The Hidden Oil That's in Almost Everything
In the middle of an economic downturn where even the price of eggs has skyrocketed, this week Indonesia banned the exportation of a hidden ingredient most Americans use daily… palm oil. According to WWF, Palm oil is the most consumed vegetable oil. 73% of palm oil goes into food products with the remainder going into products like cosmetics and cleaning supplies. Often labeled as “vegetable oil”, palm oil is the go-to natural fat used in foods like ice cream to raise the melting point, shortener in bakery items, and the oil for fried foods and fast food. Palm oil is found on ingredient lists under more than 200 different names. Olive oil and vegetable oils some of the most fraudulent grocery items, and palm oil is a major player.
According to Statistica, American consumption of palm oil has steadily increased over the past twenty years from 174,000 to 1,602,000 tons. Palm Oil itself isn’t necessarily better or worse for health than other high-fat vegetable oils but it is cheap and is usually very processed. The sustainability track record of palm oil plantations is not great. It's a culprit of major deforestation, displacing orangutans, and human rights violations. Palm oil is so integrated into Western daily life that it's basically impossible to avoid.
Indonesia exports 2/3rds of the global palm oil supply. This ban on exports is what Bloomberg calls a “sweeping act of food protectionism” amid rising inflation. Most of Indonesia’s exported palm oil goes to China and Pakistan but from there it still works its way up the global trade into products everywhere.
Indonesia consists of at least 17,000 islands and the ban has more to do with an inability to streamline production and shipping than a lack of product. The Indonesian government has tried several measures to make palm oil accessible to its own citizens including price caps, cash incentives for farmers, and subsidies.
Yet according to Bloomberg, “Distribution problems, and misuse of subsidized bulk oil, which was repackaged and sold as premium goods as well as being sold to the food industry, caused scarcity of supply and higher prices… The price cap created a “black market” with prices almost double the government target.”
Is There Reason for Concern?
Not really. The ban on exporting palm oil is expected to end in May, shortly after the Muslim festival Eid al-Fitr which was anticipated to put an extra strain on exported palm oil. Indonesia does not release regular reporting on palm oil, but in 2014 the festival increased Indonesian palm oil exports by 22%. It is expected that after Eid, the market for palm oil will be flooded. The ban does put a short-term disruption in the global supply chain which is already unstable.
For global producers and suppliers, this ban comes down as a surprise in an already unstable market. With inflation, a temporary increased demand for palm oil will be one more hidden cost (although short-term) why your grocery bill is so much bigger than usual.