Indonesia’s Ban on Palm Oil Exports Raises Global Concerns

Indonesia has announced a ban on its export of palm oil, with effect from April 28. The decision has been taken to curb the sharp rise in Indonesian palm oil prices and ensure the availability of food products at home. Indonesia is the second Asian country after Sri Lanka, which is experiencing severe inflation.

Prices have rallied of late mainly because of the Russia-Ukraine conflict. Both countries are the biggest producers of sunflower and soybean oil. Together these countries offset nearly 80 percent of the global demand for these edible oils.

The global buyers have turned their attention towards the closest substitute, i.e. palm oil after February 24, when the war started. As a result, the worldwide demand for palm oil has accelerated, leading to a rise in exports from Indonesia.  The country had imposed restrictions on palm oil exports in late January but lifted them in March. Palm oil production in Malaysia was hindered, particularly during the 2020/21 marketing year, due to their reliance on migrant workers.

As unlocking activity eased, demand started recovering, thereby favoring the price rise. Malaysian palm oil prices have started moving up since May 2020 and nearly appreciated by nearly 400% to date. 

The decision to ban palm oil export by Indonesia has raised concerns regarding the further rise in global prices of major vegetable oils hence the prices of soya, refined and sunflower oil are expected to move up soon. The Indian market has been adversely affected by increasing prices of palm oil as well since it is one of the biggest importers of vegetable oil. India imports nearly 60 percent of its edible oil, and palm oil comprises 60 percent of this demand.

Indonesia supplies around half of our palm oil requirements and the crisis in this Southeast Asian country has pushed edible oil prices in India by 20-25 percent already and the recently imposed ban is expected to push up prices further.