Biofuel demand makes fried food expensive in Indonesia

Palm oil-derived cooking oil is a staple in the Indonesian pantry. It is used to fry many of the spicy dishes that are part of the local cuisine.

But the high price of oil has forced millions of poor Indonesians to eat their food boiled instead of fried.

"I only have fried tempe when I have money, but mostly I don't," said Nurhayati, a mother of five, referring to a traditional dish made from fermented soya beans.

"So my family just eats rice ... and soy sauce," she added as she scrubbed pots in a house where she works as a maid earning 300,000 rupiah ($33) a month.

In a country where about half the 220 million population live on less than $2 a day, the rising price of cooking oil is a national talking point sensitive enough to make politicians break into a sweat.

Long queues of people waiting to buy cooking oil -- empty plastic containers in hand -- could recently be seen in markets, a scene reminiscent of the financial crisis in the late 1990s that brought down the rule of strongman former President Suharto.

Two years ahead of the next election, President Susilo Bambang Yudhoyono has come under pressure for his record on tackling the impact of rising commodity prices on local staples after promising to slash poverty.

"It's a warning for the government," said Ganjar Pranowo, an opposition parliamentarian.

PRICES SURGE BY A THIRD

Palm oil prices have been driven up by rising demand for biofuel in Europe and strong demand from food sectors in countries such as fast-growing India.

As one of the world's largest palm oil producers, Indonesia stands to gain from the price hike, but the rise has also pushed up local cooking oil prices by about a third, making such oil unaffordable for millions of ordinary Indonesians.

As well as hurting the poor, rising cooking oil prices are worrying economic policy planners due to the impact on inflation.

Raw food prices including cooking oil rose by just over 10 percent in June from a year ago, the sharpest increase in a basket of goods and services making up the consumer price index.

Malaysian crude palm oil futures have surged about 80 percent since the start of 2006, pushing up Indonesia prices.

Saman, a 55-year-old fried snack vendor in central Jakarta, says his profits have almost halved to 25,000 rupiah a day since cooking oil prices surged.

"I use at least 8 kg (17.6 lb) of cooking oil a day. I have been thinking of quitting since the profit is so low, but I have done this for 30 years. I have no other choice," said Saman, whose son has dropped out of school due to lack of money for school fees.

The government had urged producers to supply crude palm oil to local refiners at lower prices so that non-branded cooking oil -- widely consumed by low-to-middle income brackets -- can be sold more cheaply.

But to little avail.

"Even if we tried to push down the prices, markets tend to cling to a price level set by international markets," said Derom Bangun, executive chairman of the Indonesian Palm Oil Producers Association.

WORLD'S TOP PALM OIL PRODUCER

Indonesia is expected to produce 17.4 million tonnes of palm oil this year, overtaking Malaysia as the world's top producer.

In mid-June, the government cranked up the export tax for crude palm oil to 6.5 percent from 1.5 percent in a bid to ensure supply to local markets. The tax appears to have had some impact, but cooking oil prices are still higher than in the past.

Analysts suggest the government should let prices follow global palm oil prices, but focus more on helping low-income bracket families with subsidized cooking oil.

"The government could buy cooking oil at market prices and sell to poor groups at lower prices," said Rina Oktaviani, an economist at the Bogor Institute of Agriculture in West Java.

"If cooking oil is considered a strategic commodity then the government must be responsible to make up for shortages in supplies," she said.

Source: Reuters