% from December. The rise was due to concerns over a possible reduction in exports of palm oil from Indonesia, a top producer and exporter, according to FAO. Global palm oil prices surged last year, as demand recovered following a covid slump in India and China, two of the largest consumers of cooking oil, while production in Indonesia and Malaysia slowed, Reuters reported. In Indonesia, cooking oil prices rose 40% from a year earlier, according to Reuters.

In an effort to control prices and protect the domestic supply of cooking oil, Indonesia’s trade ministry said it would make it harder to export oil products by requiring exporters to obtain shipment permission. Exporters are currently only required to file customs declarations items for oil they ship overseas. The permit requirements started Jan. 24 and will be in effect for six months.

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The other category pushing higher food prices higher is dairy, up 2% from the month before. Similar to the situation with vegetable oil, the increase was due to a reduction in exports, particularly, from western Europe, which reported a reduction in milk deliveries in some large milk-producing countries, according to FAO. Transportation delays, due to covid-related labor shortages, added to higher dairy prices.

The soaring food prices will continue to hit the lowest-income households, where food eats up a much larger share of their incomes.