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Commodities

Indonesia retreats from ban on crude palm oil exports

Embargo only for palm olein as 'raw materials for cooking oil,' ministry says

A worker loads palm fruit at a plantation in Indonesia's West Sulawesi Province.   © Antara Foto/Reuters

JAKARTA/TOKYO -- Indonesia will exclude crude palm oil from a planned palm oil export ban, according to a copy of an official letter from the country's agriculture ministry, in a major setback from what President Joko Widodo said was an embargo on the "raw materials of cooking oil."

According to a letter from the Ministry of Agriculture's General Directorate of Plantation dated Monday, the ban will be imposed on refined, bleached and deodorized palm olein, defined as "raw materials for cooking oil." Crude palm oil is not mentioned in the letter.

Crude palm oil is the flesh of the fruit while RBD palm olein is refined from crude palm oil and is used for foods including cooking oil.

Palm oil has been one of Indonesia's top export commodities. Its prices have soared since late last year, and have risen further amid supply disruptions of edible oils due to the war in Ukraine.

Crude palm oil makes up the majority of Indonesia's palm oil-related exports. According to ASEAN Stats, palm oil olein accounted for only about 20% of Indonesia's total palm oil exports in 2020.

President Widodo said last week the ban on shipments of "cooking oil as well as the raw materials of cooking oil" will take effect on Thursday for an indefinite period.

After Widodo's decision, the index price on Bursa Malaysia's derivatives exchange rose about 6% on Monday to its highest point since early March.

The ban comes as Indonesia deals with the effects of Russia's invasion of Ukraine, a major crop producer. The war has sent food prices soaring around the world.

The food price index compiled by the United Nations' Food and Agriculture Organization in March showed significant across-the-board increases for everything from cereals to sugar, pushing the weighted average of global prices up 12.6% from February.

"This [export ban] policy is very much unprepared and not communicated well," said Bhima Yudhistira, an economist at the Jakarta-based think tank Center of Economic and Law Studies, in comments to Nikkei Asia. "If crude palm oil wouldn't be banned for export after such announcement, what happens is that producers could catch up with export demand without processing [the crude palm oil] into RBD olein, which would not solve the scarcity of cooking oil, leaving prices high."

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