Palm Oil Price Surge Drives Global Food Inflation to 10-Year High

13 October 2021

Edible oil prices continue to surge, helping drive global food inflation to a 10-year peak. Seasonal high demand from major importing countries, and constrained supply by key producers, are propping up prices for palm, soy, and other edible oils. 

In the US, Gro’s US Food Price Index is at its second-highest level since the start of the coronavirus pandemic in spring 2020, sending a worrying signal on high food inflation.

Edible oils are a key ingredient used by nearly all consumer packaged goods companies in products ranging from Apple Pop Tarts to Abe’s Zucchini Bread. Continued elevated prices for edible oils are likely to force companies to pass on the higher costs to consumers or swallow the diminished profit margins.

China and India are the biggest importers of edible oils, with domestic demand typically spiking this time of year for seasonal holiday festivals. That has helped palm oil futures to more than double in the past five months on the Dalian Commodity Exchange, and to reach their highest level in over 10 years. Palm oil prices also have rallied along with crude oil, because of its use in biodiesel. 

Palm is the most widely consumed edible oil, followed by soybean oil. Surging edible oil prices helped push world food prices to their highest level in 10 years, the UN’s FAO said. 

Edible oils also are experiencing supply constraints. In India, wet weather has hampered harvesting of the soybean crop, especially in the key producing state of Maharashtra.

In China, power supply issues stemming from higher coal costs as well as emissions concerns have shuttered soybean crushing plants, cutting domestic soybean oil supplies. That has pushed up soybean oil futures prices and driven greater substitution demand to palm oil. 

Meanwhile, palm oil production is down sharply in Malaysia, the second-largest producer, with monthly production so far this year running close to the bottom of the historical range, resulting mainly from ongoing labor shortages due to COVID-19 protocols. Top producer Indonesia also has seen lower production due to heavy summer rains and flooding.   

Supplies of canola oil, the No. 3 edible oil, also have taken a hit as leading producer Canada heads to the smallest crop since 2010 due to drought.  

With pressures from both high demand and tight supplies, global edible oil prices can be expected to remain elevated for the foreseeable future and will continue to drive food inflationary concerns.

Contact sales