How Africa bears the brunt of the perfect palm oil storm

0

BUSINESS


Djeneba Belem’s refried bean cake stand in Abidjan, Côte d’Ivoire is a world away from the war raging in Ukraine. But his business is now at the mercy of an unintended consequence: skyrocketing palm oil prices.

“I didn’t even want to sell [the cakes] more because I was thinking, if the price of oil has gone up so much, what am I going to gain? she said, tossing around a batch of cakes at her streetside stall in the commercial capital of Ivory Coast’s lagoon.

Neither Russia nor Ukraine produces palm oil, a tropical commodity, but Moscow’s invasion of its neighbor in February triggered repercussions for today’s tightly interconnected global economy.

The conflict has helped propel the prices of palm oil – ubiquitous in African dishes, from Nigerian jollof rice to sticky alloco plantains from Côte d’Ivoire – to record highs that experts say will deepen a food cost crisis and punish the poorest.

The upheaval has prompted Indonesia, the top palm oil exporter, to ban some exports in recent days, in a bid to contain domestic prices.

READ: Green Deal is no excuse for protectionism

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 almost certainly be the poorest of the big countries or countries in Africa who will have to bear the brunt of it.”

Indeed, in sub-Saharan Africa, food expenditure already accounts for 40% of household consumption expenditure, 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, soaring fuel prices Palm oil will force many to make tough choices.

Lucy Kamanja, a consultant to the beauty industry in Nairobi, the Kenyan capital, says a 90% rise in the price of palm oil means she has had to cut back on her consumption of fruits and household products essential.

Kamanja said:

I am very worried. I don’t know where we are going, because the price of food has almost doubled. The ordinary person… I don’t know how we’re going to survive.

Even before the outbreak of war in Ukraine, inflation had become a global concern. Food prices soared more than 23% last year, the fastest pace in more than a decade, according to the Food and Agriculture Organization of the United Nations (FAO).

In March, the FAO’s world price index for meat, dairy, cereals, sugar and oils hit its highest level since its inception in 1990, after a “giant jump” of 12.6 % since February.

Cooking oils were among the hardest hit products.

READ: The war in Ukraine is proving pretty good for the world’s major commodities business

The drought decimated soybean oil exports from Argentina and rapeseed production in Canada.

Bad weather in Indonesia and Covid-19 pandemic-related immigration restrictions in Malaysia have strangled palm oil production and caused labor shortages on plantations.

“The only bright spot, in a way, was the sunflower,” LMC’s Fry said.

Then Russia sent its army 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 chunk of the global supply.

READ: This is a full-scale invasion – Ukrainian president says as Russia launches attacks

As if that weren’t enough, high crude oil prices – another consequence of the war – added further pressure on vegetable oil supplies by increasing the demand for biofuels.

“You almost couldn’t make up how bad it was,” Fry added. “We really had a near-perfect storm.”

On March 9, about two weeks after the Russian invasion, Malaysia’s crude palm oil contract that serves as a global benchmark reached a record 7,268 ringgits ($1,718, R27,488) a tonne, nearly the double the price a year earlier.

The contract, which jumped more than 9% on Wednesday, is now up almost 50% this year.

Beyond culinary tradition, the choice of palm oil has also been economical for many poor countries, given that it has always been the cheapest of the main vegetable oils.

Lately, however, World Bank data shows it has been catching up with rivals, especially soybean and sunflower oil.

In March, for the first time, it temporarily became the most expensive among the four main edible oils in India, seen as an indicator of world prices, signaling that the time when Africa’s benchmark oil was the cheapest reliably could be gone.

While this strains the nerves and budgets of millions of Africans, like Kamanja in Nairobi and Belem in Abidjan, it also presents opportunities on the continent.

Nearly two dozen African countries cultivate oil palm on almost 6 million hectares of land, and the main agricultural sector is an employer of workers who should see their incomes increase.

Sylvain N’Cho runs a palm oil mill an hour east of Abidjan and estimates that his turnover has increased by around 20% compared to the past year.

“We’re not the only ones benefiting from rising palm oil prices,” N’Cho said.

“Some of it goes to the farmers,” he said, as heavy machinery loaded bunches of red palm fruits onto a conveyor belt.

Jérôme Kanga, who farms 2ha near the Ivorian town of Adiake, said he was disappointed with the prices he was getting when he started producing three years ago.

Kanga said:

But since December of last year, and especially in February and March of this year, it’s more interesting. There was an increase of about 20%.

Yet the number of people making progress is dwarfed by those feeling the pressure.

Africa consumes far more palm oil than it produces in a global market dominated by Southeast Asia. Even in Ivory Coast, one of the few net exporters of palms, N’Cho acknowledged that consumers were going to suffer more. “If there is an increase there, there is always an increase in the local market,” he added.

African countries imported nearly 8 million tonnes of palm oil in 2020, according to the FAO, the latest year for which data is available. Nigeria, the continent’s largest importer, shipped more than 1.2 million tonnes of palm oil.

Kenya brought in nearly $830 million.

Ann Obanih, who runs a small grocery store in Lagos, Nigeria, said the price of the refined red palm oil she buys to resell has risen by around 20% in the past month alone.

“Everyone is complaining, as if we were the ones bringing the money. We sell based on how we bought it,” the mother-of-six added.

“I can’t even cook without palm oil,” Obanih added. Reuters


Deliver the

news you need

Share.

About Author

Comments are closed.