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Indonesia seeks to balance international, local palm oil demand

CNA – Indonesia is seeking a balance between capitalising on high global palm oil prices while ensuring food at home is affordable, a senior government official said yesterday, amid the country’s ongoing ban on exports of the vegetable oil.

The Southeast Asian nation, the world’s top palm oil producer, has since April 28 halted exports of crude palm oil and refined products to control soaring prices of cooking oil at home.

The surprise move rattled global vegetable oil markets that were already struggling after the war in Ukraine removed a big chunk of sunflower oil supply.

Palm oil makes up more than a third of the world’s vegetable oil market, while Indonesia accounts for around 60 per cent of palm oil supply.

Indonesia’s Deputy Coordinating Economics Minister Musdhalifah Machmud said the government wanted palm oil to not only be available but also affordable.

“As a government, we have to keep a balance between high international prices and (controlling) domestic prices to fulfil cooking oil demand for our people,” she said.

Workers unload palm fruits at a local palm oil factory in North Sumatra. PHOTO: CNA

The official said she could not make any promises regarding future palm oil policy since oversight involved various ministries and she was “waiting for the best decision on palm oil from our highest leader”.

An official at the Indonesia Palm Oil Association (GAPKI) Fadhil Hasan said he hoped the ban could be lifted within two weeks to a month.

Chief Economics Minister Airlangga Hartarto has said the ban will stay in place until bulk cooking oil price drops to INR14,000 (USD0.9629) per litre across the country. As of Tuesday, Trade Ministry data showed bulk cooking oil was being sold at INR17,600 per litre.

Associate economist at Moody’s Analytics Gabriel Tay said in a research note that while the export ban may address the high price of cooking oil, it will be a “Pyrrhic victory”, which could harm Indonesia’s economy.

“Hasty and poorly communicated policies do not instil confidence in the government; investors crave policy stability,” Tay said, noting that Indonesia had also imposed a surprise coal export ban earlier this year and the palm oil ban was preceded by various policy changes which could deter direct investment. “This will be detrimental to Indonesia’s ambition to transition from an exporter of largely unprocessed raw materials to a manufacturing nation.”

Moody’s Analytics operates independently from the credit rating agency Moody’s Investors Service.