The Southeast Asian country is the world’s largest producer of palm oil, said James Fry, chairman of consultancy LMC International, and Friday’s announcement sent prices “raging” on the commodity. Malaysia’s crude palm oil futures, a global benchmark, jumped nearly 7%.
But the restrictions are still expected to include palm olein, a more processed product used for cooking oil and which makes up an estimated 40% to 50% of Indonesia’s exports, according to analysts. This would fuel inflation, just as global food prices are at an all-time high.
What is palm oil?
The commodity is also used for cooking in many countries, including India, the world’s largest importer.
Fry said that the price Many pantry items, such as cooking oil, instant noodles, snacks, baked goods, and margarine can It rises when the restrictions in Indonesia come into effect.
“We have the perfect storm,” he added, noting that other factors, such as drought in South America and Canada, also hampered supplies of soybean oil and canola oil, respectively.
Why is Indonesia taking this step?
The country has already taken other steps to protect domestic supplies. In January, it introduced a policy requiring exporters of palm oil products to sell 20% of their total exports domestically, according to the United States Department of Agriculture (USDA).
But the problem persisted, prompting the government to take a drastic step last week to block exports.
Who makes more?
It is followed by Malaysia and Thailand with 25% and 4% of global production, respectively. Colombia, Nigeria and Guatemala are also major producers.
Some analysts say Malaysia can help make up the shortfall, But it is facing its own supply problems.
Sathia Varqa, co-founder of Palm Oil Analytics, an independent market data publisher, said Malaysia has been suffering from a labor shortage since the pandemic.
Analysts at JPMorgan wrote in a note on Friday that “stocks are also historically low” in Malaysia.
Other countries feel upset.
India, which is highly dependent on the import of vegetable oils, I’ve already felt the impact of the recent shortage, according to BV Mehta, CEO of Solvent Extractors Association of India.
He told CNN Business that people are turning to other ingredients, such as rapeseed oil and peanut oil, in response to rising prices for sunflower and palm oils.
Mehta is pressing the Indian government to increase its production of these commodities due to the food security “crisis”.
“The high prices of the past two years have taught us to raise our products and productivity, and with the question of Ukraine and now Indonesia… [it] We learned a good lesson.”
Why is this particularly bad now?
The Indonesian ban comes at a bad time for global consumers.
The United Nations Food and Agriculture Organization (FAO) said earlier this month that global food prices jumped to an all-time high in March. According to the report, “the war in the Black Sea region has caused shocks across the markets for essential grains and vegetable oils.”
The latest FAO Food Price Index – which measures the monthly change in international prices for a basket of food commodities – was 33.6% higher than it was in March 2021.
In their report on Friday, JPMorgan analysts said the Indonesian export ban was “adding fuel to the fire.”
“This is yet another reminder of the vulnerability that exists across agricultural supply chains in an environment of already historically tight stocks, exacerbated by the unspecified loss of Ukrainian export volumes and historically high production costs,” they wrote.
In a way, Fry said, the world was dependent on palm oil from Indonesia to “fill the gap” left by other disturbances — and “Indonesia suddenly blocked that influx.”
Anna Cuban, Claudia Dominguez, Levi Doherty, Chris Liakos, Julia Horowitz and Jorge Ingels contributed to this report.
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