Indonesian palm oil export ban sparks concerns in many countries

Reportedly, the prices of all types of edible oils such are expected to rise after Indonesia announced a surprise ban on export of palm oil. Major edible oils are already in short supply due to adverse weather and Russian invasion of Ukraine.

The move by Indonesia to pause exports has placed an extra strain on cost-sensitive consumers in Asia and Africa hit by higher fuel and food prices.

“Indonesia’s decision affects not only palm oil availability, but vegetable oils worldwide,” James Fry, Chairman of Commodities Consultancy LMC International, told Reuters.

Palm oil – used in everything from cakes and frying fats to cosmetics and cleaning products – accounts for nearly 60% of global vegetable oil shipments.

Top producer Indonesia accounts for around a third of all vegetable oil exports. It announced the export ban on April 22, 2022, until further notice, in a move to tackle rising domestic prices.

“This is happening when the export tonnages of all other major oils are under pressure: soya bean oil due to droughts in South America; rapeseed oil due to disastrous canola crops in Canada; and sunflower oil because of Russia’s war on Ukraine,” Fry said.

Rasheed JanMohd, chairman of Pakistan Edible Oil Refiners Association (PEORA) said, “Nobody can compensate for the loss of Indonesian palm oil. Every country is going to suffer.”

Vegetable oil prices have already risen more than 50% in the past six months as factors from labour shortages in Malaysia to droughts in Argentina and Canada – the biggest exporters of soyoil and canola oil respectively – curtailed supplies.

Buyers were hoping a bumper sunflower crop from top exporter Ukraine would ease the tightness, but supplies from Kyiv have stopped as a result of Russia’s invasion.

This had prompted importers to bank on palm oil being able to plug the supply gap until Indonesia’s shock ban delivered a “double whammy” to buyers, said Atul Chaturvedi, president of trade body the Solvent Extractors Association of India (SEA).

Importers such as India, Bangladesh and Pakistan will try to increase palm oil purchases from Malaysia, but the world’s second-biggest palm oil producer cannot fill the gap created by Indonesia, Chaturvedi said. Malaysia accounts for 31% of global palm oil supply, second after Indonesia’s 56%.

Indonesia typically supplies nearly half of India’s total palm oil imports, while Pakistan and Bangladesh import nearly 80% of their palm oil from Indonesia.

In February this year, prices of vegetable oils jumped to a record high as sunflower oil supplies were disrupted from the Black Sea region.

A state-backed Malaysian palm oil group said countries should pause or slow use of edible oil as biofuel to ensure adequate supply for use in food, warning of a supply crisis following Indonesia’s ban on palm oil exports.

Palm oil is also used as biodiesel feedstock. Indonesia and Malaysia make it mandatory for biodiesel to be mixed with a certain amount of palm oil – 30% and 20% respectively – and just last month said they remain committed to those mandates, despite higher palm prices.