Indonesia ban on palm oil is affecting South Korean businesses.
For more than 15 years, Mr Lee’s diner, a fried chicken shop near central Seoul, has held firm against raising prices, the export ban on Indonesia’s cooking oil is squeezing prices and he expects to follow larger South Korean eateries which have raised prices, even at the risk of losing customers.
Mr Lee’s dilemma highlights the perilous path ahead for small business in Asia’s fourth-largest economy, where worries of rising costs, which are fuelling inflation, are at their highest in a decade.
South Korean consumers use palm oil for a wide array of goods. Indonesia’s surprise moves to ban the export of palm oil have sent shockwaves globally, and have pushed up prices for palm oil from countries such as Malaysia; prices for palm oil substitutes have also gone up.
“We are cautiously watching the situation as demand for Malay palm oil could increase and could lead to higher prices,” said a spokesperson at Ottogi, a major South Korean producer of frozen pizza and ramen noodles.
Incidentally, Indonesia is the source of more than 50% of the world’s palm oil supply. Earlier this week on Wednesday, it has widened its export ban of palm oil to include crude and refined oil, throwing the market into chaos; the war in Ukraine has already squeezed supplies of sunflower oil.
The benchmark price of palm oil futures traded in Malaysia have touched their daily 10% limit on Friday, and are up nearly 50% since the beginning of this year. Soy oil prices on the Chicago Board of Trade have touched a record high.
“Everything’s gone up, this box of oil has doubled, flour coating is up, so is chicken,” said Mr Lee who declined to give his full name for fear of attracting attention to price increases at his shop. His shop displays a customer service award from a local government office for his long record of steady prices.
“We haven’t been raising prices, but it’s really hard now and we need to raise prices a bit.”
According to data from South Korea’s customs agency, in 2021, Seoul imported $2.2 billion worth of animal and vegetable fats and oils, of which about 30% was palm oil. 56% of this oil came from Indonesia, while the balance came from Malaysia.
“I heard palm oil gets used in so many cosmetics,” said Joo Hyeon-jung, who was picnicking with friends along Seoul’s Hangang River. “Cosmetics are like necessities for us women and price increases there will really hit me, because its like a fixed expenditure.”