Chronicle of raw materials

In Southeast Asia, the price of palm oil has exploded since the beginning of the year

Audio 01:36

A palm oil plantation in Malaysia.

© REUTERS/Lim Huey Teng

By: Gabrielle Maréchaux Follow

2 mins

As global demand and prices rise, Southeast Asian palm oil is becoming scarcer and more expensive.

In Indonesia and Malaysia in particular, which dominate the world market with 90% of production.

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Palm oil may have a bad reputation, be often accused of deforestation or forced labor, but it remains an omnipresent commodity in our daily lives, since half of the products in a supermarket contain it.

And during the pandemic, demand for palm oil has continued to rise globally.

The only problem: on the side of the main producers, the last two years have been synonymous with a drop in production.

In Malaysia, because foreign labor could no longer cross borders.

However, it represents 85% of the workers in the plantations.

In Indonesia, it is in particular weather problems and a shortage of fertilizers that have undermined the yields of the world number one.

A 40% price increase

However, who says less production also says fewer exports, especially in Indonesia where local demand has exploded in parallel.

The government therefore first announced that it would restrict its exports so as not to penalize its local market, before finally backpedaling on March 17 and replacing this measure with an increase in export taxes, which will more than double.

We find ourselves like this with a demand that continues to climb and increasingly expensive palm oil, with an increase of 40% since the beginning of the year.

Palm oil still market leader

This vicious circle could also worsen with the war in Ukraine.

Since the two belligerents in the conflict, Russia and Ukraine, alone supply 73% of the world's sunflower oil.

However, this is often used in Europe and the United States by brands who want, for ethical reasons, to do without palm oil but who could now reconsider their choice.

And among vegetable oils, palm oil, which offers the best yields per hectare, continues to be the undisputed leader and still remains the least expensive.

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