Indonesia President Declares End of Palm Oil Export Ban
After the Indonesian government banned palm oil export, prices soared by 200% or more. The ban was enacted to reduce local shortages and keep costs from skyrocketing. During a news conference, Widodo said that he planned to lift the ban if bulk cooking oil prices reached a target price. Fortunately, prices have not reached that goal yet. He expects prices to drop as more palm oil becomes available in the coming weeks.
Indonesia’s approval rating is at a six-year low.
The country’s President, Joko “Jokowi” Widodo, has suffered a drop in his approval rating. A new poll from Indikator Politik Indonesia shows that 58.1% of Indonesians approve of the president, down from 60 percent in December 2015. The survey also found that many people believe that the country’s economic condition is the slump in Jokowi’s rating.
In the poll, respondents said that the increasing price of cooking oil was a factor in Jokowi’s drop in approval. It was also reported that the ban was a misstep as it failed to curb inflation. However, a large majority said the ban is necessary to reduce the price of cooking oil, which is a significant contributor to the rise in prices. The survey’s findings indicate that Indonesians are increasingly dissatisfied with Jokowi and his government.
An Indikator poll published in late April found that public approval of Jokowi Widodo has dipped 12 percentage points since early January. This is down from 71 percent in early January and February. Despite the low approval rating, Indonesians are still highly dissatisfied with Jokowi’s policies and have been critical of the government’s ability to control rising prices. According to the pollster, the ban on palm oil exports has not helped the situation.
The government wants to keep palm oil prices low.
Indonesia has long tried to control the price of cooking oil. It capped palm oil prices in January at 14,000 rupiahs per liter. However, a few months later, the government decided to lift the cap to 30%. The new price cap has worsened the current cooking oil shortage. According to Alexius Darmadi, chief executive of oleochemical producer PT Sumi Asih, the need has caused retailers to stop selling cooking oil or oleochemical products because they would be forced to sell them at unusual prices.
While Indonesia is the world’s largest palm oil producer, the ban on its exports has hit domestic prices and shortages. The ban also applies to refined products and crude oil. The ban lasts until cooking oil costs less than Rp 14,000 a liter. It has triggered panic in the global market, and it resembles a similar move by the Government to ban coal commodities from export until 2022.
The Malaysian Government has also been putting pressure on palm producers and raising export taxes. The price of palm oil returned to nearly double-digit levels. As a result, the Government is pursuing various measures to keep palm oil prices low. Although palm oil is not a luxury but a necessity for every household, the Government wants to ensure it stays affordable. The price hike has affected Malaysian consumers.
The high fertilizer price has increased the cost of palm oil production by 15-20% year-on-year. Prices of nitrogen and phosphorus have more than doubled since H2 2021. Demand for palm oil is expected to grow as long as prices stay low. But this won’t have much of an impact on the costs of palm oil because most palm oil is consumed in the developing world.
Palm oil is positioned to grow as a global super-commodity in the foreseeable future. Its demand is set to rise further due to increased consumer demand, the demand for sustainable palm in food applications, and the increasing hostility of the West towards trans-fat oils. These factors drive the palm industry’s growth and development and ensure that palm oil remains affordable for all. However, the palm industry must continue to develop responsibly to sustain its production.
The government should also implement policies to help mitigate the impact of palm oil on the environment. Such policies should stop clearing native tropical forests for oil palm plantations and limit the demand for palm oil for non-food uses. Likewise, policies in producing countries must be developed to ensure that palm oil production complies with national and international laws. There are also other factors to keep palm oil prices low. There are some positive aspects to the ban on palm oil production.
Short-term correction in the market
Indonesia’s palm oil export ban is lifting, but there will be some short-term correction in the market as the country adjusts to the new policy. While the ban was initially implemented to control rising food costs and quell local unrest, the consequences could be disastrous and upend the country’s economy. This, in turn, would drive global prices higher.
With the global shortage of vegetable oils due to droughts, labor shortages in Malaysia and Ukraine, and Russia’s invasion of Ukraine, the ban has hit the prices of edible oils. Indonesia’s move has put extra pressure on cost-sensitive consumers in Asia and Africa. The ban could also affect the prices of other vegetable oils. Nonetheless, the ban will not affect all vegetable oil prices.
While the Indonesian government puts pressure on palm oil prices, it may be suitable for Malaysian producers to stop CPO exports and concentrate on producing more value-added palm oil products. After all, the EU has a ban on importing palm oil, but it is not a trade ban! The prohibition on CPO exports may help Indonesia reduce its palm oil prices.
Although the European Union’s suspension of palm oil exports is terrible news for the palm oil industry, the impact on output, land use, and prices are minimal. Compared to the effect on exports, the suspension of palm oil to the EU will have a negligible impact on Indonesia’s palm oil industry. It will be better for Indonesia to avoid such trade restrictions in the long run.
The president’s decision to lift the ban on palm oil exports will affect palm oil prices. However, it will also cause a short-term correction in the palm oil industry. The sector will readjust production and adjust to the new market conditions in the short term. The palm oil industry will use its domestic market and downstream industry to offset any short-term decline over a long time.
The ban on palm oil exports in Indonesia is unlikely to last more than a month. With the limited infrastructure to store surplus palm oil, there is little reason to expect the ban to last longer than a month. Furthermore, it’s likely to end after mounting pressure from buyers to resume exports. However, until prices of bulk cooking oil fall to around 14000 rupias per liter, the ban will remain in place.