Indonesia’s announcement that it plans to ban exports of palm oil drove prices higher for a range of vegetable oils. May soybean oil futures jumped as much as 4% in volatile intraday trading Friday to their highest level on record.
The export ban is scheduled to take effect on April 28 and continue until further notice. Indonesia said the move is aimed at controlling rising domestic prices for palm-based cooking oil. The country is the world’s biggest producer and exporter of palm oil, the most popular type of vegetable oil.
Global inventories of several types of vegetable oils already are at some of their tightest levels in years, which has pushed prices steadily upward. The Russia-Ukraine war has driven further price gains as Black Sea sunflower oil exports are halted by the conflict. Edible oils are often interchangeable, so a shortage of one type exerts pressure on the others.
Increasingly, vegetable oils also are used as a replacement for fossil fuels, a usage that is forecast to grow rapidly as companies expand biofuel production capacity, especially in the US. In the past decade, biofuel production accounted for nearly 30% of the average annual increase in global vegetable oil consumption.
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Indonesia’s ban on exports is likely to further fuel global food inflation. In the US, a basket of vegetable oils commonly used by food manufacturers currently costs 41% more than a year ago, and has surged in price by 151% over the past two years, outpacing overall food inflation, according to Gro’s Custom Price Index application. By contrast, Gro’s US Food Price Index, which reflects price movements based on consumption of a wide range of food items, has increased 25% from this time last year and is up 39% from April 2020.
Indonesia has faced a rash of street protests over rising cooking oil prices, which have jumped by nearly two-thirds in recent months to about 22,000 rupiah (US$1.50) per liter. By contrast, world palm oil prices have made it more attractive for Indonesian producers to export their palm oil. Prices currently are topping 6200 Malaysian ringgit (US$1,450) per tonne, about double year-ago levels.
Indonesia has made other moves to control domestic cooking oil prices, including implementing price caps and requiring producers to sell a third of their exportable volume domestically. Those efforts were later scrapped, and a progressive levy system was put in place.
Import-reliant countries, already scrambling for alternative supplies because of the Russia-Ukraine war, will be particularly hit by the Indonesia ban on palm oil exports. India is the largest importer of vegetable oils, followed by China.