Palm oil shortage to make processed foods costlier

Food producers are facing a new challenge following Indonesia's ban on palm oil exports as the edible oil is required to produce various packaged food, bakery and cosmetics products.

According to traders, the production cost of almost all food items will increase significantly if Indonesia does not withdraw its export ban. Besides, they are also worried about finding alternatives to palm oil.

Syed Alamgir, managing director and chief executive officer of Akij Ventures Ltd- one of the leading food producers in the country, said, "Palm oil is one of the major raw materials in the food processing industry. Indonesia is the supplier of 80% oil in Bangladesh at low prices. Now we have to import from Malaysia at a higher price."

"The price has gone up, but we are not yet in a quandary because of the presence of Malaysian palm oil," he said.

However, the way the oil crisis is spiraling in the retail market, it will hit us if Indonesia does not lift the export ban soon, he added.

Regarding wheat, he said Ukrainian wheat was suitable for us in terms of price and quality. But that's gone now and we have to import good quality wheat from Canada and the price is much higher.

"High fuel prices have affected the rents of various business establishments and the cost of ingredients are also soaring. We have been forced to increase the prices of various processed foods, including vermicelli, by 5% before Eid," he added.

Indonesia announced the ban on palm oil exports last Friday, which came into effect on 28 April. However, Bangladesh has been facing a crisis in the edible oil market since the Russia-Ukraine war has begun.

Oil producing companies have cut their supplies and markets are running short on cooking oils. The crisis was witnessed in various wholesale and retail markets and super shops including Karwan Bazar in the capital.

Rifat Hossain, owner of Rifat Store in Karwan Bazar, said, "I sell two drums (204 liters a drum) of palm daily. Due to lack of supply for three days, I am selling in small quantities to some well-known hoteliers who buy oil and other products."

Shafiqul Islam, a retailer in Badda area, said the price of palm oil has increased by Tk1,500 per drum within a day.

The price of vermicelli, a popular Eid delicacy, has also gone up in different markets of the capital. A pack of vermicelli, weighing 200 grams, is selling at Tk40 on Friday while a pack of noodles is being sold at Tk45. Prices of both items increased by Tk5. Moreover, a pack of bread which was priced at Tk50, is now selling at Tk60.

Manufacturers of bakery, biscuit or snack items said the price will surge further if Indonesia's oil export ban order is not withdrawn.

RAN-RFL Group, another leading food producer in the country, Director Chowdhury Kamruzzaman Kamal said, "After the price hike of wheat, we provided products to consumers by reducing the profit margin. With Indonesia's ban, our production will be at risk and the Indonesian alternative will cost a lot more."

"We usually procure oil through third parties," he said, noting that the food companies do not import directly. "With our current stock, production can be continued for a maximum of 4-5 days."

However, FH Ansarey, agronomist and president of ACI Agribusinesses, did not agree with food producers that the production system would collapse if palm oil was not available.

"Palm oil is cheaper but the alternative is sunflower oil. There are other alternatives like Canola oil, rice bran oil, and mustard oil. These are a little more expensive," he said.

"Once palm oil import is stopped, we will have to focus on mustard oil production," the agronomist added.

A global supply crisis feared

Indonesia is the largest producer of palm oil in the world followed by Malaysia. These two countries supply 86% of the world's palm oil.

Following Indonesia's announcement, the Bangladesh embassy in Malaysia has warned about a possible supply crisis and price hike of Malaysian palm oil.

Embassy Counsellor (Commercial) Md Rajibul Ahsan sent a letter to the secretary of the commerce ministry last Sunday, mentioning the current oil reserve of Malaysia.

According to the letter, Malaysia produced 1.26 million tonnes of palm oil from January to March this year, which was 1.60 million tonnes in the same period of 2021. The price of per tonne oil in Malaysia was 4,000 ringgit in 2021, which rose to 8,000 ringgit at the same time this year.

Counsellor Rajibul Ahsan said in the letter that Bangladesh imported a record amount of oil during January-March period. During this period, Bangladesh imported 88,185 metric tonnes of palm oil, almost double from the same period last year.

TK Group Director Md Shafiul Ather Taslim said palm oil is still available in Malaysia but the price is soaring every day. However, it is hard to say what will happen if everyone turns to Malaysia for oil.