Indonesia’s halt on palm oil exports creates uncertainty for consumers

A ban on exports of palm oil products by the world’s top producer went into effect Thursday with an analyst saying the move – aimed at taming domestic prices in Indonesia – could be short-lived, with others predicting it would create additional uncertainty for consumers worldwide.

Announcing that the ban would cover all palm products and not only those tied to cooking oil, President Joko “Jokowi” Widodo stressed that his administration’s decision to halt foreign shipments of the commodity was based purely on national considerations.

“For the government, the basic needs of the people are the main thing. This is the government’s highest priority in every decision,” Jokowi said as he announced the total crude palm oil (CPO) ban through the official YouTube channel on Wednesday, a day before it took hold in the largest Muslim-majority nation during the last days of Ramadan.

Ninasapti Triaswati, an economics researcher at the University of Indonesia, said the ban sought to quell protests regarding the shortage and the high price of cooking oil in Indonesia, the world’s fourth most populous country.

“According to my estimation, this export ban will be short-term or temporary,” Ninasapti told BenarNews.

She added that if it lasts only a month or two, the impact would be relatively small.

The ban, however, has the potential to erode Indonesia’s trade balance, considering that CPO products account for 12.5 percent of revenue and that 80 percent of the country’s total production of palm oil is exported, said the director of the Institute for Development of Economics and Finance (INDEF).

“Imagine if this is stopped, it will bring out uncertainty among global consumers and will force them to look for alternative commodities,” Tauhid Ahmad told BenarNews, adding the policy could spark long-term controversies both domestically and internationally.

Yayan Satyakti, an economic researcher from Padjadjaran University, said the ban reflected the mismanagement of domestic CPO commodities.

“This will ‘boomerang’ on the government and is not good for investors,” he told BenarNews on Wednesday, adding it could fall in the face of international opposition.

“Partner countries such as importers in the international market can file an objection through the World Trade Organization to this ban, claiming it unilaterally violates international trade contracts,” Yayan said.

Airlangga Hartarto, the Coordinating Minister for the Economy, challenged that assertion, saying the minister of trade would regulate the ban in line with the WTO’s allowance of temporary restrictions on exports to prevent or relieve critical shortages of foodstuffs or other essential products.

“Any violation will be dealt with strictly according to the laws and regulations,” he said.

Still, Yayan said the ban would likely affect Indonesia’s relations with its biggest trading partner, Malaysia, which imports CPO and exports it to the United States, Japan, South Korea, the European Union and other countries.

He also questioned whether it would be effective.

“It’s still uncertain whether the price of cooking oil will go down soon,” Yayan said.

The demand for palm oil has grown globally as a result of Russia’s invasion of Ukraine that has led to shortages of sunflower oil – the warring nations are among the world’s largest producers, according to media reports. The Guardian newspaper reported that Iceland would resume using palm oil in some of its products because sunflower oil prices had spiked by 1,000 percent because of the conflict.

‘Ironic’

On Wednesday, Jokowi expressed frustration, saying it was “ironic” that, in the largest palm oil-producing country in the world, people were seeing cooking oil prices spike.

“I, as president, cannot allow that to happen. It’s been four months since the shortage has been going on,” Jokowi said, noting the government previously imposed policies to overcome the shortage, but none were effective. “The ban applies to exports from all parts of Indonesia.”

Meanwhile, in a show of strength regarding the ban, Indonesia deployed navy ships and hundreds of personnel including intelligence assets on Thursday, to thwart foreign-bound shipments of palm oil.

“We do daily patrols, actually as I said before that we deploy 30 to 40 ships every day in all Indonesian waters,” Adm. Yudo Margono, the naval chief of staff, told reporters on Thursday.

India reported that as much as 290,000 tons of Indonesian palm oil headed for its ports had been stalled by the ban, Reuters news service reported, citing four industry officials.

“Our vessel of 16,000 tons is stuck at Kumai port in Indonesia,” said Pradeep Chowdhry, managing director of Gemini Edibles & Fats India Pvt Ltd, which buys around 30,000 tons of Indonesian palm oil every month.

India, the world’s second most populous nation and its biggest importer of palm oil, relies on Indonesia for nearly half of the 700,000 tons delivered each month, according to Reuters.

Indonesia’s Central Statistics Agency estimated that India purchases 16.72 percent of Indonesia’s CPO exports, followed by China at 16.07 percent, Pakistan at 9.1 percent and the U.S. at 4.11 percent.

“So, we can imagine if this commodity becomes a geopolitical force, it will have a strong impact on Indonesia’s position,” Yayan said.

He said with global inflation following the COVID-19 pandemic, it is difficult for people to find substitutes for palm oil products.

“It should be noted that world oil prices and CPO have a close tie due to the connection between distribution supply chain and logistics of the palm oil industry as well as its derivatives, which are used for biofuel,” Yayan said.

Updated ban includes raw materials

Airlangga said the export ban originally covered processed palm oil, but the updated one expanded to raw materials including the refined, bleached and deodorized (RBD) palm olein.

“The ban would apply to all manufacturers that produce RBD palm olein,” he said while calling on producers to purchase fresh bunches of palm fruits from farmers at reasonable prices.

Airlangga said the government expects the export ban to speed up the distribution of subsidized cooking oil to traditional Indonesian markets.

He said the price of bulk cooking oil in several parts of the country was hovering above 14,000 rupiah per liter, the highest retail price set by the government.

The price recently reached as high as 26,000 rupiah per liter ($1.79), Agence France-Presse reported.