Commentary on Political Economy

Monday 25 April 2022

People finally begin to realize that if politics "suspends" war (even civil war), commerce or trade also suspends politics and war. But it does not eliminate them! Politics and the possibility of war are implicit and intrinsic to trade and commerce. - Because economics is a small part of politics, and politics a small part of will to power...

 Worst is yet to come for supply chain crisis: RabobankTICKY FULLERTON

Workers in Semarang, Indonesia, transfer crude palm oil to tankers. Indonesia has now cancelled all palm oil exports. Picture: AF

Workers in Semarang, Indonesia, transfer crude palm oil to tankers. Indonesia has now cancelled all palm oil exports. Picture: AF

9:13PM APRIL 25, 2022


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On Friday Indonesia, the world’s largest producer of palm oil, cancelled all exports from April 28 until further notice. The shock announcement happens just as Ukraine’s supply of sunflower oil – making up almost half world exports – is off the market

Sitting in Singapore, Rabobank’s global chief strategist financial markets Michael Every says the world faces a perfect stor

Trade is about politics not balance sheets, the US has weaponised its currency, a lack of trust means countries keep their resources rather than sell to others and inflation is buildin

“There is not a business that isn’t going to be affected by this one way or another,” he say

Every says the palm oil export ban has thrown the global edible oil market into chaos and there is no chance of Ukrainian oil coming back on line until the war is resolved. Some Western supermarkets have moved to rationin

“You already had a massive shortfall of sunflower oil with anecdotal stories of fish and chip shops saying we can’t afford to fry, it is ridiculously expensive,” he say

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In Asia palm oil is a substitute for sunflower oil going into almost anything which is processed. Alternatives are limited and create other problems. Using soya oil would push up the price of soya beans that are fed to animals. This in turn pushes up meat prices

The sudden edible oil shortage fuels food inflation across the Western worl

“If you eat a bar of chocolate it’s got palm oil in it, biscuits, just about whatever you eat that is processed has palm oil in it at some stage. And even if you are not using it, there will be a bid up on the price that is an alternative,” Every say

His team was quite a Cassandra on the impending war in Ukraine. “A month and a week beforehand we put out notes to say the market is underplaying this and we are really worried. Here is the manner of invasion and what we think it will do to commodity prices

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He says what people cannot see now is how war, politics and sanctions are eroding the foundations of everything the West takes for granted. Under threat is a global system built around countries specialising in one good or another and earning US dollars through exporting, which they bank as their trading currency.“Now you have exporters that say they are not going to export food any more,” he says. “And the US says all your dollar reserves are frozen because we don’t like your government. The risk is that a country’s savings can be turned off by the US. You politicise and weaponise what is supposed to be the neutral currency of international trade. That’s already happened.

Workers transfer harvested palm fruits to a transport truck before being processing into crude palm oil (CPO) at a palm plantation in Pekanbaru. Picture: A

Workers transfer harvested palm fruits to a transport truck before being processing into crude palm oil (CPO) at a palm plantation in Pekanbaru. Picture: AF

He says China is aware of the risk to some of its own US dollar reserves

Even if a country wants to hold dollars, Every says vital resources are not ther

“Let’s say you wanted to buy wheat. You can’t buy wheat now. Let’s say you wanted to buy sunflower oil. There isn’t any available. Okay, I want to buy palm oil. None for sale. So the whole system starts to break down and each country says let us produce a bit less of what we are doing and grow a bit more food

Rabobank’s expertise is geared to commodity supply chains. Based in the Netherlands the cooperative bank has international operations focusing on finance and rural busines

Rabo’s global strategist is well known in financial markets for his refreshingly straight talkin

Every says it is one thing for North Africa to grow less alfalfa and blueberries for Europe and in favour of wheat. But home growing at scale could collapse the system. “If you don’t have dollars as the international lubricant to keep the gears turning, how do you trade? You go back to barter

One scenario he shoots down is that the Russian rouble or the Chinese renminbi replaces the US dollar. In the end, Every says the world will stick with the US dollar rather than the chaos of no currency. But trade will continue to be politicised, as it has been between China and Australi

“No one looks at anyone like they did five years ago. Everyone is thinking, can I rely on you? Are you going to sell it to me when I need it? Are you going to buy it from me when you say you will? Maybe I’m better off keeping it myself than selling it to you. Everyone is starting to look at international trade as if they were rivals or competitors rather than partners,” he say

Anyone who thinks the world is over the worst on supply chains is wrong, according to the chief strategis

Every likens the supply chain system to the human body: a complex system which can be pushed in all sorts of different directions but if certain forces or intervention is applied, it dies straight away rather than adapting and healin

China’s Covid lockdown has hit the economy badly, particularly at the country’s ports. In a research note Rabobank predicts another slump in shipments to the US and Europe which industry experts call “staggering” in scal

Michael Every can see China using its authoritarian power to switch lockdowns on and off against other economies if it felt threatened. “If the US started to introduce legislation China did not like, China could lock down again just to show the US your stuff won’t turn up next week as a result

In the meantime China’s internal misery grinds on with the Covid outbreak reportedly worsening despite a zero-tolerance policy and talk that a lockdown could extend to Beijin

Chinese lockdowns put more upward pressure on global inflation. It is something the RBA will note along with Australia’s inflation read on Wednesday as the board mulls whether to wait until after the election for a first rate hike since November 201




Ticky Fullerton is one of Australia’s most experienced commentators and journalists. She was previously Sky News Business Editor and co-anchor of Business Weekend on Sky News AustralialwWON0.g..”e.g.t.s.a..”g.s..”e..PFP”upx..”s.d..tes.g.s.g.m..elprk.w2PPusiness Editor and co-anchor of Business Weekend on Sky News Australia

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