Indonesia on Thursday began suspending all exports of palm oil, which the country is the world’s largest producer. The Southeast Asian archipelago has been struggling for several months with a shortage and rising prices of palm oil-based frying oil in the domestic market and fears of increasing social tensions.
In a last-minute U-turn on Wednesday night, authorities clarified that the suspension would affect all oilseed exports, not just edible oil products, as reported a day earlier.
“All products,” including crude palm oil, “are subject to a decree from the Ministry of Commerce,” coordinating economy minister Airlangga Hartarto said Wednesday evening, specifying that the ban would take effect at midnight.
Crude palm oil prices rose nearly 10% on Wednesday before the start of the embargo on the Kuala Lumpur Stock Exchange, up 63% over a year.
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Indonesian President Joko Widodo emphasized that supplying the population was “the highest priority”. “As the largest producer of palm oil, it’s ironic that we struggle with cooking oil,” he acknowledged, calling on the producers to cooperate.
The country of 270 million is struggling with distribution and inventory retention issues, with producers preferring to sell their shipments internationally to take full advantage of the price increases.
Jakarta plans to resume exports when the wholesale price of cooking oil falls to 14,000 rupees (97 cents) in the archipelago, after rising 70% in recent weeks.
Long lines to get oil
The supply of palm oil, the main oil used in the archipelago for cooking, has been problematic since the beginning of the year. The most humble consumers in many cities often had to wait hours in long lines in front of the distribution centers of oil at subsidized prices.
“Cooking oil is hard to find, even in bulk,” Lius Antoni, a consumer, told AFP. “Finally I have decided to reduce my consumption […] so I don’t have to wait in line or fight” while trying to buy some.
For Ade Neni, seller of “gorengan”, fried foods that Indonesians love, it’s a blow. “The high oil prices dropped my sales, I had to increase the price of my gorengan,” she says as not only oil, but soybeans rose as well.
Public discontent over rising food prices has contributed to a decline in the president’s popularity and sparked protests in several cities, according to recent polls.
Risks of penalties for breach of contract
Eddy Hartono, head of the Indonesian Association of Palm Oil Producers regrets that these measures have already reduced the income of plantation operators. “There is no problem with delivery, but with distribution,” he emphasizes.
Indonesia accounts for about 60% of world palm oil production, a third of which is consumed on the domestic market. It exported 34.2 million tons for edible oil last year, as well as for the manufacture of a wide variety of products, from cosmetics to food products.
“The countries most affected (by the suspension) are India, China, Bangladesh and Pakistan” for their food consumption, emphasizes Bhima Yudistira, an economist at the Center for Economic and Legal Studies (Celios).
He points out that Indonesia risks fines for breach of contract, and even prosecution before the World Trade Organization (WTO) if the ban is extended.
Edible oils had already reached an all-time high in March due to insufficient global supplies following the Russian invasion of Ukraine, two major sunflower oil-producing countries.