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Indonesia Extends Export Prohibition to Crude Palm Oil

The palm oil business has been sent into a spiral as a result of Indonesia's export strategy. Prices have swung back and forth, soaring one moment as traders worried that the ban would apply to all items due to a lack of information in the first statement, then plummeting the next as details surfaced indicating the measure would be limited to particular refined commodities.

Shruti Kandwal
World's largest exporter of edible oils, Indonesia, is expanding the ban on crude palm oil.
World's largest exporter of edible oils, Indonesia, is expanding the ban on crude palm oil.

Indonesia, world's largest exporter of edible oils, will expand its export restriction to include crude palm oil, adding to the instability in a sector that has seen dizzying price fluctuations and threatens to exacerbate global food inflation.

At a press conference on Wednesday, Coordinating Minister for Economic Affairs Airlangga Hartarto said the prohibition will be extended to crude palm oil, RBD palm oil, and used cooking oil. He had previously stated that the halt would only apply to palm olein. The regulation will go into effect on April 28 and will continue until domestic cooking oil prices fall.

The palm oil business has been sent into a spiral as a result of Indonesia's export strategy. Prices have swung back and forth, soaring one moment as traders worried that the ban would apply to all items due to a lack of information in the first statement, then plummeting the next as details surfaced indicating the measure would be limited to particular refined commodities. Futures rallied 10% just before the latest announcement.

It's another example policy reversal that has sparked concerns about Indonesia's brand image. The country is a significant commodity exporter that has previously put limitations on nickel and coal exports. The industry is kept on its toes by speculation about what Indonesia may do next.

Indonesia's action, which accounts for a third of global edible oil exports, is part of a wave of agricultural protectionism that has swept the globe since the Ukraine conflict started, as nations strive to preserve their own food supplies as farm prices rise. The restriction risks worsening food prices, which has been accelerating at an alarming rate, and raising the prospect of a full-fledged starvation problem.

Indonesia has been roiled by local shortages of edible oils, which have resulted in mass protests over high food costs and the incarceration of a trade official in a corruption case. The turmoil has become a crucial political problem for President Joko Widodo, as rising cooking oil prices threaten to raise other food prices ahead of the Eid al-Fitr festival, which is traditionally marked by feasts and celebrations.

"Once the domestic demand is met, I would undoubtedly lift the export prohibition because I understand how the government need taxes, abroad profits, and a trade surplus," stated Jokowi, Indonesia's president. "The needs of the people prevail."

Futures for July delivery had earlier surpassed the 10% trading limit in Kuala Lumpur, ending at their highest level since March 9. During the late-night trading session, the market extended its gains, surging as high as 2.1 percent. Soybean oil, palm's main competitor, rose as much as 4% to a record peak in Chicago.

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