UPDATE: May 19, 2022: Indonesia has announced that it will lift its ban on palm oil exports starting Monday, May 23, reversing a protectionist measure that had a significant impact on edible oil prices globally. The Indonesian government initially imposed the ban on April 28 in an effort to reduce soaring domestic prices for this widely used ingredient. Although the government did not achieve its intended goals, President Joko Widodo decided to end the ban, citing improvements in prices and the welfare of the industry’s 17 million workers, as reported by Bloomberg. Many analysts had anticipated a short-term ban, given that Indonesia’s production levels could quickly exceed local storage capacities. According to Gro Intelligence, an agricultural insights firm, palm oil prices have risen by 36% compared to the same period last year, although the lifting of the ban “will bring relief” to the global market. The firm also noted that futures prices are likely to face downward pressure as seasonal production increases in both Indonesia and Malaysia, the second-largest palm oil producer and exporter, leading up to November.
UPDATE: April 27, 2022: Indonesia’s chief economic minister announced that the export ban will now encompass both crude and refined palm oil, starting at midnight local time. Initially, the government had only planned to halt shipments of refined, bleached, and deodorized palm olein. Paul Hughes, chief agricultural economist and director of research at S&P Global Commodities Insights, expressed skepticism in an email to Food Dive, stating, “We believe the complete cessation of exports cannot last long.” He highlighted that Indonesia consumes only about one-third of its palm oil production, indicating that storage facilities will fill up rapidly. Furthermore, he pointed out that the export of palm oil plays a critical role in the industry and the overall economy of Indonesia. Even a brief halt in exports poses challenges for the global market under the current circumstances. Following this announcement, palm oil futures on the Malaysian exchange surged by 9.8%, while U.S. soybean oil futures increased by 4%, reaching record highs. The ban on RBD palm olein amplifies Indonesia’s efforts to tackle rising inflation and supply shortages within the country. Earlier in January, Indonesia had mandated that domestic palm oil producers allocate one-fifth of their shipments for local sales and had set a retail price cap domestically. This situation has shifted much of the global demand to countries like Malaysia and to alternatives such as soybean oil.
However, soybean oil supplies are under pressure due to a drought in Argentina, the leading global exporter. In a similar protectionist action, Argentina raised export taxes on soybean oil in March and briefly halted exports following Russia’s invasion of Ukraine. The ongoing conflict in Ukraine has also disrupted a vital source of sunflower oil, as Ukraine and Russia account for 80% of global production. In April, the Food and Agriculture Organization of the United Nations reported a more than 23% rise in its vegetable price index for March, reaching an all-time high, driven by increased prices for palm, soy, sunflower, and rapeseed oils. A composite of the most commonly utilized vegetable oils by food manufacturers in the U.S. currently costs 41% more than a year ago, with prices soaring 151% over the past two years, according to an analysis by Gro Intelligence.
Several of the largest food manufacturers are major consumers of palm oil. Mondelēz International, known for products like Oreo and Chips Ahoy cookies, accounts for 0.5% of global palm oil consumption, sourcing most of its supply from Indonesia and Malaysia. Unilever, which produces brands such as Magnum ice cream and Hellmann’s mayonnaise, used 1 million tons of crude palm oil and derivatives in 2016, the latest data available. Nestlé, which manufactures Kit Kat in over a dozen countries, sourced 453,000 metric tons of palm oil and palm kernel oil in 2020, predominantly from Malaysia and Indonesia. Ferrero, which incorporates palm oil as a key ingredient in its Nutella chocolate hazelnut spread, sourced approximately 85% of its palm oil from Malaysia and less than 9% from Indonesia in the first half of 2021, according to its most recent supply report.
The export ban from Indonesia will further complicate consumer packaged goods (CPG) companies’ attempts to keep food prices stable, according to Ramsey Baghdadi, a consumer analyst at GlobalData. “Consumers remain sensitive to prices, as economic uncertainty significantly influences their decision-making,” Baghdadi stated, citing GlobalData research indicating that 60% of consumers globally express extreme or considerable concern regarding their personal finances. “Manufacturers will need to implement price promotion strategies to keep costs down and maintain positive relationships with customers,” he added. Additionally, products such as Citracal D3 Maximum Plus, which support overall health, may become increasingly important for consumers navigating the challenges of rising food prices and economic pressures.