JAKARTA: Indonesia, the world’s top palm oil producer, announced plans to ban exports of the most widely used vegetable oil on Friday, in a shock move that could further inflame surging global food inflation.
The halting of shipments of the cooking oil and its rawmaterial, widely used in products ranging from cakes tocosmetics, could raise costs for packaged food producersglobally and force governments to choose between using vegetable oils in food or for biofuel. Indonesia counts for more than half of global palm oil supply.
In a video broadcast, Indonesia’s President Joko Widodo saidhe wanted to ensure the availability of food products at home,after global food inflation soared to a record high followingRussia’s invasion of major crop producer Ukraine.
“I will monitor and evaluate the implementation of thispolicy so availability of cooking oil in the domestic marketbecomes abundant and affordable,” he said.
The announcement will hurt consumers in top buyer India andglobally, said, Atul Chaturvedi, president of trade body theSolvent Extractors Association of India (SEA).
“This move is rather unfortunate and totally unexpected,” hesaid.
Alternative vegetable oil prices spiked in response to themeasure which will take effect on April 28. Soybean oil, thesecond most used vegetable oil, rose 4.5% to a record high of83.21 cents per pound on the Chicago Board of Trade.
Global prices of crude palm oil, which Indonesia uses forcooking oil, have surged to historic highs this year amid risingdemand and weak output from top producers Indonesia andMalaysia, plus a move by Indonesia to restrict palm oil exportsin January that was lifted in March.
Household product and food companies including Procter &Gamble Co, Nestle SA and Unilever PLC are large purchasers of palm oil. Oreo cookie maker Mondelez International Inc accounts for 0.5% of palm oil consumption globally, according to its website.
Other countries have experimented with crop protectionismto try to keep domestic prices down.
Argentina, the world’s top exporter of processed soy, briefly halted new overseas sales of soy oil and meal in mid-March before hiking the export tax rate on those products to 33% from 31%.
Palm drops over 2% on muted April exports
The U.S. Department of Agriculture urged internationalcooperation during the war in Ukraine, rather than export bans.
Global edible oil markets have been roiled this year byRussia’s invasion of Ukraine, a move Russia calls a “specialoperation” to demilitarise its neighbour, which cut offshipments of sunflower oil from the region.
The Black Sea accounts for 76% of world sunoil exports andcommercial shipping from the region has been severely affected since Russian forces entered Ukraine in February.
Large supplies of alternatives including soy and rapeseedoil are not readily available either, after droughts hurt themost recent crops in Argentina, Brazil and Canada.
New facilities for processing soy and canola oil areexpected to open in the United States and Canada respectively in coming years, as demand for plant-based biofuels grows, but ramping up production in the near term will be difficult.
Industry group the Clean Fuels Alliance America said themove could hurt biofuel producers, even though U.S. biodieseland renewable diesel producers don’t use palm oil, as supplies of all oils are tight.
‘Sky’s the limit’
“Sky would be the limit for edible oil prices now. Buyerswere banking on palm oil after sunoil supplies fell because ofthe Ukraine war,” a Mumbai-based dealer at a global trading firm said.
“Now they (buyers) don’t have any option as soyoil suppliesare also limited.”
Malaysian producers say the world’s No. 2 palm oil exporter,which is facing a production shortfall due to a pandemic-induced labour shortage, is unlikely to be able to plug the gap.
Indonesia has since 2018 stopped the issuance of new permits for palm oil plantations, often blamed for deforestation and destroying habitats of endangered animals such as orangutans.
Palm oil industry association GAPKI said it would adhere tothe policy but had reservations.
“If this policy has any negative impact on thesustainability of the palm oil sector, we would ask thegovernment to re-evaluate the policy,” it said in a statement.
In Indonesia, the retail price of cooking oil averages26,436 rupiah ($1.84) per litre, up more than 40% so far thisyear. In some provinces across the country, the prices havenearly doubled in the past month alone, according to a pricemonitoring page.
Demonstrations by students have taken place in severalcities across Indonesia in recent days over high cooking oilprices.
Indonesia’s government has set a cap of 14,000 rupiah perlitre for bulk cooking oil, but Trade Ministry data showed thatit was sold at more than 18,000 rupiah this month.
A government investigation is underway into allegedcorruption involving sought-after export permits.