Palm oil ban doesn't bode well for ramyeon, snack companies

People shop for palm oil at a discount store in Jakarta, Indonesia. [YONHAP/REUTERS]

Ramyeon and snack consumers may have to prepare themselves for another price hike as Indonesia bans exports of palm oil, one of the key ingredients in making the food products.

Indonesia — the biggest palm oil producer, responsible for 59 percent of the world’s production as of last year — announced April 22 that the country will ban exports of the oil starting April 28. President Joko Widodo said he made the decision to ensure enough palm oil was available in the country.

Palm oil, one of the alternatives to sunflower oil, has recently become scarce and more expensive. Sunflower oil prices surged following Russia’s invasion of Ukraine, the top two suppliers that made up for a combined 69 percent of the world’s production last year.

There is no end date to the export ban, and it will continue until further notice.

Palm oil is a key ingredient in many food products, and the decision will hurt food companies in Korea.

The cooking oil is used as a cheaper alternative to cacao butter when making chocolates and is commonly used to fry potato chips.

Ramyeon manufacturers will also suffer, as palm oil is used to fry the noodles. The cooking oil and flour make up an average of 40 to 50 percent of production costs, and increasing prices will hurt their profitability.

Ottogi, well-known for its Jin Ramen, increased prices of its ramyeon products by an average of 11.9 percent in August last year, their first price hike in four years. The company cited the rise of raw material costs such as palm oil and flour for the decision.

Nongshim also hiked prices in August and Samyang Foods in September last year, both pointing fingers at the rising cost of palm oil.

“The average price of flour, corn, vegetable oil and palm oil rose 63 percent, 33 percent, 13 percent and 58 percent on year in the first quarter of 2022,” said Han Yu-jung, an analyst at Daeshin Securities. “Companies are going to struggle from rising production costs in the second quarter as well.”

Less than a year has passed since major ramyeon makers increased prices, but another series of price hikes could come this year if Indonesia’s export ban continues for an extended streak.

“Companies making ramyeon, snacks and pastries that raised prices last year are likely to hike prices again this year, considering prices of flour and soy and palm oil are continuing to rise significantly,” said Park Sang-jun, an analyst at Kiwoom Securities. “If the companies do decide to increase prices, the price of processed foods would be rising over 5 percent for two years in a row.”

BY LEE HAY-JUNE, LEE TAE-HEE [lee.taehee2@joongang.co.kr]