Getting to Know The Cause of Cooking Oil Scarcity in Indonesia

Since the beginning of October 2021, the price of cooking oil in Indonesia has increased significantly. Based on data from the National Strategic Food Price Information Center in Katadata.id, the price of cooking oil on October 7, 2021 has reached Rp. 15.550,- per kilogram. What's even sadder is that the price of cooking oil in early January 2022 continued to soar, reaching Rp. 18.550,- per kilogram. The price of branded packaged cooking oil also reached a higher price, which was Rp. 21.150.- per kilogram.

The high demand and decreasing supply of cooking oil resulted in scarcity and an increase in cooking oil prices in most regions in Indonesia. Meanwhile, cooking oil is one of the community’s most needed commodities to fulfill their food needs. Therefore, the scarcity of cooking oil is very unsettling for Indonesian people, particularly for the lower middle class. People are starting to wonder about the causes of the price increases and the scarcity of cooking oil in the market. Here are some factors affecting the scarcity of cooking oil:

1. Raw Vegetable Oil Costs are Skyrocketing Worldwide

Apparently, the increase in vegetable cooking oil prices did not only occur in Indonesia, but also throughout the world. Currently, the price of Crude Palm Oil (CPO) or crude vegetable oil has soared to US$ 1,340/mT or equivalent to Rp. 19.291.243,-. The increase in the price of crude oil on a global scale greatly affects the higher price of crude vegetable oil, including cooking oil on the market.

Reporting from CNBC Indonesia, Executive Director of the Indonesian Vegetable Oil Industry Association (GIMNI), Sahat Sinaga, explained the reasons why crude oil prices in the world soared. He said that the demand for vegetable oil was increasing after the policies related to the COVID-19 health protocol began to loosen. But on the other hand, world vegetable oil production fell 3.5% in 2021 and disrupted the supply of crude oil for other refined oils.

2. The Implementation of the B30 Policy

Since the first quarter of 2020, the government has implemented the B30 policy. This policy requires fuel oil companies in Indonesia to mix 70% diesel fuel with 30% biodiesel. The purpose of this policy is to save limited fossil fuels by mixing other fuels in the fuel oil processing process. The policy of mixing diesel fuel with biodiesel has been carried out by many other countries but with biodiesel levels below 30%, which is not as high as the B30 policy implemented by Indonesia.

Initially, the government launched the B30 policy to reduce the rate of fuel imports so that the country’s foreign exchange would increase. However, this policy has an impact on increasing demand for CPO in Indonesia which then contributes to the scarcity of raw materials for cooking oil in Indonesia. To curb the price of cooking oil in the market, GIMNI attempted to negotiate with the government to ease the B30 policy to B20. Through this proposal, it is hoped that the B20 policy can suppress the increasing demand for crude vegetable oil to reduce consumption figures to 3 million tons which can comply the domestic demand for cooking oil.

3. Major Issues Related to the Logistics Force

Apart from the dropping numbers of crude vegetable oil production, the flow of logistics that play a role in the distribution of crude vegetable oil also stalled. The reason is none other than the COVID-19 pandemic, which has not yet been resolved. Many unskilled workers in the logistics sector have been laid off due to the impact of the COVID-19 pandemic which has hit the stability of logistics companies. In addition, the unrelenting improvement in the financial condition of logistics companies also has a direct impact on the number of transportation units they have for raw material distribution activities.

The congestion of logistics flows during the COVID-19 pandemic has resulted in more and more costs that producers have to spend, including shipping costs. In addition, the extra costs incurred for the expedition cannot make their products reach consumers immediately due to the lack of manpower. As a result, cooking oil is becoming increasingly scarce and expensive in the market.

The scarcity of cooking oil due to the above factors has prompted the government to implement new policies. As of January 19, 2022, the Indonesian Ministry of Trade has set a policy that requires retail companies and basic food traders to sell cooking oil at the Highest Retail Price (HET) of Rp.14,000,- per liter. The purchase of cooking oil at this special price is accompanied by other provisions, namely that each person can only buy two packs of one liter packaged cooking oil for a total of two liters per person. But is this policy effective in overcoming the scarcity of cooking oil and rising prices?

Unfortunately, the government's policy to set the same price for selling cooking oil and limit its purchase can be a double-edged sword because its implementation can actually exacerbate the scarcity of cooking oil in the community. On the one hand, the policy can invite people to become hoarders with various strategies. One of the most common strategies is to use family members who live in the same place to buy cooking oil at different places and store it at home. Say a husband and wife have two children in their house, it means that when everyone buys two liters of oil, they will collect up to eight liters of oil in their house. Imagine if many other people did the same thing at the same time, this would certainly result in increasingly scarce cooking oil.

Considering this, a more effective policy formulation is urgently needed to address the current scarcity of cooking oil in Indonesia. Cooking oil is one of the staple foods that people need daily and the scarcity of this commodity will have an impact on the unfulfilled needs of food and the community’s industry. Communities must also be cooperative in implementing government policies and are expected to be able to measure their individual needs for the common good. Adding to that, self-education is very important to increase sensitivity to the world’s economic condition.