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Ban on agricultural exports is never desirable, says Agbiz

Workers unload palm fruit at a local palm oil factory in the Serdang Bedagai district of Indonesia which this past Friday banned the export of palm oil. Picture: Reuters

Workers unload palm fruit at a local palm oil factory in the Serdang Bedagai district of Indonesia which this past Friday banned the export of palm oil. Picture: Reuters

Published Apr 26, 2022

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THE BAN ON agricultural exports is never desirable, especially by a major player in agricultural markets, according to the Agricultural Business Chamber (Agbiz).

Agbiz's chief economist, Wandile Sihlobo, said yesterday that unfortunately, such practices had been common since the start of the Covid-19 pandemic and the Russia-Ukraine war more recently.

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“We have seen this through the temporary curbs on wheat and rice exports, as global prices increased and countries attempted to protect their domestic consumers.

“In 2020, the G20 agricultural ministers intervened and discouraged countries from banning exports as the practice further exacerbated global agricultural commodity prices and reduced local farmers’ incentives to increase production in the next season to fulfil the stronger global demand. The latest country to follow this path of export curbs is Indonesia which, this past Friday, banned the exports of palm oil. Indonesia explained its decision to ensure the protection of domestic consumers from rising prices,” Sihlobo said.

Such a policy approach by a country that accounted for an average of 54 percent of global palm oil exports in value terms over the past five years would have profound price implications for the global vegetable oils market.

He said this export ban also happened when the Black Sea region, which accounted for nearly two-thirds of the sunflower oil, was also constrained in exports because of the war and the destruction of infrastructure and agricultural fields.

Before this ban on palm oil exports, the price impact of the Black Sea export disruption and tighter supplies in the palm oil supplies in Asia had been visible in prices. For example, this past March, the FAO’s Vegetable Oil Price Index was up by 23 percent from February to a new record of 249 points. These recent export policy changes in Indonesia would likely lead to further increases in vegetable oil prices.

Sihlobo said for South Africa these developments would have implications on both prices and supplies. South Africa was a net importer of vegetable oil, with an annual average of 450 000 tons over the past decade.

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“In that volume, Indonesia accounted for 66 percent of the imported volume. The remainder of the volume was imported from Malaysia. Thus, a ban on exports of a key supplier will disrupt the palm oil supplies in South Africa in the coming months. The added issue will be increased prices across all vegetable oils such as canola, cotton, soybean and sunflower oils,” he said.

Sihlobo said perhaps the comforting aspect for South Africa was that these disruptions were occurring when the domestic sunflower seed production has improved notably. The 2021/22 domestic sunflower seed harvest was estimated at 959 450 tons, the second-largest volume.

If the recent wet weather conditions would not reduce the yield or quality of the crop, South Africa would at least have some flexibility to fill the palm oil gap with sunflower oil.

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He said that there might be challenges for the businesses that used palm oil for industrial purposes, and that was if they did have the supplies already imported.

In a few weeks, South Africa would begin planting winter crops, which include canola.

“The tighter global vegetable oil supplies, and higher prices, could also incentivise the domestic farmers to increase their canola plantings. If such could happen, then the domestic market would again fill any gaps in vegetable oil with canola at the end of the year. Still, such decisions are yet to be made by farmers once they have considered the profitability and climatic weather conditions for the coming months,” Sihlobo said.

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Ultimately, geopolitics had introduced several uncertainties in the global agricultural markets and food prices.

“The actions of the Indonesian government, which attempts to protect local consumers, have implications for the global vegetable oil market and South Africa. While South Africa, to an extent, might have substitutes for palm oil, the price increases will be inescapable for consumers.

“The ‘oils and fats’ component in the consumer food price inflation will likely see further increases/acceleration in the coming months. This will add to the already increasing prices and the expectation that the ‘bread and cereals’ component of the food price inflation basket will see similar increases,” the agricultural organisation said.

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