Indonesia Seeks to Balance International, Local Palm Oil Demand -Official

PALM OIL - JAKARTA. Indonesia is seeking a balance between capitalising on high global palm oil prices while ensuring food at home is affordable, a senior government official said on Wednesday, amid the country's ongoing ban on exports of the vegetable oil.

The Southeast Asian nation, the world's top palm oil producer, has since April 28 halted exports of crude palm oil and refined products in order to control soaring prices of cooking oil at home.

The surprise move rattled global vegetable oil markets that were already struggling after the war in Ukraine removed a big chunk of sunflower oil supply. Palm oil makes up more than a third of the world's vegetable oil market, while Indonesia accounts for around 60% of palm oil supply.

Musdhalifah Machmud, deputy coordinating economics minister, said the government wanted palm oil to not only be available but also affordable.

"As government, we have to keep a balance between high international prices and (controlling) domestic prices to fulfil cooking oil demand for our people," she said.

The official said she could not make any promises regarding future palm oil policy since oversight involved various ministries and she was "waiting for the best decision on palm oil from our highest leader".

Fadhil Hasan, an official at the Indonesia Palm Oil Association (GAPKI), said he hoped the ban could be lifted within two weeks to a month.

Chief economics minister Airlangga Hartarto has said the ban will stay in place until bulk cooking oil price drops to 14,000 rupiah ($0.9629) per litre across the country. As of Tuesday, Trade Ministry data showed bulk cooking oil was being sold at 17,600 rupiah per litre.

Gabriel Tay, associate economist at Moody's Analytics, said in a research note that while the export ban may address the high price of cooking oil, it will be a "Pyrrhic victory", which could harm Indonesia's economy.

"Hasty and poorly communicated policies do not instil confidence in the government; investors crave policy stability," Tay said, noting that Indonesia had also imposed a surprise coal export ban earlier this year and the palm oil ban was preceded by various policy changes which could deter direct investment.

"This will be detrimental to Indonesia's ambition to transition from an exporter of largely unprocessed raw materials to a manufacturing nation."

Moody's Analytics operates independently from the credit rating agency Moody’s Investors Service.