Indonesia to Reinstate Local Palm Oil Sales Regulation as Export Ban Concludes, Reports Reuters

By Fransiska Nangoy and Bernadette Christina

JAKARTA – Indonesia announced on Friday that it will reinstate a domestic sales requirement for palm oil, a move that comes just one day after the country, the largest producer of this vital edible oil, lifted a ban on exports.

The government, led by President Joko Widodo, has altered its palm oil policies several times since November. The export ban implemented in late April aimed to stabilize soaring domestic cooking oil prices and sent shockwaves through global edible oil markets, much to the discontent of farmers whose product prices subsequently fell.

Palm oil is a key ingredient in a wide range of products, including margarine and shampoo, and makes up about one-third of the global vegetable oil market, with Indonesia supplying approximately 60% of it.

On Thursday, President Widodo announced the end of the export ban, which had been in place for three weeks, despite the fact that the price of bulk cooking oil still exceeds the government’s target of 14,000 rupiah (approximately 96 U.S. cents) per liter.

Economy Minister Airlangga Hartarto stated on Friday that the government would implement a Domestic Market Obligation (DMO) for palm oil, mandating that 10 million tonnes of cooking oil remain available domestically.

"The trade ministry will determine the specific percentage of the DMO that each producer must meet and the methods for producing and distributing cooking oil to local communities," the coordinating minister for economic affairs indicated during a virtual briefing.

Additionally, the state food procurement agency will be responsible for establishing a buffer stock of cooking oil. In his announcement regarding the resumption of exports, Widodo expressed optimism that cooking oil prices would begin to align with the set target and assured that supply levels would be closely monitored.

Previously, the government had enforced a DMO of 20% on planned exports in January, increasing it to 30% in March before scrapping it in favor of higher export levies.

PALM OIL FUTURES REBOUND

Airlangga highlighted that the ban had successfully raised monthly cooking oil stock levels to 109% of monthly demand, up from 33% in March, and had reduced the average price of bulk cooking oil from 19,800 rupiah to 17,000 rupiah per liter as of Thursday.

Economists from Nomura noted that unresolved issues, including distribution and hoarding, continue to contribute to the high domestic cooking oil prices.

Analyst Ong Chee Ting from Maybank remarked that international crude palm oil prices are likely to soften following the government’s decision to lift the ban. He noted that the availability of Indonesian palm oil would likely place downward pressure on international prices, expressing relief for Indonesian growers.

Earlier in the week, Indonesian farmers protested against the export ban, which had caused a nearly 70% drop in the domestic price of palm fruits, according to Gulat Manurung, chairman of the Indonesian smallholders group. He welcomed the government’s decision to reopen exports, emphasizing the significance of palm oil for the nation.

Farmers and industry representatives expressed relief over the easing of the ban. The Indonesia Palm Oil Association’s secretary general, Eddy Martono, stated confidence that with plentiful domestic output, meeting the DMO would not pose a problem.

Following the announcement, Malaysian benchmark palm oil contracts fell initially by about 2% but later rebounded to gain over 3% as the market reacted to news of the DMO.

In financial markets, Indonesia’s rupiah appreciated by 0.47%, and the Jakarta stock index rose by approximately 1.75%.