The world’s biggest palm oil producer, Indonesia has banned the exportation of palm oil to ensure its national availability and keep it affordable.
According to experts, this move will cause a surge in global food prices and other consumer products.
President Joko Widodo announced on Friday, April 4, 2022, via a virtual press statement, “Today I led a meeting on the fulfilment of public basic needs, especially matters related to national availability of cooking oil. During the meeting, I decided that the Government will ban the export of cooking oil raw materials and cooking oil starting Thursday, April 28, 2022, until further notice”.
However, according to a report by Gro study, the country’s limited storage capacity will put a halt to the embargo in less than a month, if not sooner. The export embargo comes at a time when worldwide supplies of numerous types of vegetable oils are at their lowest levels in years, driving prices progressively higher. As a result of the conflict between Russia and Ukraine, sunflower oil exports from the Black Sea have been blocked.
Palm oil prices, the most frequently used edible oil, have increased by 7.5 percent this week and are up 75 percent year over year. Soybean oil futures prices have been trading at all-time highs, up 27% year over year.
Palm oil is processed and shipped in different forms. The fleshy, red fruits of the oil palm tree are crushed to produce crude palm oil. The product can be refined, bleached, and deodorized to remove impurities. With further processing, palm olein is produced, which is the most widely used cooking oil in the world. The non-edible oils are used to make biodiesel and soap.
Indonesia, on the other hand, will have trouble finding storage for all of the products that are prohibited from export. Monthly exports of palm oil and palm oil products average 2.3 million tonnes. The capacity of liquid storage tanks for palm oil products at ports is expected to be only 2 million tonnes for the entire country.
Even if the storage tanks are fully empty at the start of the export embargo, which is unlikely, the Indonesian Government will be forced to ease the restrictions within 26 days, or by the fourth week of May, in order to prevent the tanks from overflowing.
Other storage alternatives for palm oil sellers include obtaining more capacity onshore or using hired vessels. For the time being, millers and refiners may need to drastically reduce palm oil production and wait for local demand to absorb the extra supply. A decrease in production, on the other hand, would increase pressure on the government from palm oil farmers, who farm on small plots of less than 2 hectares.