Rats, drought, and labor shortages contribute to the global recovery of edible oil

PERAK, Malaysia / SINGAPORE, September 5 (Reuters) – In an extensive oil palm plantation in the state of Perak in Malaysia, watermelon seedlings sprout from freshly plowed land between palm plantations while rented cows graze on exaggerated areas of the estate.

A labor crisis caused by a coronavirus pandemic has forced managers of the 2,000-acre estate in Slim River to find creative ways to maintain their fields, even though the world’s most consumed edible oil prices are near record highs.

“Now it’s easier to get your teeth out than to get new workers,” said real estate manager Ravi, who only gave his first name. “I can’t find workers to keep the fields.”

Malaysia, the world’s second largest producer of palm oil, is facing a perfect storm of headwinds of production that are likely to drag global stocks to the lowest level in five years.

The Southeast Asian country is a microcosm of the difficulties faced by producers of various edible oils from various continents, from Canadian canola producers to Ukrainian sunflower producers as they struggle to meet the strong demand.

World food prices have risen to a ten-year high this year – the Food and Agriculture Organization (FAO) price index has risen by more than a third since last summer. , largely due to the rising price of candlesticks that are vital to both foods. preparation and as a fat in numerous daily basic matters. Read more

The FAO global edible oil index has risen 91% since last June and is expected to rise even as economies reopen after the closures of COVID-19, increasing food and fuel consumption of edible oils.

But producers have been battling a number of impediments, including labor shortages, heat waves and parasite infestation, which is bringing the lowest levels of the decade to the collective stocks of ‘most consumed edible oils in the world (palm, soybean, rapeseed (rapeseed) and sunflower seeds).

SAVES MALASIES

In Malaysia, which accounts for about 33% of world palm oil exports, the average yield of palm fruit grapes fell to 7.15 tonnes per hectare compared to 7.85 a year ago. Data from the Malaysian Palm Oil Board show a drop in the average yield of crude palm oil to 1.41 tonnes per hectare, from 1.56 tonnes over the same period last year .

Many plantations harvested with two-thirds or less of the necessary labor force, after government coronavirus restrictions cut off the regular supply of migrant workers from Indonesia and South Asia.

More than half a dozen plantation owners interviewed by Reuters said the lack of workers had forced them to expand their harvest window from 14 days to 40 days, a change that compromises fruit quality and risks loss of some parts of the fruit grapes.

“It’s especially bad in Sarawak. Some companies see production drop by 50% due to the shortage of harvesters,” said a plantation manager, who spoke on condition of anonymity because he was not allowed to speak to the media. of communication.

The Slim River estate has delayed replanting and closed the nursery for the first time in 20 years to re-deploy workers for harvest.

Another plantation manager, named Chew, said he was forced to raise wages by 10% to retain workers.

Less labor to maintain plantations also means more pests, including rats, moths and worms.

“It has resulted in an environment that allows rats to nest, feed and reproduce and natural predators cannot catch up,” said Andrew Cheng Mui Fah, an officer at Sarawak Plantations.

In Slim River, Ravi said about a quarter of the farm was facing a worm infestation that would “skeletonize the leaves and cause the formation of small groups of fruit.”

It referred to worm moth larvae that grow and feed on trees.

MOLINS INDONESIS

Neighboring Indonesia, the world’s largest producer of palm oil, does not have the same problems of labor shortages and production is expected to increase this year as more palm area is planted. .

However, operations at palm oil factories, where palm fruit is converted to crude palm oil, have been affected by COVID-19 restrictions, said Dorab Mistry, director of the Indian company of consumer goods and large consumer Godrej International.

“The closure of palm oil mills along the entire length of Malaysia (and) Indonesia has been a major shock absorber in terms of production,” he told the US Soybean Export Council’s annual conference on 25 of August.

Total production in 2021 from Indonesia and Malaysia, which together account for about 90% of world palm oil, was estimated at 66.2 million tonnes, according to Refinitiv commodity research published on 4 ‘August.

This is almost flat compared to 2020, but analysts said downward revisions are likely to be made if labor shortages and pest infestations worsen.

NORTHERN AMERICAN DRY CHARM

Meanwhile, farmers in western Canada planted canola in some of the driest soils of a century this spring, and sent canola futures to record highs in early May.

A July heat wave burned crops in Canadian prairies, leading the U.S. Department of Agriculture (USDA) to reduce its canola production estimate by 4.2 million tons to 16 million tons. tons, the lowest since the 2012-13 season.

“We haven’t had much rain to talk about and the harvest is withering,” said Jack Froese, who grows canola near Winkler, Manitoba, for nearly 50 years.

Froese expects a yield per hectare of only a quarter of last year’s level: “It’s very discouraging.”

U.S. soybeans have also been hit by the drought, and the USDA cut production forecasts by 1.8 million tons in August from the previous month.

U.S. soybean oil stocks are expected to be reduced to a minimum of eight years and U.S. soybean exports to a decade low.

“We’re looking at a medium crop because we were lucky enough to have some subsoil moisture,” Jared Hagert of his North Dakota farm said. “But you don’t have to go too far west of here to get really hard crops.”

In some good news for buyers, soybean cultivation in Brazil is expected to reach a record 144.06 million tonnes during the 2020/21 season, driven by a 4% increase in the area planted to cultivation , according to the agri-food consultancy Datagro.

Ukraine, the main producer of sunflower seeds according to the USDA, is expected to increase production by 18% from the harvest affected by the 2020 drought and oil exports are expected to increase to 6.35 million tonnes compared to 5.38 million last season, according to its Ministry of Agriculture.

AMOUNT OF PERSPECTIVES

However, the outlook for edible oil production is generally still poor and stocks are likely to narrow further, leaving markets tight until well into next year and increasing inflationary pressures, according to some analysts.

In Malaysia, the worsening of COVID-19 outbreaks will leave plantations without workers in the rest of the maximum palm production window.

Canadian farmers continue to face drought conditions, causing the official agency StatsCan to reduce canola production by 24.3% and yields by 30.1%.

“We have multiple problems with the supply of edible oil worldwide, palm oil in Malaysia, canola in Canada and La Nina limiting soybean production in South America,” Mistry said.

“We expect a lower oil content in Canada’s canola crop due to the drought,” he said. “The stagnation of the vegetable oil supply is expected to continue until 2022.”

Pressure on stocks is already feeding into consumer prices and the upward trend is expected to continue, especially as refiners raise prices to cover rising commodity costs.

Wilmar International (WLIL.SI), based in Singapore, said a temporary lag between rising commodity costs and rising consumer prices it imposed during the first half of the year had negatively affected the margins.

The Mewah Group (MEWI.SI), one of the largest refineries in the region, said average selling prices of its bulk products and consumer packages increased by almost 54% and 24% respectively in the first semester from a year ago.

“Everyone along the supply chain absorbs some of the highest costs,” said Oscar Tjakra, a senior analyst in food and agribusiness research at Rabobank. “The cost push should continue next year.”

With global consumers already facing general economic uncertainty due to the coronavirus pandemic, further increases in the price of edible oil will affect many livelihoods due to the inelastic nature of food demand.

Several countries, including Nigeria, Egypt, Turkey and the Philippines, have seen large jumps in food inflation in recent months. Pressure on prices may continue as suppliers result in higher costs for edible oil, leaving consumers with little choice but to pay for the basics. Read more

“Even in the poorest regions, such as sub-Saharan Africa, where consumers suffer greatly from high prices, consumption has only declined very marginally,” said Julian McGill, head of Southeast Asia at LMC International.

“There just isn’t much flexibility in the food use of vegetable oils.”

Additional reports by Bernadette Christina Munthe in Jakarta, Rod Nickel in Winnipeg, Ana Mano in Sao Paulo, Maximilian Heath in Buenos Aires, Pavel Polityuk in Kyiv and Karl Plume in Chicago; Edited by Gavin Maguire and Jane Wardell

Our standards: the principles of trust of Thomson Reuters.