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Economic Indicators

5 Sept 2021

Global Edible Oil Production Suffers From Drought, Rats and Labor Shortages

The Index Today

Malaysia, the world’s second largest producer of palm oil is facing the production issues which could cause its stocks to fall to a new low.
The palm oil crisis exemplifies the problems faced by various oil producers across the globe including Ukrainian sunflower farmers, Canadian canola oil farmers as they face the difficulty of low supply.
According to the Food and Agriculture Organization’s price index, global food prices have climbed 10-year highs this year, mainly due to a surge in oil prices which is essential for food preparation. The FAO shows that edible oils index went up 91% since June and will further go up as lockdowns continue throughout the world economies.
But for producers, the picture may be different as they have to face a number of problems such as labor shortages, infestation, heat waves and natural disasters, and more. All such issues combined have made edible oil prices skyrocket and their stocks fall to their lowest.
Malaysia makes around 33% of the world’s palm oil export. The yield of palm oil fell to 7.15% tons per hectare between January and June. Most palm oil plantations are only producing with two thirds of the workforce due to labor restrictions that came with lockdowns. The government has made it difficult to acquire migrant workers due to closed borders.
Over half a dozen of palm oil farmers said their production fell drastically and the risk of low quality harvest grew. An anonymous plantation manager said, “It is especially bad in Sarawak. Some companies are seeing production falling by 50% because of the shortage of harvesters.”
Some plantation owners had to resort to increasing wages by 10% to retain its workforce. One of the many downsides to low labor is the risk of pests such as rats, bagworms and moths. The environment becomes favorable for bagworm infestations and rat breeding.
Even neighboring countries such as Indonesia have shown palm oil mills being affected by coronavirus restrictions. The combined output of both countries was around 66.2 million tons for this year.
On the other hand, farmers in the western side of the world such as Canada are experiencing drought infested soils this spring. A recent heat wave has destroyed crops causing the canola oil output estimate to fall by 4.2 million tons. US Soybean production has also fallen due to drought. European countries such as Ukraine is expected to increase sunflower oil production by 18%.
As the overall outlook for edible oil production remains weak, stocks are most likely to fall with inflation on the rise.

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