Indonesia bans palm oil exports as global food price inflation escalates

People shop for cooking oil made from oil palm at a supermarket in Jakarta, Indonesia, March 27, 2022. REUTERS/Willy Kurniawan

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  • ‘Absolutely unexpected’ ban – Indian Trade Group
  • US urges cooperation instead of export ban
  • The Indonesian government is under pressure to control cooking oil prices
  • Global prices at record levels this year after Indonesian restrictions
  • Disruption of edible oil markets due to the conflict in Ukraine; Few alternatives

JAKARTA (Reuters) – Indonesia, the world’s largest palm oil producer, announced plans to ban the export of its most widely used vegetable oil on Friday, in a shock move that could further exacerbate global food price inflation.

Halting shipments of cooking oil and raw materials widely used in products ranging from cakes to cosmetics could raise costs for packaged food producers globally and force governments to choose between using vegetable oils in food or biofuels. Indonesia has more than half of the world’s palm oil supply.

Indonesian President Joko Widodo, in a video, said he wanted to ensure the availability of food products at home, after global food inflation soared to a record level after the Russian invasion of key crop-producing Ukraine. Read more

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“I will monitor and evaluate the implementation of this policy so that cooking oil becomes abundant and affordable in the local market,” he said.

Atul Chaturvedi, president of the trade body of the Solvent Extractors Association of India (SEA), said the announcement would hurt consumers in India’s biggest buyer and the world.

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“This move is somewhat unfortunate and completely unexpected,” he said.

Alternative vegetable oil prices rose in response to the measure, which will take effect on April 28. Soybean oil, the second most widely used vegetable oil, rose 4.5% to a record high of 83.21 cents a pound on the Chicago Board of Trade. Read more

Global prices for crude palm oil, which Indonesia uses for cooking oil, have soared to record levels this year amid rising demand and weak production from major producers Indonesia and Malaysia, as well as Indonesia’s move to restrict palm oil exports in January which was lifted in Yishmi.

Household and food companies, including Procter and Gamble (PG.N)Nestle SA (NESN.S) Unilever PLC is a major buyer of palm oil. Oreo Cookie Maker Mondelez International Inc (MDLZ.O) It accounts for 0.5% of palm oil consumption globally, according to its website.

Other countries have tried crop protection in an effort to keep domestic prices low. Argentina, the world’s largest exporter of processed soybeans, briefly halted new foreign sales of soy oil and meal in mid-March before raising the export tax rate on these products to 33% from 31%.

The USDA urged international cooperation during the war in Ukraine, rather than banning exports.

Global edible oil prices soar to all-time highs in 2022 due to supply shocks

Global edible oil markets have been affected this year by Russia’s invasion of Ukraine, a move Russia calls a “special operation” to disarm its neighbor, which has cut off shipments of sunflower oil from the region.

The Black Sea accounts for 76% of the world’s exports of sun oil and commercial shipping from the region has been severely affected since Russian forces entered Ukraine in February. Read more

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Large supplies of alternatives including soybean oil and rapeseed oil are not readily available either, after droughts have damaged newer crops in Argentina, Brazil and Canada.

New soybean and canola oil processing facilities are expected to open in the United States and Canada respectively in the coming years, as demand for plant biofuels grows, but increasing production in the near term will be challenging.

The industry group, Clean Fuels Alliance America, said the move could harm biofuel producers, even though US biodiesel and renewable diesel producers do not use palm oil, because supplies of all oils are tight.

“Sky will be the cap on edible oil prices now. Buyers were dependent on palm oil after sun oil supplies were reduced due to the Ukraine war,” said a Mumbai-based trader at a global trading firm.

“Now they (the buyers) have no choice because soy oil supplies are also limited.”

Malaysian producers say the world’s largest palm oil exporter, which is facing production shortages due to a labor shortage caused by the pandemic, is unlikely to be able to fill the gap.

Indonesia since 2018 has stopped issuing new permits to palm oil plantations, often blamed for deforestation and destroying the habitats of endangered animals like orangutans.

The Palm Oil Industry Association, JAPKE, said it would stick to the policy, but had reservations.

“If this policy has any negative impact on the sustainability of the palm oil sector, we will ask the government to re-evaluate the policy,” she said in a statement.

In Indonesia, the average retail price of cooking oil was 26,436 rupees ($1.84) per liter, up more than 40% so far this year. In some counties across the country, prices have nearly doubled in the past month alone, according to the Price Watch page.

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Students have held demonstrations in several cities across Indonesia in recent days due to rising cooking oil prices.

The Indonesian government has set a cap of 14,000 rupiah per liter for bulk cooking oil, but data from the Ministry of Commerce showed it was sold at more than 18,000 rupiah this month.

A government investigation into allegations of corruption involving required export permits is underway. Read more

(dollar = 14,356.0000 rupees)

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Report by Francesca Nangue preparation; Additional reporting by Rajendra Jadhav in Mumbai. Mark Weinrup in Chicago; Uday Sampath in Bengaluru; Jessica Di Napoli and Stephanie Kelly from New York; Maximilian Heath in Buenos Aires; the mi mi choo in Kuala Lumpur; Written by Francesca Nangue and Caroline Stover Editing by Jonathan Otis and Elaine Hardcastle

Our criteria: Thomson Reuters Trust Principles.

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