Indonesia bans palm oil exports as global food inflation rises

People buy cooking oil made from palm oil at a supermarket in Jakarta, Indonesia, March 27, 2022. REUTERS/Willy Kurniawan

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  • ‘Totally unexpected’ ban says Indian trade group
  • US calls for cooperation rather than export bans
  • Indonesian government under pressure to control cooking oil prices
  • Global prices hit record highs this year after Indonesian restrictions
  • Edible oil markets rocked by conflict in Ukraine; some replacements

JAKARTA, April 22 (Reuters) – Indonesia, the world’s top producer of palm oil, announced plans on Friday to ban exports of the most widely used vegetable oil, in a shock move that could further worsen the outbreak global food inflation.

Halting shipments of cooking oil and its raw material, widely used in products ranging from cakes to cosmetics, could increase costs for packaged food producers around the world and force governments to choose between use of vegetable oils in food or for biofuels. Indonesia accounts for more than half of the world’s palm oil supply.

In a video released, Indonesian President Joko Widodo said he wanted to ensure food availability in his country, after global food inflation hit an all-time high following Russia’s invasion of the main Ukrainian grain producer. Read more

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“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,” he said.

The announcement will hurt consumers of the major Indian and global buyer, said Atul Chaturvedi, chairman of trade body Solvent Extractors Association of India (SEA).

“This decision is rather unfortunate and completely unexpected,” he said.

Prices for alternative vegetable oils have soared in response to the measure which will take effect on April 28. Soybean oil, the second most widely used vegetable oil, rose 4.5% to a Chicago Board of Trade record high of 83.21 cents a pound. Read more

World prices for crude palm oil, which Indonesia uses for cooking oil, hit historic highs this year amid rising demand and weak production from major producers in Indonesia and Malaysia, as well as a decision by Indonesia to restrict palm oil exports in January that was lifted in March.

Household and food companies including Procter & Gamble Co (PG.N), Nestlé SA (NESN.S) and Unilever PLC are big buyers of palm oil. Oreo cookie maker Mondelez International Inc (MDLZ.O) accounts for 0.5% of global palm oil consumption, according to its website.

Other countries have experimented with crop protectionism in an attempt to keep domestic prices low. Argentina, the world’s largest exporter of processed soybeans, briefly halted new overseas sales of soybean oil and meal in mid-March before raising the export tax rate on these products to 33% versus 31%.

The United States Department of Agriculture encouraged international cooperation during the war in Ukraine, rather than export bans.

Global edible oil prices hit historic highs in 2022 due to supply shocks

Global edible oil markets have been rocked this year by Russia’s invasion of Ukraine, a move Russia calls a “special operation” to demilitarize its neighbor, which halted shipments of sunflower oil from the region.

The Black Sea accounts for 76% of global solar oil exports and commercial shipping in the region has been badly affected since Russian forces entered Ukraine in February. Read more

Large quantities of alternatives, including soybean and rapeseed oil, are also not readily available, after droughts damaged newer crops in Argentina, Brazil and Canada.

New soybean and canola oil processing facilities are expected to open in the United States and Canada, respectively, in the coming years as demand for plant-based biofuels grows, but increased production in the short term will be difficult.

Industry group Clean Fuels Alliance America said the move could hurt biofuel producers, even though US producers of biodiesel and renewable diesel do not use palm oil because supplies of all oils are limited. .

“The sky would be the limit for edible oil prices now. Buyers were betting on palm oil after sun oil supplies plummeted due to the war in Ukraine,” said a Mumbai-based dealer. of a global trading company.

“Now they (buyers) have no choice because soybean oil supplies are also limited.”

Malaysian producers say the world’s second-largest palm oil exporter, which is facing a production shortfall due to a pandemic-induced labor shortage, is unlikely to be able to fill the gap. difference.

Indonesia has since 2018 stopped issuing new permits for oil palm plantations, often blamed for deforestation and destruction of habitats for endangered animals such as orangutans.

The palm oil industry association GAPKI said it would adhere to the policy but had reservations.

“If this policy has a negative impact on the sustainability of the palm oil sector, we would ask the government to reassess the policy,” he said in a statement.

In Indonesia, the retail price of cooking oil is averaging 26,436 rupees ($1.84) per litre, up more than 40% since the start of the year. In some provinces across the country, prices have almost doubled in the past month alone, according to a price monitoring page.

Student protests have taken place in several cities across Indonesia in recent days over high cooking oil prices.

The Indonesian government has set a cap of 14,000 rupees per liter for bulk cooking oil, but Commerce Ministry data showed it was sold for more than 18,000 rupees this month.

A government investigation is underway into allegations of corruption involving wanted export permits. Read more

($1 = 14,356.0000 rupees)

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Reporting by Fransiska Nangoy; Additional reporting by Rajendra Jadhav in Mumbai; Mark Weinraub in Chicago; Uday Sampath in Bangalore; Jessica DiNapoli and Stephanie Kelly in New York; Maximilian Heath in Buenos Aires; and Mei Mei Chu in Kuala Lumpur; Writing by Fransiska Nangoy and Caroline Stauffer Editing by Jonathan Oatis and Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

Edward N. Arrington