New blow to global food market: Indonesia bans palm oil exports

New blow to global food market: Indonesia bans palm oil exports

The global food market has been hit again by the Indonesian palm oil export ban. The consequences for Dutch trade seem not so bad, because crude palm oil can still be exported. The vast majority of palm oil that Holland processes is crude oil.

The Indonesian Ministry of Agriculture announced in a statement, Tuesday, that the country will ban the export of refined palm oil. This is an oil that has already been purified, decolored, and deodorized. From Thursday, Indonesia will only export crude palm oil.

Indonesia is the largest exporter of palm oil in the world. Together with Malaysia, it accounts for 85 percent of global exports. In 2020, countries of the world imported $17.9 billion worth of palm oil from Indonesia, according to Economic Complexity Observatory

Vegetable oil – derived from the prickly-shelled fruit and orange flesh – is used in a wide variety of supermarket products. Think biscuits and sauces, but also shampoos and detergents. In Asian countries like Indonesia, the oil is also widely used for stir-frying and stir-frying.

With the export ban, the Indonesian government wants to reduce domestic prices and cooking oil shortages. Other types of cooking oil, such as coconut oil, are no longer allowed to leave the country. In recent months, it has become relatively expensive for Indonesians to stockpile palm oil for the upcoming feast. Next Monday, the country, with 87 percent of its 275 million population, will celebrate the end of Ramadan.

When the war began in Ukraine at the end of February, prices for almost all vegetable oils rose rapidly all over the world. This was due to the severe shortage of sunflower oil it caused Cessation of trade with Ukraine the main source† As a result, companies are beginning to look for alternatives, including palm oil.

Indonesia previously imposed high export taxes on vegetable oils. Major producers Argentina (soy oil) and Hungary (sunflower oil) have also imposed export restrictions in the past.

Because of the disappointing harvests of palm fruits in Indonesia, there was already a shortage in Ukraine before the war. The supply of palm oil has decreased since the Corona pandemic, in part due to a lack of labor on the ground.

What are the consequences of the export ban on the world market and the Netherlands?

1 What does the export ban do to the world market?

Countries that buy a lot of refined palm oil from Indonesia, such as India, China, Pakistan and Spain, are hit hard by the export ban. About 30 percent of the palm oil that India imports annually is refined – about 2.4 million tons of refined palm oil. Severe shortages may arise, although supply contracts are still in force. Export bans usually fall under “force majeure” and are therefore reason enough to terminate the contract, says the Dutch Chain of Oils and Fats (MVO) organization. These countries will have to find alternatives, such as refining more crude oil themselves, switching to other types of oil, or buying from another country.

2 How does this affect the Dutch market?

MVO says the Dutch market is “not or hardly affected” by the Indonesian ban on palm oil exports. The Netherlands mainly imports crude oil and hard palm fat. Less than 5 percent of the palm oil that the Netherlands buys is refined from other countries. According to Frans Claassen, head of the chain organization, the Netherlands refines the vast majority of palm oil itself. Large companies such as Cargill and Wilmar refine the oil and sell it to Dutch and European customers.

In addition, the Netherlands also imports a lot of palm oil from other countries: only 17.5 percent of the total imports came from Indonesia in 2021. The rest comes from Malaysia, Papua New Guinea and Latin America.

If there is a shortage of refined palm oil here and there, that can reasonably be resolved by refining more of the oil ourselves or by importing it from other countries, says MVO.

The international division of Unilever said in a statement that it does not expect a significant shortage in supply chains, including for consumers. The company said the company has long been “mitigating risks and making supply chains resilient.”

3 What will the Dutch consumer notice?

Since much of the palm oil is refined in the Netherlands and the crude oil is mainly imported, Dutch consumers will not notice the export ban. The already growing vegetable oil prices will go up as a result of the ban. In the end, this will also be reflected in the prices of products in the supermarket.

The price of soybean oil, for example, jumped sharply last Friday, when Indonesian President Joko Widodo announced the ban. MVO’s Claassen predicts that this sharp uptrend has indeed turned and will continue, because it is now clear that the ban is only about cooking oil and not crude palm oil.

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