JAKARTA – The existence of palm oil industries is detrimental to poor countries. Is it the right statement or the wrong statement? Let’s find out the answer through the following facts.
The global poor people are spread across 107 countries. Around 67 percent of them live in middle countries, mostly in sub-Sahara Africa and South Asia (UNDP, 2021).
One aspect of poverty from economic perspective is concerned with purchasing power (affordability) for foods with nominal income and prices of purchased products. Edible oils are one of the foods as a source of nutrition and source of oil/fat recommended by the FAO for the global communities to consume.
There are four kinds of vegetable oils which are globally consumed. The four oils are palm oil, soybean oil, rapeseed oil and sunflower oil. Among the four edible oils, the price of palm oil is relatively lower (more competitive) than other vegetable oils. The availability of palm oil-based food products with cheaper prices can increase the purchasing power and affordability of poor people. With their relatively fixed nominal income, the volume of palm oil (palm oil-based food products) that can be consumed by poor people is higher compared to other vegetable oils at more expensive prices.
It certainly benefits those low-income countries, which become the importing countries of palm oil, such as India, Pakistan, Bangladesh and other African countries. Mehta (2020) and Janmohammed (2020) reported that people with lower to middle income in India, Pakistan and Bangladesh consume palm oil as cooking oil in larger quantities than other vegetable oils.
The study of Kojima et al., (2016) in countries with income below US$1,000 shows that own price elasticity of palm oil is more inelastic than other vegetable oils. It means that the changes of palm oil prices do not really affect the palm oil consumption of poor people. The income elasticity of palm oil is very elastic. If there is income rise among poor people, then they will increase their volume of palm oil consumption higher than the percentage of their income increase. (Yulismi and Siregar, 2007). It shows that palm oil is relatively pro-poor compared to other vegetable oils.
Price disparity of palm oil compared to other three vegetable oils at the global market ranges between US$100-200 per ton above the price of palm oil. The low price of palm oil has benefited all global communities, especially the poor people or those of low income (PASPI Monitor, 2021t). The more competitive price of palm oil has rendered its other role as a damper of excessive price increases of other vegetable oils.
Certainly, it has to do with the substitution between palm oil and other vegetable oils. The study of Kojima et al., (2016) shows that if the price of soybean oil (or rapeseed, sunflower oil) saw an increase, people will move to palm oil. With such mechanism, the price of other vegetable oils will not increase excessively.
The above facts show that the existence of palm oil has benefited consumers, especially the poor people or those of low income. The stable and yearlong availability of palm oil at relatively cheap price will increase the affordability of poor people to buy palm oil or palm oil-based products as a good source of foods. (*)
Source: Mitos & Fakta Kelapa Sawit – 4th Edition (Mitos 4-02)
