Food security is at stake as Indonesian palm export bans begin

Indonesia’s palm oil export ban began on Thursday in the toughest case of food security since the start of the war in Ukraine.

Top shippers have imposed massive restrictions on cooking oil exports, covering palm oil products across the price chain. The importance of tropical oil is difficult to overestimate because it is found everywhere today – in food, soap, lipstick and even printing ink – which makes Indonesia’s move important for the world.

This has added to the impact of the Russian invasion of Ukraine, which has already plunged the global edible oil market into chaos. As global food consumption rises to an all-time high, governments are taking steps to secure their own supplies. UN leaders have called for trade to be kept open, warning that protectionism would raise prices and lead to empty shelves in import-dependent countries.

Indonesia’s export embargo is “inflation for all,” said Atul Chaturvedi, president of the Solvent Extractors Association of India. India is the top importer of palm oil and receives about 45% of its supply from Southeast Asian countries. “If the supply chain is disrupted, companies will try to ration their supplies because they do not know what is going to happen tomorrow.”

Indonesia, of course, is not making it easy to navigate its date export ban. Top producers said Friday that it would suspend all shipments of cooking oil, raising the price of palm oil and its alternative soybean oil. Then towards the end of Monday, reports emerged that only Palm Olin, a refined product, would be discontinued, which would induce a rapid retreat in prices and traders would rush to comply with the ban.

The government took another push Wednesday evening, widening the ban on the inclusion of crude palm oil, RBD palm oil and even used cooking oil, in contrast to its earlier statement. It covers products across the entire supply chain. Indonesia accounts for one third of global edible oil exports.

Tobin Gore, an agro-commodity strategist at the Commonwealth Bank of Australia, said the move was “one of the biggest tasks of agricultural nationalism in this time of rising food prices.”

Palm oil futures fell 3.9% to 6,714 ringgit per tonne, a drop in profit this week. Hours before Indonesia announced a broad export embargo, prices had risen to a 10% trading limit a day earlier.

President Joko Widodo said late Wednesday that the ban would be lifted once the local demand for food was met, adding that it was “ironic” that the country had difficulty getting cooking oil. He said the decision to ban exports was taken after the previous policy was not effective in reducing the deficit.

However, it is uncertain whether the ban will have the desired effect. The government has acknowledged that the policy could reduce the country’s date production and result in unsold crops for farmers. Indonesian producers are worried about when they will run out of oil storage capacity, which they will no longer be able to export.

“With this tough stance, the government is punishing the entire Indonesian afforestation industry by correcting the wrongdoers,” RHB research analyst Ho Li Leng wrote in a note. “All Indonesian players are likely to suffer, although exporters of pure upstream are likely to suffer even more.” – Bloomberg