The world’s top palm oil exporter announced plans to ban exports on Friday, in a shock move that lifted prices of all edible oils and sowed confusion and alarm among palm oil exporters and consumers alike.

Market panic subsided on Monday after officials told palm oil executives the ban will only apply to exports of refined, bleached and deodorized (RBD) palm olein starting on Thursday, and would not affect flows of crude palm oil or other forms of derivative products.

However, Jakarta will widen the ban “if there is a shortage of refined palm oil,” according to a presentation the government gave to companies on Monday.

RBD palm olein accounts for around 40 per cent of Indonesia’s total exports of palm oil products, according to analysts’ estimates.

The prospect of further tweaks to export restrictions has caused jitters among Indonesian palm oil producers and processors who typically export over twice as much palm oil as is consumed domestically.

“Based on simple calculation, even before one month, all the tanks would be full if it’s a total ban,” said Eddy Martono, secretary general of GAPKI, Indonesia’s biggest palm oil association.

Once tanks run out of space, mills can’t process the fresh fruit bunches, which would rot and force production to drop, Martono told Reuters.

Indonesia’s ban on exports of RBD palm olein will become effective from midnight on April 28 and will remain until prices of cooking oil drop to 14,000 per litre, chief economic minister Airlangga Hartarto said late on Tuesday.

“We should see after the regulation is set, whether production is running smoothly and palm oil mills continues to buy fresh fruit bunches from farmers. If they reduce it means there is an indication the tank will be full,” Martono said.

Indonesia is now holding around five million tonnes of palm oil stocks, and the country’s storage capacity of around six million to seven million tonnes would be full by the end of next month, said a Singapore-based dealer with a global trading firm.

Indonesia produces around four million tonnes of palm oil every month and consumes around 1.5 million tonnes.

In 2021, Indonesia consumed 18.4 million tonnes of palm oil out of total production of 51.3 million tonnes, GAPKI estimates.

“As the domestic cooking oil market is not enough to absorb all the production, a more extended ban may hurt the industry, particularly the smallholders,” said Carolyn Lim, senior manager, corporate communications at Musim Mas, a palm oil producer with plantations in North Sumatra.

Since the ban only covers RBD palm olein, Musim Mas estimated it could last a few months. If it had cover a wider range of products, it would’ve been shorter, Lim said.

Fresh fruit bunch prices have already dropped by between 400 rupiah and 1,000 rupiah per kilogram since the announcement, from 3,700-3,900 per kilogram, Mansuetus Darto, secretary general of Indonesia’s Oil Palm Farmers Union, said in a statement.

“The ban is a political decision to support consumers. But if the government keeps it for a longer period, then farmers will suffer,” said a Mumbai-based vegetable oil dealer with a global trading firm.

Buyers of Indonesian palm oil have already voiced complaints about its export policies and will ask Jakarta to review the policy, said Rasheed JanMohd, chairman of Pakistan Edible oil Refiners Association (PEORA).

“It’s time for Indonesia to cut down use of palm oil for biodiesel and remove the ban. If Indonesia continues the ban, then we would ask the Pakistan government to speak to the Indonesian government to restore supplies,” JanMohd said.

India, the world’s biggest palm oil importer, has requested Indonesia to increase supplies. Read full story

— Reporting for Reuters by Rajendra Jadhav and Bernadette Christina Munthe.

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The agency’s data shows that on July 22 about 20,269 hectares of agricultural land were at risk of harvest failure because of drought. Spokesman Agus Wibowo said an estimated 3 trillion rupiah ($215 million) loss could occur if the drought problem is not addressed and harvests fail.

Indonesian president Joko Widodo last week ordered cabinet ministers and regional heads to take action to avoid crops failure.

Authorities plans to carry out cloud seeding from this month, shooting salt flares into clouds in an attempt to trigger rainfall in dry areas.

“Our priority is to maintain stability of food supply in Indonesia and avoid a drastic drop in production, which could result in a huge amount of imports,” Wibowo said.

The government will establish two bases for the operation, in the country’s capital Jakarta and in Kupang, East Nusa Tenggara. The operation will be focused on Java Island, Bali, West Nusa Tenggara and East Nusa Tenggara.

This year’s dry season is affected by a mild El Nino weather pattern, said Fachri Radjab at Indonesia’s meteorology and geophysics agency. Peak of dry season is expected to occur from mid-August to mid-September.

($1 = 13,940 rupiah)

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