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Commodities

Indonesia imposes mandatory domestic sales for palm oil

Price limits on 20% of production for home consumption to curb inflation

High global demand for palm oil fruits have pushed cooking oil prices up 40% over the past year in Indonesia. (Antara Foto/Akbar Tado/via Reuters)

JAKARTA (Reuters) -- Indonesia has imposed a rule starting Thursday for a mandatory portion of palm oil to be sold domestically at a maximum price of 9,300 rupiah ($0.6465) per kg for crude palm oil and 10,300 rupiah per kg for olein, its trade minister said.

The requirement comes as Indonesia, the world's top producer and exporter of palm oil, tries to curtail a rise in domestic cooking oil prices that have climbed about 40% from a year earlier, in line with high global prices.

A so-called Domestic Market Obligation (DMO) will be applied to all cooking oil producers, which must sell 20% of their planned exports to the domestic market, the minister, Muhammad Lutfi, told a virtual briefing.

"With this policy, we hope cooking oil prices will be more stable and affordable for the people while remaining profitable for sellers, distributors and producers," Lutfi said.

Benchmark Malaysian palm oil futures surged to all-time highs this week, in part due to a threat by Indonesia to control shipments.

Lutfi said the national cooking oil demand is estimated at 5.7 million kilolitres in 2022.

Though the DMO has been imposed on CPO, olein, used cooking oil and oil residues, the government is considering setting a similar requirement on all palm oil derivative products, said Indrasari Wisnu Wardhana, a senior Trade Ministry official.

"We want to make sure that the raw materials for the domestic industries will remain here," he told the briefing, adding that amid high commodity prices, producers tended to prefer exports.

The situation was similar with thermal coal shipments, which Indonesia suspended for a month over firms' failures to meet DMO, worrying major coal importers, as the country took drastic measures to ensure domestic supply to keep power plants running.

The maximum domestic price policy for palm oil was also needed due to high global prices, which local producers referred to when selling their products.

Asked how long the DMO will be imposed on palm oil, Wisnu said "until prices return to a stable condition like before."

Togar Sitanggang, deputy chairman of Indonesia Palm Oil Association, said the policy may result in a drop in February exports.

"January exports should be okay, but maybe impacts will be seen in February because there could be exports commitments that couldn't be met due to the domestic obligation requirement," he said.

The government had earlier imposed an export permit requirement for international palm oil shipments which could be obtained after companies declared their domestic distribution plan for six months.

Wisnu said there had been no exports in recent days as the government was verifying the companies' distribution plans as part of the permitting process.

The ministry also announced on Thursday that it will impose a set of maximum retail prices for cooking oil starting from Feb. 1.

The government currently has a one-price policy for cooking oil.

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