Indonesians feeling oil squeeze (BT, 19 Jul 07)

With the insatiable demand for biofuels pushing palm oil prices up, cooking oil is fast
becoming a luxury

By FITRI WULANDARI AND MITA VALINA LIEM

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.

Food for thought: Long queues of people waiting to buy cooking oil has recently been seen
in markets - reminiscent of the Asian financial crisis in the late 1990s

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 cuisine.

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,' said Nurhayati, a mother
of five, referring to a traditional dish made from fermented soya beans.

'So my family just eats rice...and soya sauce,' she added as she scrubbed pots in a house
where she works as a maid earning 300,000 rupiah (S$50) a month.

In a country where about half the 220 million population live on less than US$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 Asian 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,' said Ganjar Pranowo, an opposition Parliamentarian.
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 the 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,
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 Indonesian 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 8 kg of cooking oil a day. 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,' said Mr Saman, whose son
has dropped out of school due to lack of money for school fees.

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.

Top producer

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,' said Derom Bangun, executive chairman of the
Indonesian Palm Oil Producers Association.

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
markets.

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,' said Rina Oktaviani, 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. -- Reuters