Indonesia stands firm on curbs for palm oil exports

Jakarta — Indonesia’s palm oil price should not be dictated by the external market, its trade minister said on Thursday, backing his decision to further curb palm oil exports at a time of surging global prices from a global supply crunch.

The world’s top palm oil exporter shocked the market a day earlier by announcing that palm companies must sell 30% of their planned exports at home, up from 20%, which sent Malaysian benchmark prices soaring by 10%.

Malaysian prices climbed 30% in 2021, as output from top producers Indonesia and Malaysia slowed and global demand recovered from the impacts of the pandemic.

The higher global prices saw Indonesian cooking oil prices gain 40% at the beginning of the year, prompting its imposition of export curbs in late January. That triggered another rally in Malaysian prices, which have gained about 50% so far this year.

“We want to split the prices between the international market and the local market,” trade minister Muhammad Lutfi said in a speech. “We have to make sure that Indonesian products become a part of global economic pillars but that doesn’t mean we can be dictated by the world,” he said.

Along with the export volume restriction, Indonesia also set price caps for crude palm oil (CPO) and the olein sold at home to control the cost of refining them into cooking oil. The government also capped retail prices.

The fresh curbs came as industry analysts at a conference in Kuala Lumpur urged Indonesia to cut its biodiesel mandate to allow more exports and contain prices.

“The government must reduce the compulsory blending of biodiesel ... from B30 to B20 for one year,” analyst Dorab Mistry said referring to the percentage content of palm-based fuel.

According to ministry data, Indonesia should already have enough palm oil supply to meet local cooking oil demand with only a 20% restriction on exports, said Eddy Martono, secretary-general of the Indonesia Palm Oil Association.

“What needs to be resolved first is where has the cooking oil gone missing throughout the distribution chain,” Eddy said.

Consumers have complained that cooking oil is still being sold at prices above the cap of 14,000 rupiah ($0.98) a litre cap in traditional markets, Indonesia's ombudsman said.

Meanwhile at supermarkets, cooking oil stocks are running out even though retailers are setting a two-litre quota per buyer. Some stores are even asking buyers to dip their fingers in ink, as is required during elections, to mark that they have purchased their quota.

Sahat Sinaga, deputy chair of the Indonesia Palm Oil Board, an industry group, warned that Indonesia may not have enough storage to keep extra supplies, which could hurt farmers.

“Purchase of fresh fruit from farmers would stop,” Sahat said, noting domestic stocks of palm oil could exceed 5-million tonnes, a level not seen since November 2020. 

Reuters