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Indonesia stuns markets as it widens ban to include CPO, refined palm oil

President Joko Widodo said in a separate statement that people's need for affordable food trumped revenue concerns for now.

April 27, 2022 / 08:18 PM IST
Representative image of palm oil being harvested at a plantation.

Representative image of palm oil being harvested at a plantation.

Indonesia widened the scope of its export ban on raw materials for cooking oil to include crude and refined palm oil, among other products, its chief economic minister said on Wednesday, leaving markets in shock over the latest policy reversal.

The announcement flipped the minister's statement a day earlier, in which he had said the export ban would only cover refined, bleached, and deodorized palm olein.

The change was "in line with the president's decision and after taking into account the feedback and views from the people," Airlangga Hartarto said in a short statement.

Also Read: Indonesian palm oil export ban set to raise Indian inflation

President Joko Widodo said in a separate statement that people's need for affordable food trumped revenue concerns for now.

"Once domestic needs have been met, of course I will lift the export ban because I know the country needs taxes,...foreign exchange,...a trade balance surplus, but meeting the people's basic needs is a more important priority," he said.

Jokowi, as the president is popularly known, said Indonesia has enough capacity to meet domestic demand and it was "ironic" that the country is facing cooking oil shortages.

Palm oil markets have been jittery ahead of the ban and Indonesia deployed navy ships and personnel in an effort to thwart illegal shipments.

The new rules were due to take effect at midnight local time (1700 GMT), and the navy and other agencies had been instructed to step up patrols of Indonesian waters to ensure compliance, said navy spokesperson Julius Widjojono.

Palm oil futures on the Malaysia exchange surged by 9.8% on Wednesday, as some market participants feared exporters in Indonesia, the world's biggest palm oil producer, could not get their products onboard vessels in time before the ban starts.

US soyoil futures jumped more than 4% to a record high after Indonesia extended ban to include CPO.

It was unclear if palm oil companies had been informed of the latest policy change.

Industry sources and traders, who requested anonymity because of the sensitivity of the issue, said they were shocked by the latest development.

"It's a drastic measure to rein in the prices and we hope it has the intended effect within a short period, and avoid hurting the industry," a palm industry source said.

"This is crazy. We are paying a price for Indonesia policy flip-flops. Every vegetable oil is going through the roof. Securing supplies of any vegetable oil for May shipments is a challenge," said a New-Delhi based dealer with a global trading firm.

Eddy Martono, secretary general of the Indonesia Palm Oil Association (GAPKI), earlier on Wednesday said the industry was trying to "operate as usual while continuing to monitor market movements".

Eddy said that with such short notice on the ban, first announced by President Joko Widodo on Friday evening, there was no way exporters could rush their products out.

"Its impossible to get a vessel instantly, everything would've been chartered," he said.

Indonesia's restrictions have driven up global edible oil prices as supplies were already choked by factors like drought and shortages after Russia's invasion of major crop producer Ukraine.

Indonesia's ban on palm oil exports is unlikely to last more than a month due to limited infrastructure to store the surplus oil and because of mounting pressure from buyers to resume shipments, industry officials said. read more

The ban would remain in place until prices of bulk cooking oil dropped to 14,000 rupiah ($0.9720) per litre, Airlangga said. read more

In Jakarta, bulk cooking oil prices were offered at around 19,000-20,000 rupiah ($1.32-$1.39) on Wednesday and in other regions prices could be higher, Reynaldi Sarijowan, a senior official at the traditional market traders' association, said.

In Riau province on Sumatra island, small farmers already saw a drastic drop in price of palm oil fruits due to the export ban, local planters said, and they fear that palm oil companies will stop buying from independent farmers.

first published: Apr 27, 2022 08:13 pm