Posted on May, 9, 2022 at 10:31 am
Djeneba Belem’s fried bean cake stall in Abidjan in the Ivory Coast is a world away from the war raging in Ukraine. But her business is now at the mercy of an unexpected consequence – the runaway palm oil prices.
“I didn’t even want to sell [the cakes] anymore because I thought, if the price of oil has gone up that much, what am I going to earn?” she said as she stirred a batch of cakes at her street-side stall in Ivory Coast’s lagoon-side commercial capital.
Neither Russia nor Ukraine produces palm oil, a tropical commodity, but Moscow’s invasion of its neighbour in February has triggered knock-on effects across today’s intricately interconnected global economy.
The conflict has helped propel the prices for palm oil – ubiquitous in African dishes from Nigerian jollof rice to Ivorian sticky alloco plantains – to record highs that experts say will deepen a food-cost crisis and punish the poorest.
The upheaval pushed top palm oil exporter Indonesia to ban some exports in recent days, in a effort to keep a lid on domestic prices.
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A senior government official said on Tuesday that the ban could be widened.
“We’ve never really tested this kind of situation,” said James Fry, founder of agricultural commodities consultancy LMC International.
“It will be the poorest in big countries or countries in Africa who will almost certainly have to bear the brunt.”
Indeed, in Sub-Saharan Africa, food expenses already account for 40% of households’ consumer spending, the highest proportion of any region in the world, and more than double the 17% spent on food in advanced economies.
And, as prices rise rapidly across the board – including fuel – and tens of millions of Africans have already been pushed into extreme poverty by the Covid-19 pandemic, spiking palm oil prices will force many to make tough choices.
Lucy Kamanja, a beauty industry consultant in the Kenyan capital, Nairobi, said a 90% increase in the price of palm-based cooking oil means she’s had to cut down on fruit and household essentials.
Kamanja said:
Even before the outbreak of the war in Ukraine, inflation had become a global concern. Food commodity prices climbed more than 23% last year, the fastest pace in more than a decade, according the UN Food and Agriculture Organisation (FAO).
In March, the FAO’s global price index for meat, dairy, cereals, sugar and oils hit its highest level since its inception in 1990, after a 12.6% “giant leap” from February.
Cooking oils have been among the products hardest hit.
READ: War in Ukraine is proving quite good for business for world’s top commodities
Drought decimated soy oil exports from Argentina and rapeseed production in Canada.
Poor weather in Indonesia and the Covid-19 pandemic-related immigration restrictions in Malaysia throttled palm oil output and caused labour shortages on plantations.
“The only bright spot, in a way, was sunflower,” said LMC’s Fry.
Then Russia sent its military into Ukraine in February, disrupting shipments from the Black Sea region, which accounts for 60% of sunflower production and more than three-quarters of exports, and wiping out a huge share of global supply.
READ: This is a full-scale invasion – says Ukraine’s president as Russia launches attacks
As if that were not enough, high crude oil prices – another consequence of the war – have added further pressure to vegetable oil supplies by increasing demand for biofuels.
“You almost couldn’t make it up how bad it’s been,” Fry added. “We have had really almost a perfect storm.”
On March 9, about two weeks after Russia’s invasion, the Malaysian crude palm oil contract that serves as the global benchmark topped out at a record 7 268 ringgit ($1 718, R27 488) per ton, nearly double the price a year earlier.
The contract, which jumped more than 9% on Wednesday, has now risen by close to 50% this year.
Culinary tradition aside, the choice of palm oil has also been an economic one for many poor countries, given that it has historically been the cheapest of the major vegetable oils.
Lately, however, the World Bank data show it’s been catching up to rivals, particularly soy and sunflower oil.
In March, for the first time, it temporarily became the costliest among the four major edible oils in India, considered a global price bellwether, signalling that the days when Africa’s go-to oil was reliably the cheapest could be over.
While this is straining the nerves and budgets of millions of Africans, such as Kamanja in Nairobi and Belem in Abidjan, it is also presenting some opportunities on the continent.
Nearly two dozen African countries grow oil palm on almost 6 million hectares of land, and the major agricultural sector is an employer of workers who stand to see their incomes rise.
Sylvain N’Cho runs an oil palm mill an hour east of Abidjan and estimates his revenue is up around 20% over the past year.
“We’re not the only ones reaping the benefit of the increase in palm oil prices,” N’Cho said.
“Part of it goes to the farmers,” he said, as heavy machines loaded bunches of red palm fruit onto a conveyor belt.
Jerome Kanga, who farms 2ha near the Ivorian town of Adiake, said he was disappointed by the prices he was getting when he started producing three years ago.
Kanga said:
Yet the number of people getting ahead is dwarfed by those feeling the squeeze.
Africa consumes significantly more palm oil than it produces in a global market dominated by South-east Asia. Even in the Ivory Coast, one of just a handful of net palm exporters, N’Cho conceded that consumers are in for more pain. “If there is an increase over there, there’s systematically an increase on the local market,” he added.
African nations imported nearly 8 million tons of palm oil in 2020, according to the FAO, the latest year for which data is available. Nigeria, the continent’s biggest importer, shipped in more than 1.2 million tons of palm oil.
Kenya brought in nearly $830 million worth.
Ann Obanih, who runs a small food shop in Lagos, Nigeria, said the price of the refined red palm oil she buys to resell has gone up roughly 20% in the past month alone.
“Everyone is complaining, as if we’re the ones adding the money. We’re selling according to how we bought it,” the mother-of-six added.
“I don’t even know how to cook without palm oil,” Obanih added.
Source: News24