Indonesia’s palm oil export ban

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Last Updated29/04/2022

Indonesia, the world’s biggest producer, exporter, and consumer of palm oil, will ban all exports of the commodity and its raw materials from April 28 to reduce domestic shortages of cooking oil and bring down its skyrocketing prices.
Food prices rose by almost 13% globally in March according to the United Nations.
It also coincided with the spring meetings of the World Bank and the International Monetary Fund in Washington D.C., where policymakers raised global food security concerns, emphasising that countries should avoid hoarding food stocks and refrain from exercising export controls.

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Palm oil is the world’s most widely used vegetable oil with its global production in the crop year 2020 exceeding 73 million tonnes (MT), according to the US Department of Agriculture (USDA).
Made from the African oil palm, it is used as cooking oil, and in everything from cosmetics to processed food to cleaning products.
The oil palm industry is criticized for reportedly unsustainable production practices leading to deforestation, and exploitative labour practices carried forward from the colonial era.
However, it is preferred by many as it is inexpensive; oil palms produce more oil per hectare than other vegetable oil plants.
Indonesia and Malaysia together account for almost 90% of the global palm oil production, with Indonesia producing the largest quantity at over 43 MT in the 2021 crop year.
Palm oil makes up 40% of the global supply of the four most widely used edible oils: palm, soybean, rapeseed (canola), and sunflower oil.
Indonesia is responsible for 60% of the global supply of palm oil.

The production of soybean oil, the second most-produced oil, will be poor this year due to a poor end soybean season in major producer Argentina.
The production of canola oil was hit in Canada last year due to drought; and supplies of sunflower oil, 80-90% of which is produced by Russia and Ukraine, have been badly hit due to the ongoing conflict.
After Indonesia’s announcement to ban palm oil exports, global prices of other vegetable oils saw spikes.
The price of soybean oil saw a 4.5% rise, taking it to a record high of 83.21 cents per pound on the Chicago Board of Trade.
Soy oil prices have already seen a 50% rise so far this year.

To make cooking oil affordable, the Indonesian government introduced price caps in late January, deciding that the MRP of branded oil could not exceed 14,000 IDR, while that of the local product would remain at 11,500 IDR.
The issue of consumers hoarding the commodity and reports of it being resold, made the government introduce a two-litre-per-person rule for buying cooking oil.
Some sellers were inking the fingers of consumers, as done during voting, to ensure that they don’t buy twice.
To meet domestic demand, a policy called domestic market obligation (DMO) was introduced, under which it required CPO exporters to sell 20% of export volume domestically, at a fixed price of 9,300 IDR per kg.
This was later increased to 30%
The government retracted the price caps and export quota in late March but introduced a tax on exports.
Indonesian Trade Minister accused producers of engaging in illegal hoarding, cartel practices and acquiring illicit export permits amid the export restrictions. Investigations into both these matters are currently underway in the country.
The shortage was also due to Indonesia using large quantities of CPO to make biodiesel, which it has branded as ‘green diesel’, despite palm oil production being known to be environmentally degrading.
In late 2019, the country increased the palm oil content to be used in biodiesel to 30%.

India is the biggest importer of palm oil which makes up 40% of its vegetable oil consumption, as per the USDA.
India meets half of its annual need for 8.3 MT of palm oil from Indonesia.
Last year, the Centre announced its plan to boost India’s domestic palm oil production.
January export controls exercised by Indonesia had led to a 38% rise in the landed cost of CPO in India.
The price of soybean oil, most consumed after palm oil, rose by 29% in the country this year; while sunflower oil, 90% of which India gets from Russia and Ukraine, stopped coming in almost completely.
Amid this situation, India had requested Indonesia to increase palm oil shipments to make up for the short supply and expensive alternatives.

This uncalled-for action by Indonesia has got massive repercussions for India.
Local prices in Indonesia may fall as a result of this decision, but prices in India may skyrocket. It is going to be a difficult time.