Seeing the list of policy changes and flip-flops that occurred since late-January 2022, we decided to use some more words to discuss this topic. After all, Indonesia being the world’s biggest producer and exporter of palm oil, any state intervention will not only affect Indonesia (for example by undermining the export performance), but it will also affect the entire world as there occurs a sudden and drastic decline in global palm oil supplies, hence palm oil prices are bound to rise significantly (which can in fact cause big inflationary pressures as palm oil is used in a wide range of products).

First, a brief chronology of what happened in Indonesia in terms of policies related to cooking oil and palm oil over the past couple of months.

Chronology Recent Palm Oil Policy Changes:

October 2021

Prices of cooking oils on the Indonesian market (where palm oil-based cooking oils are in high demand) started to rise after global palm oil prices had showed steep growth since May 2020

November 2021 – January 2022

It became increasingly clear that Indonesian supermarkets were having trouble to have enough palm oil-based cooking oils on their shelves

27 January 2022

The Indonesian government imposes a 20% domestic market obligation (DMO) on cooking oils and crude palm oil, meaning exporters need to sell (at least) 20% of their products on the domestic market 

1 February 2022

The Indonesian government imposes a retail price ceiling (Harga Eceran Tertinggi, HET) on cooking oil ranging between IDR 11,500 and IDR 14,000 per liter depending on type of cooking oil (bulk, simple packaged and premium packaged) to keep prices in check

10 March 2022

The DMO for crude palm oil is raised from 20% to 30% ahead of Ramadan as the shortage of cooking oils continues

17 March 2022

The Indonesian government revokes the DMO and the retail price ceiling (HET); cooking prices then soared

 18 March 2022

A Finance Ministry Regulation raises the maximum export levy on crude palm oil exports to USD $375 per ton if the reference price exceeds USD $1,500 per ton

30 March 2022

On top of the export levy, a new Finance Ministry Regulation confirmed that 24 palm oil-related (derivate) products are subject to an export tax that will be highest if the reference price exceeds USD $1,250 per ton. For example, the maximum export tax for crude palm oil would be USD $200 per ton

19 April 2022

The Attorney General's Office names four suspects in a palm oil export corruption case, involving a foreign trade official, and the management/commissioners of Permata Hijau Group, Wilmar Nabati Indonesia, and Musim Mas. It is suspected these companies failed to comply with the DMO (yet were given the green light to export palm oil)

22 April 2022

Indonesian President Joko Widodo announces that the government will ban exports of palm oil and derivate products as well as cooking oils per 28 April 2022

28 April 2022

Indonesia imposes a ban on cooking oils and cooking oil materials (including crude palm oil, red palm oil and refined, bleached, deodorized palm olein)

And so, per 28 April 2022, a full ban was imposed on Indonesian exports of palm oil-related products, most notably crude palm oil (CPO), palm kernel oil (PKO), palm olein, and cooking oils (through Trade Ministry Regulation No. 22 of Year 2022). The ban, which is imposed in the whole territory of Indonesia (therefore it includes Free Trade Zones and Ports (in Indonesian: Kawasan Perdagangan Bebas dan Pelabuhan Bebas, abbreviated as KPBPB), came as a surprise to us.

Policy flip-flops are a sign of poor governance, and perhaps the government is simply a bit clueless on what to do to solve the cooking oil shortage problem. For example, Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto first said CPO exports would not be included in the ban. But one day later CPO was added onto the list. So, there seems to be a mixture of cluelessness as well as weak coordination and communication at the political top.



Based on statements expressed by Indonesian government officials, the main reason behind the shortage of cooking oils on the Indonesian market (and subsequent price increases) is that domestic palm oil players are ignoring the domestic market amid very attractive global palm oil prices.

But, we should also not ignore the possibility that Indonesia’s biodiesel program (a program we discussed in detail in our January 2022 report) adds to shortages on the domestic market. Based on data from the Indonesian Palm Oil Producers Association (Gapki), Indonesia’s biodiesel program absorbed 7.34 million tons of CPO in 2021, while the country’s food processing industry absorbed 8.95 million tons of CPO last year. For comparison, in 2015, Indonesia’s biodiesel program only needed 794,000 tons of CPO, and domestic food processing needed 6.71 million tons. And so, demand from the domestic biodiesel program has been growing steeply over the past couple of years. In combination with the sudden focus of palm oil players on export markets, this could easily have aggravated the situation.

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