Indonesia’s ban on palm oil exports couldn’t have come at a worse time and will exacerbate an already alarming situation, says a University of Guelph political scientist.
Dr. Steffi Hamann is a professor in the Department of Political Science in the College of Social and Applied Human Sciences. Her research focuses on socio-economic development and global inequalities, with an emphasis on the political economy of natural resource extraction.
Hamann said palm oil prices and demand have been on the rise because of “a perfect storm” of trade disruptions, from pandemic restrictions, to labour shortages, to poor harvests due to weather conditions, to Russia’s war in Ukraine.
Those disruptions have led to supply and production shortages for other vegetable-based oils, such as soybean and canola, pushing prices up for palm oil alternatives around the world.
“When the palm oil industry gets disrupted, everybody’s life will be affected in one way or another,” she said.
Indonesia’s ban came into place as other vegetable oil prices were rising, and palm oil was still the “cheap one,” Hamann said. Because Indonesia produces more than half of the global supply of palm oil, the export ban is going to cause “an unreal price spiral that will continue for however long this ban is in place,” she said.
Price increases are also leading to an increase in smuggling.
“Right now, I expect there will be nefarious things happening with some people smuggling oil out of Indonesia and then selling it for inflated prices elsewhere,” she said, adding that speculators may come into the market to profit off rising prices and future land grabs for production in other tropical countries.
“Getting rid of the palm oil export ban will help relieve the anxiety around the industry because it’s that anxiety that leads to panic purchasing, hoarding and black-market dealings,” she added.
Creating more regulations to support sustainable production in trade and cutting out the intermediaries to provide direct links between the final consumer and the original producer would also help stabilize the palm oil prices, Hamann said.
Hamann is available for interviews.
Dr. Steffi Hamann