Vegetable oil prices set to stay high, US warns

By Dominique Patton

- Last updated on GMT

Vegetable oil prices are expected to remain high into the coming
2008/09 season as surging demand from the developing world outpaces
production, predicts the US agriculture department.

In a statement released this week, the department said prices will "likely remain above historic averages" during 2008/09 as global stocks fall by 1 per cent.

Prices for all vegetable oils have double or tripled over the last 18 months as supplies dropped due to weather conditions and other factors.

But some governments have also imposed restrictions or bans on exports of oils to protect domestic food prices.

China plans to stop refunding export taxes levied on some types of vegetable oil from the end of this week in a move to stabilize prices at home.

In 2008/09, supply of the major food use oils will increase however, as farmers respond to high prices by increasing plantings.

Sunflower oil production is set to increase to 11.3 million tons in the coming 2008/09 season, a rise of more than 15 per cent on this year's output, according to the USDA report.

But the USDA warns that although higher production of soy oil, sunflowerseed oil, and palm oil "will help mitigate upward price pressure…[it] likely will not be enough to push prices down to historic levels".

Developing countries, such as China and India, are seeing strong annual increase in demand for vegetable oils, pushing global consumption to record highs.

China, already the world's biggest vegetable oil consumer, is set to increase its consumption for several years yet, experts have warned.

Wang Yinji, deputy general manager of the Chinese grains company Cofco, told a conference last year that China's per capita oil consumption is still well below that of the developed world, at just 17kg a year, compared with 40kg in the US.

As consumers earn higher incomes, they tend to eat more oil-rich foods.

Total stocks of all vegetable oils - including palm oil, rapeseed oil, olive oil and soy oil - are set to be at their lowest since 2003, even as total production of vegetable oils is forecast to grow 30 per cent compared with five years ago.

In sunflower oil for example, global consumption will hit 10.4 million tons, an increase of 12 per cent on this year.

USDA expects oil importers, particularly China and India, to increase their imports of palm oil to satisfy booming demand for vegetable oil in the short term and medium term as ending stocks of major soy oil exporters (Argentina, Brazil, and the United States) are forecast down 2 per cent from last year.

Vegetable oil is a major source of fat in the developing world, especially in the poorest countries where consumers are not able to afford nutritional staples, it says.

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