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Jan Husdal

The next oil crisis: Food Oil?

Posted by Jan Husdal in Jan Husdal's Blog on Apr 22, 2011 1:51:27 AM

In a previous post I asked the question Are cheap food and cheap energy a thing of the past?, reflecting on the fact that some staple food commodities were trading at prices not seen before, and how that could impact food supply chains. Here comes another worry: food oil, as Bloomberg reports in a recent article on the supply and demand of vegetable oils that are used not only in cooking and food processing, but also as biofuels.

 

At a time when consumers are focused on food costs that are within about 3 percent of a record, stockpiles of edible oils needed to make everything from noodles to fish sticks are dropping to a three-decade low. [...] The combined stocks of nine oils will plunge 25 percent to 9.39 million metric tons this year, or about 23 days of demand, the fewest since 1974, the U.S. Department of Agriculture estimates. [..] As the global population expanded 85 percent in the past four decades, demand for edible oils rose almost ninefold.[...] Stockpiles of the oils extracted from palm fruit, palm kernel, soy, rapeseed, sunflowers, coconuts, cotton, olives and peanuts are slumping as demand climbs 6.1 percent to a record 146.4 million tons this year, outpacing a 4.2 percent gain in production, according to USDA estimates.

 

What the article is saying is that basically there isn't enough oil around to meet demand, which may cause prices to soar, hurting the profits of food giants like Unilever, but also other industries, since vegetable oils are used in everything from Hellmann’s mayonnaise to Snickers candy bars, as well as soaps, cosmetics and fuels.On the other hand, it may increase profits of oil producers, e.g. palm oil plantations in Malyasia and Indonesia. In any case, the end consumer will perhaps be the hardest hit.

 

While higher prices may be hurting food companies and consumers, they’re bolstering income for growers.

 

That said, farmers will always seek to grow the most profitable crops, thus adding to the crisis by changing what is supplied to the market:

 

Chinese growers may plant 11 percent fewer acres, seeking greater profit from cotton and corn, as prices for both crops more than doubled in the past year.

 

Personally,  I'm not much of an advocate for biofuels. Not because I don't believe  in global warming, or because I don't think we should take care of our  planet and pollute less, but because using arable land to produce fuel  rather than food when much of the world's population is starving seems  rather ludicrous to me. However, in the end, money always wins, I guess. As I said on my blog, Is it just the price we have to pay?

 

Reference

bloomberg.com: Palm Oil Advancing 23% Hurting Unilever as Stockpiles Decline to 1974 Low

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