Monday, July 23, 2007

[PB] Indonesia: Biofuel demand increases price for cooking oil


Biofuel demand makes fried food expensive in Indonesia

Posted Thu Jul 19, 2007 11:07am AEST
The PT Synergy Oil Nusantara palm oil refinery in Kabil in Indonesia
[File photo].

A worker checks the facilities at the PT Synergy Oil Nusantara palm oil
refinery in Kabil in Indonesia [File photo]. (Reuters)

Record-high palm oil prices due to voracious global demand for the oil
used for food and now increasingly as a biofuel have left many ordinary
Indonesians without their usual culinary fare.

Palm oil-derived cooking oil is a staple in the Indonesian pantry.

It is used to fry many of the spicy dishes that are part of the local

But the high price of oil has forced millions of poor Indonesians to eat
their food boiled instead of fried.

"I only have fried tempe when I have money, but mostly I don't,"
Nurhayati said, a mother of five, referring to a traditional dish made
from fermented soya beans.

"So my family just eats rice ... and soy sauce," she added as she
scrubbed pots in a house where she works as a maid earning 300,000
rupiah ($33) a month.

In a country where about half the 220 million population live on less
than $2 a day, the rising price of cooking oil is a national talking
point sensitive enough to make politicians break into a sweat.

Long queues of people waiting to buy cooking oil - empty plastic
containers in hand - could recently be seen in markets, a scene
reminiscent of the financial crisis in the late 1990s that brought down
the rule of strongman former President Suharto.

Two years ahead of the next election, President Susilo Bambang Yudhoyono
has come under pressure for his record on tackling the impact of rising
commodity prices on local staples after promising to slash poverty.

"It's a warning for the government," Opposition parliamentarian Ganjar
Pranowo said.

Prices surge

Palm oil prices have been driven up by rising demand for biofuel in
Europe and strong demand from food sectors in countries such as
fast-growing India.

As one of the world's largest palm oil producers, Indonesia stands to
gain from the price hike, but the rise has also pushed up local cooking
oil prices by about a third, making such oil unaffordable for millions
of ordinary Indonesians.

As well as hurting the poor, rising cooking oil prices are worrying
economic policy planners due to the impact on inflation.

Raw food prices, including cooking oil, rose by just over 10 per cent in
June from a year ago, in the sharpest increase in a basket of goods and
services making up the consumer price index.

Malaysian crude palm oil futures have surged about 80 per cent since the
start of 2006, pushing up Indonesia prices.

Saman, a 55-year-old fried snack vendor in central Jakarta, says his
profits have almost halved to 25,000 rupiah a day since cooking oil
prices surged.

"I use at least eight kilograms of cooking oil a day," he said, whose
son has dropped out of school due to lack of money for school fees.

"I have been thinking of quitting since the profit is so low, but I have
done this for 30 years. I have no other choice."

The Government had urged producers to supply crude palm oil to local
refiners at lower prices so that non-branded cooking oil - widely
consumed by low-to-middle income brackets - can be sold more cheaply.

But to little avail.

"Even if we tried to push down the prices, markets tend to cling to a
price level set by international markets," Derom Bangun said, executive
chairman of the Indonesian Palm Oil Producers Association.

Top producer

Indonesia is expected to produce 17.4 million tonnes of palm oil this
year, overtaking Malaysia as the world's top producer.

In mid-June, the Government cranked up the export tax for crude palm oil
to 6.5 per cent from 1.5 per cent in a bid to ensure supply to local

The tax appears to have had some impact, but cooking oil prices are
still higher than in the past.

Analysts suggest the Government should let prices follow global palm oil
prices, but focus more on helping low-income bracket families with
subsidised cooking oil.

"The Government could buy cooking oil at market prices and sell to poor
groups at lower prices," Rina Oktaviani said, an economist at the Bogor
Institute of Agriculture in West Java.

"If cooking oil is considered a strategic commodity then the government
must be responsible to make up for shortages in supplies," she said.
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