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Economy 101: Is This Why Cooking Oil Price Insanely High in Malaysia?

Palm Oil Cooking Forbes Graph

We use palm cooking oil as the mainstream cooking oil as it is the obvious option and can easily get it as Malaysia is one of the largest exporters of palm oil in the world after neighbouring Indonesia. Of course, if one has the money, they can opt for the more expensive imported vegetable oils like canola or olive oil. Chart source: Forbes / Statista

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In recent months, the social media pages have been bombarded with many instances of insane increases in basic foodstuff namely chicken, eggs and cooking oil and despite the substantial subsidies that is been given by the Government, the solution has not brought the price of essential goods down to an acceptable level. Further subsidies are not helping the economy as it not generate new businesses.

So why the price of cooking oil is high in the country? There seem to be several factors that attributing to this increase in the price.

Worker Shortage

Generally, there is a major shortage of workers not only in palm oil plantations but generally in other sectors as well. This is more evident in the year 2022 as the country has started to recover economically after 2 years of a global pandemic.

Since 1980, global palm oil production has been dominated by two countries – Indonesia (60% of output, based on 2020 data) and Malaysia (24%, based on 2020 data), which collectively account for 84% of the global palm oil supply.

A major hurdle for palm oil production in Malaysia is labour shortage. Foreign workers, who account for about 70% of the 500,000 people employed on Malaysian palm oil estates, have been shut out of the country and unable to return to plantations, due to border restrictions since the start of pandemic.

A current survey by MPOB revealed that Malaysia’s palm oil estates had a labour shortage 31,021 employees in April 2021. Flooding, unfriendly weather and logistical issues have also slowed production across the two largest producers this year.

(Source: The Edge)

The entry regulations related to the COVID19 pandemic have also severally impacted the manpower in the palm oil sector:-

The world’s second biggest palm oil producer has been struggling to harvest palm fruit due to a labour shortage exacerbated by its pandemic-related immigration restrictions.

Foreign workers, mostly from Indonesia, typically make up about 80% of the workforce in Malaysian estates, which numbered about 437,000 at the start of the pandemic.

The world’s second biggest palm oil producer has been struggling to harvest palm fruit due to a labour shortage exacerbated by its pandemic-related immigration restrictions.

Foreign workers, mostly from Indonesia, typically make up about 80% of the workforce in Malaysian estates, which numbered about 437,000 at the start of the pandemic.

(Source: Reuters)

Only recently, most countries have started to open their borders and relaxed the COVID19 entry requirements, especially in relation to the entry of tourists. It is not known how this will impact the entry of foreign workers back into the country to fill the vacancies at the plantations so the shortage of workers will be expected to prolong for another few years. The palm oil plantation companies should start looking into automation and robotics-based solution to take these manual intense works.

Cooking Oil Palm Economy

It is obvious that blended cooking oils are priced higher due to the fact that it is not under controlled item by the government. However, this does not mean there is no avenue to cheaper cooking oil that does the job although it may not be healthier. Blended cooking oil is a mix of 2 or more different cooking oils that has better flavour and are healthier. Image source: Lotuss Online Store

Price Control Exclusion

Here is another reason why the cooking oil price has increased despite the active involvement of the government to manage the price of the cooking oils sold in the country – that the blended cooking oil that includes a mix of different oils which is not subject to government price control:-

The cooking oil that is reported to have experienced a price hike of up to RM10 for a five-kilogramme (kg) bottle is not regulated under the Price Control and Anti-Profiteering Act (AKHAP) 2011 as it is categorised as blended cooking oil.

Domestic Trade and Consumer Affairs Minister Datuk Seri Alexander Nanta Linggi said the alleged price hike of cooking oil as reported involved the Knife and Red Eagle brands, which are not categorised under the AKHAP’s legal control.

“This is because it is under the blended cooking oil category and not pure cooking oil,” he tweeted today when commenting on allegations of the soaring prices of cooking oil.

(Source: Malay Mail)

The rationale for excluding blended cooking oil from the controlled price list makes a lot of sense considering Malaysia mostly imports the other types of oil that are used in the blending process. For now, one has to look at the alternative cheaper options as not all brands have been excluded from the controlled-priced items.

CPOPC Palm Oil Cooking Oil

Palm oil only accounts for 32% of the oil used for human consumption whilst the rest is mostly grown in Europe and the American continent. A major event like a civil war or an environmental disaster will greatly destabilise the production of these oils for global consumption. Image source: Council of Palm Oil Producing Countries

War In Ukraine

It is reported that Ukraine and Russia account for more than 70% of the sunflower oil for the global market and now with the war by Russia in Ukraine, the production of this sunflower oil will be greatly affected causing a greater demand for other types of vegetable oils.

Extreme weather and the war in Ukraine have tightened global supplies of the four most commonly used types of vegetable oil — staple ingredients that are as ubiquitous in home kitchens as they are in restaurants and packaged foods.

Thirty-five percent of the world’s production of vegetable oil is palm oil, 29 percent is soybean, 14 percent is canola and 9 percent is sunflower oil, according to U.S. Agriculture Department data.

Each of those four faces new and unprecedented shortfalls or supply disruptions related to the war, problems that will have a ripple effect on pricing for grocery store items and restaurant meals, said Chris Johnson, an analyst for S&P Global Ratings, a credit ratings agency.

In developing countries, skyrocketing vegetable oil prices may threaten basic subsistence, but developed countries, where affluent people lean more heavily on restaurant meals (people eat a lot more fried food out than at home) and prepackaged foods that contain vegetable oils, will feel a significant sting as well, Baffes said.

While these oils are “highly substitutable,” Baffes said, countries around the world are competing for limited vegetable oil reserves and scrambling to reformulate products if they manage to find them.

(Source: Washington Post)

And this:-

Prices of cooking oil are on an upwards spiral and have gained up to Rs 25 more per litre. The trade segments attribute the increase in prices to the tightening supplies of sunflower and safflower oils, both called as sun oils, to the Russia-Ukraine war.

Also, palm oil imports are getting costlier due to the internal trade restrictions of Indonesia, the biggest producer of palm oil. On the other hand, soya bean oil is facing pressure to the lower than expected crop of soyabean in South America.

“The prices of cooking oil now have gone by Rs 20-25 a kg. India imports 80 per cent of the total sunflower oil requirements from the Ukraine-Russia region. Shipments have been stopped and they are not getting loaded due to the war situation.

The logistics costs have increased,” said Sanjay Kumar Bhurari of Hyderabad-based Tirumala OilChem India, which manufactures and distributes refined rice bran oil, sunflower oil, palm oil and cottonseed oil under the brands Gold Coin and Umbrella.

The pricing trend will be unpredictable till the war stops. The prices went up last year due to the Covid situation, he said.

(Source: Telangana Today)

Obviously, it is going to impact Malaysia & Indonesia in a major if the war in Ukraine prolongs further as the demand for palm oil will definitely soar. Indonesia has even imposed a temporary ban on the exports of palm oil although it has been lifted recently. They however have the same problem with Malaysia on rising consumer prices and potentially higher inflation.

Palm Oil MPOB Production

Running through the monthly production statistics over the last few years on the Malaysian Palm Oil Board’s website, interestingly showed that production has been rather consistent at an average of 1.4 million metric tonnes, although there have been some drops in some of the months. Statistics source: MPOB

Final Say

To be realistic about the situation on the ground, one needs to be ready to face higher consumer prices including cooking oil despite the fact that the country is a major producer of palm oil. There are other external factors that are impacting the overall production:-

A fresh spike in cooking oil prices is increasing concerns that global food costs are heading for a record as drought curbs production in South America, a labour shortage stymies output in Malaysia, and Indonesia limits exports to safeguard domestic supplies.

Palm oil, the world’s most consumed cooking oil, climbed to yet another intraday record in Kuala Lumpur on Monday, buoyed by shipment restrictions in top grower Indonesia and a chronic worker shortage in Malaysia’s plantations.

Soybean oil traded near the highest since June, while soybeans, from which the oil is derived, jumped to the strongest since May. Heat and drought have led to repeated reductions in estimates for soybean crops in top grower Brazil and in Argentina.

(Source: Free Malaysia Today)

We should see things improving once the war in Ukraine is over as it is impacting the economy of many countries and the global supply of raw materials. To continue to subsidise essential consumer goods which run into billions of ringgit, the government will need to curtail leakages in public funding and channel it to keep consumer prices from spiralling away. Wastage of public funds will only make the situation worse.

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