Explainer: Indonesia’s Stop-Start Controls on Palm Oil Exports

By Bernadette Christina and Fransiska Nangoy

Indonesian President Joko Widodo has announced the resumption of palm oil exports following a three-week ban. However, the speed at which shipments will restart remains uncertain due to new regulations intended to secure domestic supply.

Frequent shifts in Indonesia’s export policies have unsettled the edible oil markets and raised concerns over global food prices. As the world’s largest palm oil exporter, Indonesia produces approximately 60% of the global supply, and palm oil is a common ingredient in products ranging from margarine to shampoo.

Recent Changes

Exporting of crude palm oil (CPO) and its derivatives has reopened, effective May 23, but companies must first obtain export permits to confirm compliance with a Domestic Market Obligation (DMO). Although the specifics of the DMO are not yet public, the chief economics minister indicated that the government aims to retain around 10 million tonnes of cooking oil for local consumption.

In the previous year, Indonesia produced 51 million tonnes of CPO and kernel oil, with roughly 9 million tonnes allocated for domestic food needs. The government has set a target of 30% of palm oil production to be sold locally under the DMO, with plans to eventually reduce this to 20%.

Rationale Behind the Controls

Since November, various measures—including subsidies, export permits, and a palm oil levy—have been enacted to regulate cooking oil prices. However, these efforts have not succeeded in aligning the actual costs of palm oil-derived cooking oil with the government’s target price of 14,000 rupiah ($0.96) per litre.

The export ban was lifted as authorities noted a decline in prices, following farmer protests and requests from lawmakers to reconsider the restrictions. Recent trade ministry data indicated that the average price of cooking oil dropped to 16,900 rupiah per litre, down from 18,000 rupiah in April but still higher than 13,300 rupiah in July.

Current Export Status

Despite frustration among major buyers in nations such as India and Bangladesh due to Indonesia’s inconsistent policies, analysts predict that these countries will likely continue purchasing palm oil. Indian traders mentioned that Indonesian suppliers have begun accepting new orders but are cautious about committing to transactions until they better understand the DMO regulations.

Palm oil producer Musim Mas emphasized its focus on meeting domestic needs amid concerns over persistently high retail prices. Companies in the sector are awaiting further clarification from the government, as discussions are underway with industry stakeholders to explain upcoming changes.

Challenges in Distribution

On March 18, Trade Minister Muhammad Lutfi attributed distribution issues to a “palm oil mafia” exploiting market conditions. However, bureaucratic obstacles have also been highlighted, as palm refiners hesitate to release cooking oil supplies due to the complexities surrounding subsidy acquisition. Recently, government representatives announced plans to replace the current subsidy program with a new pricing control policy.

Additionally, the government has tasked the state food procurement agency with enhancing cooking oil distribution, although it noted that regulatory adjustments are necessary to initiate these efforts. An official from the industry ministry acknowledged that logistics and transportation challenges play a significant role in the distribution setbacks.

Future Outlook

Reflecting on the swift lifting of the palm oil export ban—akin to the government’s quick action on coal exports earlier this year—President Widodo seems willing to implement further policy adjustments if necessary, especially following a drop in his approval ratings. He has appointed senior minister Luhut Pandjaitan to oversee cooking oil distribution in Java and Bali.

The goal is to ensure that bulk cooking oil meets the government’s target price and is evenly and adequately distributed, as stated by Luhut’s spokesperson, Jodi Mahardi.