Indonesia is taking additional steps to increase palm oil exports by temporarily removing export levies. The move, aimed at reducing bloated domestic inventories, comes less than two weeks after the government increased its quotas on palm oil export volumes.
Relaxed export restrictions by the world's biggest palm oil producer and exporter will further weigh on global prices for palm and other vegetable oils. Palm oil prices are currently down nearly 50% from their April peak, but are still up about 44% from two years ago.
That’s welcome news for consumers and food companies. Gro’s US Vegetable Oil Price Index, part of the Gro Custom Price Index Application, shows that in the US, a basket of vegetable oils commonly used by food manufacturers is up by high single digits from a year ago. That decline, which has been aided by a selloff in crude oil, represents a sharp deceleration from June 2022, when the index was up more than 40% year over year.
Tumbling vegetable oil prices have contributed to an overall easing of food price inflation. Gro’s US Food Price Index, which reflects prices based on consumption of a wide range of food items, has declined in each of the past two months after hitting an all-time peak in May.
Palm oil is the most widely consumed of all edible oils, and its price has a big impact on the cost of rivals like soybean oil.
Indonesian palm oil producers have been struggling with high inventories and weak domestic prices since the country banned exports for three weeks, ending in mid-May, in an effort to control rising domestic prices for palm-based cooking oil. The elevated inventory comes as both Indonesia and Malaysia, the second-largest palm oil producer, begin to ramp up their harvests ahead of the seasonal peak in October/November.
Indonesia’s push to boost exports has dampened sales for Malaysia, where crude palm oil inventories rose 6.2% in June from the previous month. In addition, traditional buyers, including China and India, have sharply scaled back palm oil purchases from Malaysia this year amid high prices; in the first half of 2022, shipments to China were down 24% and to India were down 11%, compared with a year earlier, according to the Malaysia palm oil board.
Palm oil prices might still need to fall further to attract buying interest from China and India, the two biggest importers. China continues to show negative import margins for discretionary imports of palm oil, due in part to the higher US dollar. India, meanwhile, has adequate domestic inventories for now.
Indonesia’s latest export push cut crude palm oil export levies to zero from $200 a tonne from July 15 to August 31, 2022. A progressive palm oil export levy will be applied beginning September 1, with the rate set between $55 and $240 per tonne, depending on prices.
How to Monitor Food Price Inflation Using Gro:
Gro’s US Food Price Index reflects prices based on consumption of a wide range of food items and can be customized and weighted for Gro users based on their commodities of interest. The index provides an inflation estimate for the current month, which is up to six weeks ahead of when official inflation data becomes available from governments.
Gro’s Custom Price Index Application lets a user create a price index based on a food product’s key ingredients and weightings data, enabling more effective input cost management practices.