Edible oil will soon be more expensive: Indonesia stops palm oil exports

Status: 04/25/2022 2:26 p.m

Indonesia halts palm oil exports This should cause the price of cooking oil to continue to rise. Other products such as ice cream, baked goods, pizza or chocolate could also become more expensive.

With an export stop for palm oil, Indonesia, as the world’s largest producer of the coveted vegetable raw material, wants to combat shortages and rising prices in its own country. The export ban should come into force next Thursday, announced President Joko Widodo. When the market in the country has stabilized and cooking oil is available again at affordable prices, he will reassess the decision.

In view of the scarce stocks, the price of cooking oil in the Southeast Asian country had risen sharply in recent months. This sparked protests that threatened to destabilize the government of the island nation of around 270 million people.

What is palm oil?

Palm oil is the world’s most produced, consumed and traded vegetable fat. Its market share is around 40 percent. It is used in chocolates, cosmetics and cleaning products. The US Department of Agriculture (USDA) estimates that a total of 77 million tons will be produced this year. So far, Indonesia has supplied 60 percent of global demand.

Malaysia is number two with a market share of 25 percent. The biggest buyers are India, China, Pakistan and Bangladesh. According to its own statements, “Milka” manufacturer Mondelez buys 0.5 percent of global palm oil production from companies. For the past two years, the coronavirus pandemic has impacted harvests as labor migration in Southeast Asia’s plantations has been restricted.

Prices climb to highs again

This will have consequences for global consumers and could also lead to higher prices for cooking oil as a result: “This decision not only affects the availability of palm oil alone,” warned commodity expert James Fry from the consulting firm LMC International. Because the ban falls at a time of supply bottlenecks everywhere: soybean oil because of a drought in South America, rapeseed oil because of a failed harvest in Canada and sunflower oil because of the war in Ukraine. This drove prices up by around 50 percent in the past six months.

Refiners are catching this on the wrong foot, said one market participant. In the past few weeks, they had drawn on their inventories in the hope of a price setback. “They can’t afford to wait any longer. They have to buy in to keep their plants running.” Against this backdrop, the palm oil futures on the Kuala Lumpur Stock Exchange and the US soybean oil contract headed back to their recent highs today.

Rainforest is being destroyed

Indonesia is the world’s largest exporter of palm oil. The red-brownish palm oil is extracted from the pulp of the oil palm. There is also palm kernel oil from the seed of the fruit. Malaysia, as number two, cannot compensate for these losses, said Atul Chaturvedi, head of the Indian trade association SEA.

Palm oil is mainly used in Asia for frying and frying, so alternatives are now needed. According to the environmental organization WWF, almost every second supermarket product contains palm oil. It can be found in chocolate spread, packet soups, creams, detergents, lipstick and biscuits as well as in biofuel. So if palm oil prices go up, it could affect the prices of the end products.

Indonesia has been criticized for destroying its rainforest for palm oil cultivation. The increasing number of oil palm plantations is destroying rainforest and causing significant ecological and social problems in the producing countries, as the consumer advice center reports: “Since oil palms grow almost exclusively where rainforests otherwise thrive, millions of hectares of forests, some of which are illegally cleared, are used for cultivation Victim.”

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