A plantation worker carries oil palm fruit bunch in a plantation in Sukabumi, West Java, July 13, 2021. (Antara Photo/Raisan Al Farisi)

Indonesia Cuts CPO Exports for at Least Six Months to Tame Domestic Cooking Oil Crisis

BY :JAKARTA GLOBE

MARCH 10, 2022

Jakarta. Indonesia, the largest producer of crude palm oil, has decided to stifle its palm oil export over the next six months in a move designed for taming the cooking oil scarcity within its border, sending the commodity price to a new all-time high.

Indonesia has been faced with irony for several weeks now. Despite being responsible for production for two third of global palm oil output, the country could not make cooking oil available for its population at an affordable price in the past few months. 

Therefore, the government announced on Wednesday that it had decided to raise the cap in a mandatory domestic market obligation (DMO) for exporters. Starting today, the exporters must set aside 30 percent of any palm oil products in volume for the local market, up from previously 20 percent. 

Minister of Trade Muhammad Lutfi said he hoped the latest policy would stabilize the cooking oil supply in Indonesia over the next six months. 

"There are still many shortages. Therefore, we want to ensure that the stock is sufficient so that the industry that produces cooking oil can have sufficient stock so that this normal condition is achieved," Lutfi said.

Lutfi said the 30 percent export cap would stay for "at least for the next six months for us to see or review whether it needs to be increased. Or, we can adjust it when necessary until [the supply] is back to normal." 

Indonesia's decision sent the CPO price to a fresh all-time high. According to data from Malaysia Derivatives Exchange, the Malaysian crude palm oil futures for March delivery have increased by 618 Malaysian Ringgits to 7,621 Malaysian Ringgits per metric ton. For the April 2022 delivery contract, 769 Malaysian Ringgits were raised to 7,582 Malaysian Ringgits per metric ton.

Girta Yoga, a senior executive for research and development at  Indonesia Commodity & Derivatives Exchange (ICDX), said the country's latest policy would exacerbate the CPO supply problem in the global market. 

"Currently, Malaysia is also having problems with production due to the problem of labor shortages in palm oil plantations. So, Malaysian supply has not been able to cover the shortage of supply from Indonesia," Girta told the Globe's sister publication Investor Daily recently.

"It seems that CPO prices still have the potential to continue their bullish rally," Girta said.

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