Agri Business

Indonesia’s move to revoke palm oil export ban comes with a rider

Subramani Ra Mancombu | | Updated on: May 20, 2022

Close up of fresh oil palm fruits with cooking oil, selective focus. | Photo Credit: slpu9945

Exporters will have to meet obligation to supply a specific volume to domestic market

Indonesia will revoke its ban on exports of crude palm oil (CPO) and refined, bleached, deodorised (RBD) palm oil from May 23 (Monday) as scheduled, but with a rider.

Indonesian Economy Minister Airlangga Hartarto said on Friday that the Joko Widodo government will impose a domestic market obligation (DMO) on palm oil, which requires producers to supply a portion of their production to the local markets.

On Thursday (May 19), while announcing that his government would revoke the ban from May 23, Widodo said his country had ample palm oil supplies to ensure the supply of cooking oil to the domestic consumers. 

No clarity yet on DMO

Abdul Hameed, Director-Sales, Manzoor Trading in Lahore, Pakistan, told BusinessLine that Indonesia’s DMO policy will be to ensure that at least 10 million tonnes would be supplied to ensure cooking oil to the country’s vulnerable citizens. 

Hameed said Indonesia planned to open at least 10,000 outlets to sell cooking oil at discount. The move follows the Widodo government’s failure to reduce cooking oil prices to 14,000 rupiah (₹74) when it imposed the ban on April 28. 

Though Hartarto said the DMO policy would be implemented while revoking the ban, he did not specify the percentage of production that a unit will have to meet under it. 

“The trade ministry will determine the size of the DMO that must be met by each producer and the mechanism to produce and distribute cooking oil to the communities,” he said.

Earlier obligations

In addition, Indonesia’s food procurement agency, Bulog, will be asked to build a cooking oil buffer stock, he said. 

Earlier, palm oil producers were required to supply 20 per cent of their export volumes as part of DMO. Later, the percentage was increased to 30 per cent. 

The announcement on DMO pushed up palm oil prices on Friday by over 0.5 per cent on the Bursa Malaysia Derivatives market. Rates increased by 42 Malaysian ringgits (MYR) for the July contracts to 6,338 MYR and 47 MYR to 6,119 MYR for August contracts. 

Palm oil prices increased by nearly four per cent initially soon after the announcement, before finding some stability at the lower level. The rise was in view of the trade considering it as some sort of reversal of Thursday’s announcement revoking the ban.

Helping growers

Hameed said the Indonesian government has also come forward to help oil palm growers by guaranteeing palm fresh fruit bunches (FFB) purchase at good prices.  

He said Indonesia’s move had come in the wake of Malaysia making headway in the export market after the ban. He pointed to the latest data from Amspec Group, which showed Malaysian palm oil exports increasing by 30 per cent during May 1-20 to 7,94,527 tonnes against 6,10,728 tonnes during April 1-20. 

Indonesia, besides losing its market share due to the ban, also earned the wrath of oil palm growers (who staged a protest on Tuesday against the curbs) and domestic producers. 

While the ban failed to achieve its primary objective of bringing down cooking oil prices to 14,000 rupiah, it resulted in farmers not harvesting FFB from their plantations. Domestic oil producers, too, cut their purchases as their storage tanks began to overflow with palm oil. 

Relief for India

Besides all this, Indonesia has also lost precious foreign exchange since it accounts for 60 per cent of palm oil supply in the global market. Palm oil makes up 40 per cent of global edible oils.

For India, the revoking of the ban will provide some relief from the skyrocketing inflation and soaring cooking oil prices. India imports about 8.5 million tonnes of palm oil, including RBD palmolein. 

Currently, prices are $1,735 C&F Mumbai for RBD palmolein, $1,780 for CPO, $1,830 for degummed soyabean oil and $2,150 for sunflower oil. The all-India average retail price of palm oil is ₹158.06, while soyabean oil is ruling at ₹169.55. Sunflower is ruling at ₹191.89, groundnut at ₹187.1 and mustard oil at ₹185.08. 

Palm oil prices are 16 per cent higher year-on-year at retail units, while soyabean oil is up by 14 per cent, sunflower oil by 12 per cent, groundnut oil by six per cent and mustard oil by 7 per cent. 

Edible oil prices in India have surged mainly due to lower production of soyabean oil in South America, palm oil output hit by labour shortage in South-East Asia and shortage of sunflower oil supplies due to the Ukraine war. 

Published on May 20, 2022
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