‘Harm to the vulnerable’: Indonesia’s palm oil ban fuels soaring prices | Business and economy
Medan, Indonesia – Indonesia’s ban on palm oil exports is driving up cooking oil prices worldwide even further, heightening fears for global food security in an unfavorable climate and war in Ukraine.
The export ban, announced by President Joko “Jokowi” Widodo on Friday, comes as global food supplies are strained due to disappointing harvests in some countries, export disruptions due to the Russian invasion Ukraine and labor shortages caused by COVID-19. pandemic.
Palm oil prices rose more than 6% on the Bursa Malaysia Derivatives Exchange on Monday, approaching the record high reached in March.
“Indonesia is a major producer of palm oil and its ban means we have a vegetable oil supply shock that will push prices up, adding to pressure on food prices and hurting most vulnerable people in developed countries and those with high food basket weights like India,” Trinh Nguyen, senior emerging Asia economist at Natixis in Hong Kong, told Al Jazeera.
Nguyen said the ban would worsen labor shortages in Malaysia, the world’s second-largest palm oil producer after Indonesia.
“This means that Malaysia is benefiting from the higher prices but will not offset the supply shock and therefore we are expected to have a global supply shortage which is impacting global food prices,” she said. .
Global prices for crude palm oil (CPO), the main ingredient of Indonesian cooking oil, have been rising sharply for months.
Indonesia restricted palm oil exports in January, before lifting the restrictions in March, and the new ban is seen as a complement to Jokowi’s policy of providing direct cash assistance for palm oil. cooking.
In a video address on Friday, Widodo justified the ban as necessary to ensure food availability at home amid soaring inflation around the world.
“I will monitor and evaluate the implementation of this policy so that the availability of cooking oil in the domestic market becomes abundant and affordable,” Jokowi said.
The ban is due to come into effect on April 28 and Indonesia has not indicated how long it might last.
“Since March, the price of crude palm oil has skyrocketed and the ban on palm oil exports by the Indonesian government will certainly aggravate the increase in palm oil prices in the world market. “, Ega Kurnia Yazid, research assistant at the Center for Strategic and International Studies in Jakarta, told Al Jazeera. “This increase will also likely be followed by price increases for substitutes like canola oil, olive oil and coconut oil.”
Following the ban announcement on Friday, the price of soybean oil, the second most used vegetable oil after palm oil, rose 4.5%, while some supermarkets in the UK announced that they would limit sales of olive, sunflower and rapeseed oil to two. or three items per customer.
“The ban will hurt both exporters and importers and distort trade,” Tim Harcourt, chief economist at the University of Technology Sydney, told Al Jazeera.
“It will ultimately be bad for Indonesia and Malaysia, at a time when international trade and global supply chains are blocked and the threat of higher inflation globally.”
Yazid agreed, saying the ban could affect global trust in Indonesia and cause chaos for those who buy its palm oil.
“Many countries depend on palm oil supply from Indonesia,” he said. “These regulations could certainly trigger uncertainty among Indonesia’s trading partners, and Indonesia’s credibility as a trading partner could be called into question. Not to mention that this will disrupt previously agreed palm oil trading contracts. »
Shares of Indonesian palm oil producers fell sharply on Monday, with some companies suffering losses of more than 6%.
Besides cooking oil, palm oil is used for a wide variety of products ranging from chocolate to cosmetics and biofuels.
“Palm oil is also used in packaged products like shampoo, so the ban adds to the overall price pressure for households globally,” Natixis’ Nguyen said.
While the ban has sent shockwaves through global markets, some Indonesian analysts say Jarkata is right to prioritize local consumers.
“I don’t think the ban was sudden because the government has a domestic market obligation that compels companies to prioritize domestic market supply under certain conditions,” said analyst Agus Eko Nugroho. at the Indonesian National Agency for Research and Innovation. AlJazeera.
Nugroho said the economic crisis triggered by the COVID-19 pandemic is starting to ease and the country should maintain the momentum of economic recovery in 2022.
“But the pressure of food inflation globally could reduce consumption by poor households in Indonesia, thereby increasing poverty,” he said. “Domestic and foreign price disparities should not lead to shortages in the domestic market, which could potentially lead to panic buying.”