World’s top palm oil producer Indonesia will halt global shipments of the cooking oil and its raw material to stymie rising cooking oil prices at home.
Indonesia President Joko Widodo made an unexpected announcement on April 22 that the country will ban any exports of palm oil in an effort to stabilise soaring domestic prices of cooking oil.
Palm oil is the most widely used vegetable oil, of which Indonesia is the world’s top producer – accounting for more than half of the global palm oil supply. An estimated 50% of supermarket products, including cosmetics and hygiene products and household foods contain palm oil. For Indonesia, it is primarily used as cooking oil.
The price of crude palm oil has skyrocketed in the wake of Russia’s invasion of Ukraine. Since both nations are major exporters of sunflower oil, many countries have turned to alternatives to compensate. But rising demand and weak output from Indonesia – they stopped issuing new permits for palm oil plantations in 2018 following intense criticisms of deforestation and endangering species like orangutans – and the world’s second largest palm oil exporter Malaysia, which is facing a pandemic-induced labour shortage, has caused domestic prices to rise to unprecedented levels.
To ensure the availability of food products at home, President Widodo will be banning palm oil exports starting from April 28, a move which he acknowledges will hurt other countries.
“I will continue to monitor and evaluate the implementation of this policy so that the availability of cooking oil in the country is abundant and at an affordable price,” President Joko Widodo said in a statement. “We know that this is not going to be the best result. If we are not going to export, that’s definitely going to hit the other countries,” he added.
This includes consumers in China and India, the two biggest importers of Indonesia palm oil. The ban could also exacerbate the already rising global food inflation.
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Alternative vegetable oil prices immediately spiked following the announcement while soybean oil, the second most used vegetable oil, rose 4.5% to a record high of 83.21 cents per pound on the Chicago Board of Trade. Other vegetable oils will likely struggle to close the gap as climate change-induced droughts have damaged crops in top producers like Argentina, Brazil and Canada.
It is too early to tell the ban’s impacts on deforestation in Indonesia, whether it could alleviate it without the global demand or worsen to meet domestic needs. A 2019 study identified palm oil plantations as responsible for 23% (the single largest proportion) of the deforestation in Indonesia between 2001 and 2016.
For now, the palm oil industry association GAPKI said it would adhere to the policy but the public expressed their concerns.
“If this policy has any negative impact on the sustainability of the palm oil sector, we would ask the government to re-evaluate the policy,” it said in a statement.