Indonesia lifts palm oil export ban, relieving global food producers

23 May 2022 --- Industry’s largest palm oil supplying nation Indonesia is reopening its ports, less than a full month after it shocked global markets with an unexpected export ban. 

Indonesian minister of economics, Airlangga Hartarto, notes that the ban lifting will come next to a domestic market obligation (DMO) requiring 10 million metric tons of cooking oil to stay grounded in Indonesia at any given time, eight million for consumption and two for reserves.

“The trade ministry will determine the size of the DMO that must be met by each producer and the mechanism to produce and distribute cooking oil to the communities.”

The ban was originally enforced to bolster Indonesia’s home stocks of palm oil amid fluctuating supply, at a cost to foreign buyers. Hartato explains that the ban had three-folded oil Indonesia’s reserves to 211,639 metric tons since its implementation, and lowered prices from 19,800 rupiahs (US$1.35) to 17,200 rupiahs (US$1.17). 

President Joko Widodo’s initial target of ensuring prices below 14,000 rupiahs (US$0.96$) per liter was not reached.

With the palm oil market leader rejoining the free trade markets and Malaysia production efforts going full steam – with a halve in palm oil export taxes and oil for food over biodiesel focus – vegetable oil prices might finally take a needed dive. 

The FAO food index puts this commodity at around 240% higher prices in April compared to 2020.

The DMO requires 10 million metric tons of cooking oil to stay grounded in Indonesia at any given time.Close monitoring
The state procurement agency, Bulog, assigned to manage an oil buffer stock, will keep price controls for cooking oil. 

“The availability of supply and distribution of cooking oil is continuously monitored by and distribution in the market will use an ID-based system,” says Hartato.

Following the novel ID system, every retailer will be distributed 200 liters of cooking oil per day at a limited price of under US$1 per liter, with consumers able to purchase a maximum of two liters per day.

The system will also closely monitor palm oil reserves and identify every consumer that has made a transaction in an effort by the government to avoid price gouging and market manipulation schemes.

International pressure
Indonesia’s move to ease the markets comes with this week’s World Economic Forum Davos meeting of 2022. More importantly, it is also ahead of a diplomatically momentous G20 summit hosted by the country in Bali this November. 

Earlier this month, UN Secretary-General, Antonio Guterres, expressed the urgent need to increase the supply of food. Pinpointing precisely the hikes in oil prices, he rallied against restrictions on exports, while urging that any surpluses should be made available for those who need them the most.

Meanwhile, India still maintains its wheat export ban amid a clash with the WTO that – in the eyes of the Indian government – imposes too many restrictions on selling its products to international markets.

RSPO looks to bolster sustainable supplyIndonesia will host the G20 in Bali this November.
The Roundtable on Sustainable Palm Oil (RSPO) has been scaling up its smallholder inclusion in Indonesia, with aims to incentivize landowners with a case-by-case approach. 

The RSPO works on giving farmers technical support toward reaching its national certification, helping them to register their land while navigating Indonesia's “burdensome legal documentation”. 

The organization is also focusing on raising efficiencies on plantations, specifically through reduced rejection rates of fresh fruit bunches, improved harvesting practices, better fertilizer usage and improved waste management. 

This assistance to independent smallholders is anticipated to lead to higher palm oil yields as farmers gain access to knowledge transfer and skill-building tools to better plantation management.

Africa taking a toll
The Indonesia Palm Oil Association (IPOA) released the palm oil export numbers from the months before the ban. In February, the African continent bought 54% less palm oil than in the same month in 2021.

These numbers make sense considering the high impacts of price inflation currently impacting many global markets, largely due to the war in Ukraine. The UN expected that the price increases in essential products such as cooking oils would result in 19 out of 20 Egyptians not being able to afford a healthy diet, for instance.

The poorest populations in low-income countries spend over 60% of their income on food, making them the most affected by volatile markets.

Africa is also one of the most significantly impacted places by the Ukrainian war. Countries like Eritrea, Somalia and the Democratic Republic of Congo source over 80% of their wheat from Russia and Ukraine. 

Meanwhile, the price of bread has doubled in Sudan, increased by 70% in Lebanon and by a third in Kenya or Egypt.

By Marc Cervera