Palm oil export ban over Indonesia faces international pressure Business and Economy

Medan, Indonesia – Palm oil exports amid soaring food prices worldwide

The ban on the biggest palm oil exporter has put pressure on edible oil prices at a time when supplies are already under strain due to poor harvests, the Ukraine war, and labor shortages caused by the COVID-19 pandemic.

President Joko “Jokowi” Widodo has justified the ban, saying on April 22, after a short-term measure, that palm oil is a key ingredient, soared more than 50 percent.

While Indonesia’s trade partners have yet to officially protest, the signs of discontent are emerging in countries, including India and Pakistan.

Analysts say it is likely that governments are making vocal representations to Jakarta behind the scenes.

“I have no doubt that official complaints will be coming, especially as the G20 in Bali later this year and this is not exactly the model behavior of a credible trading partner or a country holding the presidency of the G20,” James Guild an adjunct fellow at the S Rajaratnam School of International Studies (RSIS) in Singapore, told Al Jazeera.

“But there’s not much anyone can do. Indonesia is the largest producer of palm oil in the world.

Jakarta’s ban followed a raft of earlier measures aimed at controlling palm oil supplies, including a cap on cooking oil prices and a two-liter limit on the number of products that would be purchased at desperate customers queuing hours. Last month, palm oil prices rose more than 6 per cent on the Bursa Malaysia Derivatives Exchange, an all-time high in March.

“So far, no country has officially complained, including from the major importers of Indonesian palm oil such as China, India, and Pakistan,” said Ega Kurnia Yazid, an economic analyst at the Center for Strategic and International Studies (CSIS). told Al Jazeera. “However, signs of an increase in food prices are starting to appear in these countries.”

‘Trade barriers’

Last week, India raised concerns about “trade barriers” by the World Trade Organization (WTO), according to local media.

In late April, it was reported that nearly 300,000 tonnes of edible palm oil destined for India have been trapped in India.

Indonesia is the second largest supplier of palm oil to India after exporting more than 3 million tonnes of product to the South Asian country in 2021.

The Pakistan Vanaspati Manufacturers Association (PVMA) last week called on the Ministry of Industries and Production to “take up the issue with Indonesia”.

Pakistan imports 80 percent of its palm oil from Indonesia and 20 percent from Malaysia.

“In general, the impact of the ban on Indonesia’s palm oil exports has been rising. [CPO] It has reached an all-time high recently, ”Yazid said. “So far, it looks like Malaysia is seeking global compensation in Indonesia’s supply. Even so, of course, relying solely on Malaysia may not be enough to meet all the global needs. ”

Guild, the RSIS fellow, said the diplomatic implications of the ban will depend on how long it lasts.

“It’s more about sending a message to palm oil companies that they need to make the domestic market even if it’s their priority,” he said.

“It’s also about reassuring Indonesian consumers that the government is doing something to try and control the price of cooking oil. Once the government feels these messages have been received, they will lift the ban. So from that perspective, this is all about domestic political and economic considerations. In the state’s strategic calculus, it is worth it to roil global markets and upset trading partners in the short-term to achieve these domestic goals. ”

Indonesia has exported 34 million tonnes of palm oil products in 2020, generating more than $ 15bn in revenue, according to the Indonesian Palm Oil Association (GAPKI).

palm fruit
The Indonesian government says that palm oil is needed to ensure domestic supply and stabilize prices [File: Supri/Reuters]

Arie Rompas, a campaigner with Greenpeace Indonesia, said he expects the ban to be “exports are part of Indonesia’s economy and a major source of wealth for Indonesia’s oligarchs.”

“It’s hard to speculate on the impact of the ban,” Rompas said. “Not least the ban itself is unprecedented and also because it is unclear in terms of what it covers and how long it will be in place. Indonesia’s CPO storage capacity is already full, so the ban will likely be lifted soon. ”

While the Indonesian government is ostensibly enacted to ensure that domestic supply and stabilize domestic prices, the domestic market can absorb the amount of palm oil that the country produces – suggesting that it will need to surplus stocks.

Some observers have cautioned against the potential fallout of the ban.

“This is not Indonesia’s boycotting other people’s products,” Yohannes Sulaiman, a lecturer in international relations at Universitas Jenderal Achmad Yani in Bandung, told Al Jazeera.

“This is about refusing to sell. I am not sure if countries are so heavily dependent on Indonesian palm products that they can not afford our palm oil. If that was the case, maybe there was a diplomatic incident. But this is about business. ”

Guild said that in recent years, more aggressive use of export bans has been achieved, including restrictions on unreinforced nickel ore and coal, which may in part explain the government’s attitude to the latest ban.

“Every time they do this, they risk overplaying their hand, and ultimately this strategy will probably result in diminishing returns,” Guild said.

“But again, the government is well aware of all this. They simply made the calculation that prioritizing domestic overseas needs at the moment. This is the lead where one of the dangers is going down.

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