The worldwide edible oil shortage has left a clear window of opportunity for oilseed farmers in Mzansi, and local canola growers have already indicated that they plan to increase their planting hectares this winter.
Both Corné Louw, senior economist at Grain SA, and Zander Spammer, agricultural resource manager at Southern Oil, say canola farmers have confirmed that they plan to increase their plantings from last year. Louw reckons the increase could reach 20%, although farmers are currently only starting to plant and Spammer warns that it’s a dry early season.
There’s also a limit to what farmers can do. Despite some canola being grown on a trial basis in irrigation areas to the north, almost all of the country’s canola is produced in the Western Cape. Expansion into other parts of the country will need better-suited varieties, according to Louw.
South Africa will therefore remain a net importer of edible oils and feel the price pressures of the global oil shortage that was brought on by the Russia-Ukraine war.
Palm oil shocker
The latest shock to the global food industry came on Friday (22 April 2022) when Indonesia announced a ban on palm oil exports to ease the pressure of skyrocketing cooking oil prices on its own citizens.
Experts immediately warned that this could have far-reaching consequences and drive up oil prices even further. Where Ukraine produces almost half of the world’s sunflower oil, Indonesia produces half of the world’s palm oil – the most widely used edible oil of all and found in thousands of consumer products.
According to the World Wide Fund for Nature (WWF), palm oil is an ingredient in nearly 50% of all the packaged items found in supermarkets globally.
In South Africa, consumers will find it listed on the labels of everything from their most beloved chocolates, spreads and powdered milky drinks to store-bought ready meals and the most popular takeaways – even in the ordinary loaves of bread sold in masses in every supermarket and corner store in the country. It is also widely used in cosmetics and household products.
Agbiz chief economist Wandile Sihlobo says South Africa has imported an annual average of 450 000 tonnes of vegetable oil over the past decade. Indonesia accounted for 66% of the imported volume, and Malaysia for the rest. “Thus, a ban on exports of a key supplier will disrupt the palm oil supplies in South Africa in the coming months. The added issue will be increased prices across all vegetable oils.”
From a manufacturing point of view, palm oil has always been seen as the cheaper industrial alternative, says Louw. “Suddenly now, markets have to look at other vegetable oils such as sunflower oil, canola oil, soybean oil, etc.,” he adds.
This will add fuel to a fire already created by the war, and exacerbated by a drought in Canada – the biggest supplier of canola oil worldwide – which resulted in the North American country’s smallest canola harvest in 13 years.
Ban ‘unlikely to last more than a month’
Much uncertainty and market volatility have ensued since Indonesia first announced its export ban. Prices shot up as the initial announcement came with little detail for buyers to respond to. Fears abated somewhat as the government then said the ban would apply only to palm olein (liquid) and not to crude palm oil. But on Wednesday, Aljazeera reports, the government decided to ban exports of crude palm oil too.
In the meantime, Reuters reports that the ban is unlikely to last more than a month as the capital city of Jakarta has limited infrastructure to store the surplus oil. “Based on simple calculation, even before one month, all the tanks would be full if it’s a total ban,” Eddy Martono, secretary general of GAPKI, Indonesia’s biggest palm oil association, reportedly told the news agency. He believes once tanks run out of space, mills will be unable to process the fresh fruit bunches, which would rot and force production to drop.
But buyers remain nervous. The ban is effective from today (28 April 2022) and chief economic minister Airlangga Hartarto said it will remain so until prices of cooking oil drop to 14 000 Indonesian rupiah per litre.
“I will continue to monitor and evaluate the implementation of this policy so that the availability of cooking oil in the country is abundant and at an affordable price,” Indonesian president Joko Widodo added in a statement addressed to locals.
A silver lining for South Africa
Sihlobo says that, although there might be challenges for businesses that use palm oil for industrial purposes and don’t have the supplies already imported, the news isn’t all bad for Mzansi.
“Perhaps, the comforting aspect for South Africa is that these disruptions are occurring when the domestic sunflower seed production has improved notably. The 2021-22 domestic sunflower seed harvest is estimated at 959 450 tonnes, the second-largest volume [to date]. If the recent wet weather conditions don’t reduce the yield or quality of the crop, South Africa will at least have some flexibility to fill the palm oil gap with sunflower oil.”
Louw adds that local soybean crops, along with last year’s canola and sunflower crop, will buffer import needs slightly. “That’s definitely a positive,” he says. “We have very good sunflower and soybean crops in the summer that we are currently harvesting. Last year we also had a very good canola crop in the Western Cape. This buffers our need for imports a bit, but we will still need to import some of our vegetable oil needs.”
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