News last update:6 Aug 2012

Worldwide surge in vegetable oil prices

As with soybean oil, current prices for palm oil, sunflowerseed oil, and other vegetable oils are setting record highs nearly everywhere. Many countries are attempting to temper the high costs by dropping import tariffs or raising export tariffs on domestically produced vegetable oils.

Already this year, India's Government has made a series of import tariff reductions on crude palm oil—now down to 45 % and closer to parity with the soybean oil tariff. The lack of upward adjustment in government reference prices since last year (compared to the rise in actual import costs) has also stabilized total tariff costs.

Partly due to a likely reduction in the domestic production of rapeseed oil, Indian palm oil imports are seen rising to 4.2 million tonnes (mt) in 2007/08 (from 3.8 million in 2006/07). The increase in Indian soybean oil imports (to 1.5 mt) should be more modest.

China's oil cost soar
In China, vegetable oil costs have been a major contributor to the raging inflation in consumer prices. The domestic soybean harvest, which was reduced sharply this year by lower area and drought, was estimated 300,000 tons lower this month to 14.3 mt. Rapeseed and other oilseed crops are also smaller this year.

Soybean oil imports by China are forecast expanding in 2007/08 to 2.6 mt from 2.4 mt last year, while palm oil imports are seen up to 5.7 mt versus 5.1 million in 2006/07. Vegetable oil imports could then account for close to 40 % of total consumption in China.

Costs increase not exempted in Indonesia
Although Indonesia overtook Malaysia a few years ago as the world's largest palm oil-producing country, it has not exempted its own domestic market from major price increases. This is quite remarkable considering the rapid growth of Indonesian palm oil output, which expanded 7% in 2006/07 to 16.6 mt. Output in 2007/08 is forecast up 10% to 18.3 mt due to a 10% increase in productive oil palm area to 5.3 million hectares.

Yet, due to robust export demand for palm oil, prices in Indonesia are approximately 50% higher since the start of the year.

Russia lowers tariffs
Between December 2007 and May 2008, Russia's Government will lower import tariffs on soybean oil, sunflowerseed oil, and canola oil to 5 % from 15 %. In recent years, Russia was transforming into a net exporter of vegetable oil, but a shortfall in sunflowerseed production this year will widen its supply deficit. A lower harvested area estimate this month for Russia trimmed the forecast of 2007 sunflowerseed production to 5.6 mt, down from last year's record harvest of 6.75 mt.

Increased export taxes in Argentina
This month, Argentine authorities announced increases in export taxes on soybeans and sunflowerseed from 27.5 % to 35 %, and on oilseed products from 24 % to 32 %. Before they can ship a commodity abroad, exporters are required to declare their sales to the Government, which determines the tax owed. The export taxes were primarily raised to boost Argentine Government revenues from a highly profitable sector, rather than to control domestic prices. Soybean exports from Argentina in 2007/08 are expected to total 10.2 mt.

Source: USDA

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