Palm oil: Indonesia’s export ban could lead to higher prices

Hong Kong
CNN Business
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Indonesia will start restricting exports Palm oil This week, a move that will make the global food crisis worse and push up the prices of hundreds of consumer products.

President Joko Widodo announce On Friday, Indonesia would suspend exports of cooking oil and the raw materials used to make it “until further notice” in an effort to secure domestic supplies. The ban is in effect on Thursday.

The Southeast Asian country is the world’s largest producer of palm oil, said James Fry, chairman of consultancy LMC International, and Friday’s announcement sent prices “raging” on the commodity. Malaysia’s crude palm oil futures, a global benchmark, jumped nearly 7%.

The shock – and the prices – have subsided a bit this week after that Reuters And Bloomberg It stated that the government will exempt crude palm oil from the restrictions. The Indonesian Ministry of Agriculture did not immediately respond to a request from CNN Business for comment.

But the restrictions are still expected to include palm olein, a more processed product used for cooking oil and which makes up an estimated 40% to 50% of Indonesia’s exports, according to analysts. This would fuel inflation, just as global food prices are at an all-time high.

Palm oil is a common ingredient found in many food, cosmetic, and household items in the world. WWF It is estimated that it is used in approximately 50% of all packaged products in supermarkets.

The commodity is also used for cooking in many countries, including India, the world’s largest importer.

Fry said that the price Many pantry items, such as cooking oil, instant noodles, snacks, baked goods, and margarine can It rises when the restrictions in Indonesia come into effect.

Palm oil prices were already under pressure After the Russian invasion of Ukraine, markets scrambled to find alternatives to shipments of sunflower oil stuck in Black Sea ports. Usually Ukraine is a major producer of sunflower oil, Frey said, but Russia totally screwed it up.

“We have the perfect storm,” he added, noting that other factors, such as drought in South America and Canada, have also hampered supplies of soybean oil and canola oil, respectively.

The leader of Indonesia, also known as “Jokowi”, said in a statment On Friday, the decision to ban exports was to “ensure the availability of cooking oil at the national level” and help keep its prices affordable.

Indonesians have struggled to access basic cuisine as global palm oil prices soar, prompting the government to provide cash support, according to AntaraIndonesia’s state news agency.

The country has already taken other steps to protect domestic supplies. In January, it introduced a policy requiring exporters of palm oil products to sell 20% of their total exports domestically, according to the United States Department of Agriculture (USDA).

The agency wrote in February that the retail price of the cooking oil was subsequently “set” at IDR 14,000 ($0.90) per liter. Update.

But the problem persisted, prompting the government to take a drastic step last week to block exports.

Analysts say the authorities want to ensure there is an adequate supply of cooking oil before then RMuslim Eid, which marks the end of Ramadan, and takes place next week. Indonesia home to The largest number of Muslims in the world.

Indonesia is by far the largest producer of palm oil in the world 59% of global output last year, according to the US Department of Agriculture.

It is followed by Malaysia and Thailand with 25% and 4% of global production, respectively. Colombia, Nigeria and Guatemala are also major producers.

Some analysts say Malaysia can help make up the shortfall, But it is facing its own supply problems.

Sathia Varqa, co-founder of Palm Oil Analytics, an independent market data publisher, said Malaysia has been suffering from a labor shortage since the pandemic.

“Inventories are also historically low” in Malaysia, analysts at JPMorgan wrote in a note on Friday.

Other countries feel upset.

India, which is highly dependent on the import of vegetable oils, I’ve already felt the impact of the recent shortage, according to BV Mehta, CEO of Solvent Extractors Association of India.

He told CNN Business that people are turning to other ingredients, such as rapeseed oil and peanut oil, in response to rising prices for sunflower and palm oils.

Mehta is pressing the Indian government to increase its production of these commodities due to the food security “crisis”.

“The high prices of the past two years have taught us to raise our products and productivity, and with the importance of Ukraine and now Indonesia… [it] We learned a good lesson.”

The Indonesian ban comes at a bad time for global consumers.

The United Nations Food and Agriculture Organization (FAO) said earlier this month that global food prices jumped to an all-time high in March. According to its report, “The war in the Black Sea region has spread shocks across the markets for essential grains and vegetable oils.”

The latest FAO Food Price Index – which measures the monthly change in international prices for a basket of food commodities – was 33.6% higher than it was in March 2021.

In their report on Friday, JPMorgan analysts said the Indonesian export ban was “adding fuel to the fire.”

“This is yet another reminder of the vulnerability that exists across agricultural supply chains in an environment of already historically tight stocks, exacerbated by the unspecified loss of Ukrainian export volumes and historically high production costs,” they wrote.

In a way, the world has been dependent on palm oil from Indonesia to “fill the gap” left by other disturbances — and “Indonesia stopped that flow all of a sudden,” Frey said.

Anna Cuban, Claudia Dominguez, Levi Doherty, Chris Liakos, Julia Horowitz and Jorge Ingels contributed to this report.