Why Indonesia’s Palm Oil Export Ban Has Not Stopped Rising Cooking Oil Prices

By Bernadette Christina and Fransiska Nangoy

Indonesia, the world’s largest exporter of palm oil, has imposed a ban on shipments of the edible oil since April 28. This decision aims to increase domestic supplies and address the surging prices of cooking oil, a vital commodity for Indonesian households.

Despite the implementation of these stringent measures, which have disrupted edible oil markets and resulted in significant revenue losses, cooking oil prices remain high. This situation has impacted the approval ratings of President Joko Widodo.

Efforts to Control Cooking Oil Prices

Since November, the government has introduced a series of complex policy measures—including subsidies, export permits, a palm oil levy, and export bans. However, these efforts have not succeeded in aligning cooking oil prices, heavily reliant on palm oil, with government-set targets in Indonesia, the world’s fourth most populous nation.

Current State of Cooking Oil Prices

Indonesian officials have committed to lifting the export ban once the nationwide price of bulk cooking oil reaches 14,000 rupiah (approximately $0.96) per liter. While the average price of cooking oil has decreased from its peak, recent trade ministry data indicates that it still stands at approximately 17,300 rupiah per liter; this is slightly lower than the 18,000 rupiah average in April but higher than the 13,300 rupiah reported in July.

Accusations of a "Palm Oil Mafia"

Trade Minister Muhammad Lutfi has attributed some of the price issues to a so-called "palm oil mafia" exploiting the situation. This claim has raised alarm within one of Indonesia’s major export sectors; the attorney general has launched an investigation into corruption related to palm oil export permits, resulting in the arrest of a senior official from the trade ministry and three executives from the palm oil sector.

Challenges in Cooking Oil Distribution

In an attempt to lower cooking oil prices, the government has tasked the state food procurement agency, Bulog, with increasing distribution efforts. However, Bulog recently stated that a necessary regulatory framework is still pending, hindering plans to distribute subsidized cooking oil at the target price of 14,000 rupiah.

Bureaucracy as a Hindrance

Gulat Manurung, chairman of the smallholders farmers group APKASINDO, criticized the complicated government bureaucracy for delaying subsidy efforts for palm oil. Although the government has allocated a subsidy to bridge the gap between production and selling prices, the need for a detailed list of distributors and retailers for palm refiners to receive payments has complicated the process. Any inaccuracies could result in legal repercussions.

"Factories have the cooking oil, but they are not selling to consumers," Gulat said, advocating for a more streamlined process.

Government’s Distribution Improvement Plans

The trade ministry recently announced an initiative to ensure that affordable cooking oil reaches low-income households across numerous locations. Retailers will be allowed to sell bulk cooking oil at 14,000 rupiah per liter to customers who provide identification.

Regarding distribution challenges, industry ministry official Merrijantij Punguan Pintaria cited various factors, with logistics and transportation limitations being significant obstacles.

Future Prospects

President Joko Widodo, commonly referred to as Jokowi, has emphasized that addressing the need for affordable food outweighs revenue concerns, indicating that the export ban will only be lifted after domestic demands are adequately met. Traders speculate that the ban could soon be partially lifted as storage capacities begin to fill up.

The political landscape is critical, as a recent poll revealed that the president’s approval rating has reached a six-year low, primarily due to rising cooking oil prices and their inflationary impact.