Oil World Analyst Values Jokowi's Decision To Ban CPO Exports Will Trigger Global Food Inflation

JAKARTA - President Joko Widodo (Jokowi) has decided to ban the export of crude palm oil (CPO) and its derivatives. This step was taken to ensure the fulfillment of domestic needs. As a result, world soybean oil prices soared to record highs.

Indonesia's decision to effectively ban palm oil exports has raised concerns about the depleted global supply of alternative vegetable oils.

Moreover, the loss of shipments of sunflower oil from Ukraine, as a major exporting country and drought in Argentina as the world's top soybean oil exporter, have triggered a sharp rise in global vegetable oil prices.

Quoted from Reuters, the tightening of vegetable oil supplies comes as the easing of COVID-19 restrictions has triggered a surge in demand for food and biofuels. While plans to expand processing capacity, most of the new facilities will not be online for at least a year.

Soybean oil prices on the Chicago Board of Trade rose to a peak of 83.21 cents per pound on Friday, up 4.5 percent on the day. It was a record high, before retreating back to 81.42- still a record for the most actively traded futures contract. Prices have now increased nearly 50 percent so far this year.

Not only that, Indonesia's move to ban exports of CPO and cooking oil starting April 28 to deal with rising domestic prices is considered to trigger global food inflation.

"This is bad news for vegetable oil consumers in many countries that currently rely heavily on palm oil given the shortage of sunflower oil, rapeseed oil and soybean oil," said Siegfried Falk, an analyst with Oil World. .

As is well known, food inflation has become a major concern worldwide after Russia's invasion of Ukraine, a major exporter of wheat, corn, barley, sunflower oil and rapeseed oil.

Argentina, the world's top supplier of refined soybeans ahead of Brazil and the United States, briefly halted sales of new soybean oil and soybean flour overseas in mid-March, before raising export tax rates in a bid to curb domestic food inflation.

National Oil Seed Processors Association Chief Executive Officer Tom Hammer said it would be difficult to increase that capacity further until the new plant is operational. Meanwhile, another 10 to 12 new soybean processors will be operational in the United States by 2025, with the first expected to enter service in 2023.

"In the end there will be more capacity (but) there is still a long way to go," Hammer said.

Palm oil is the most widely used vegetable oil in the world and is used in the manufacture of many products including biscuits, margarine, detergents and chocolate. Stopping shipments of cooking oil and its raw materials from Indonesia could also increase costs for packaged food producers globally and forcing governments to choose between using vegetable oils in food or for biofuels. Moreover, Indonesia accounts for more than half of the global supply of palm oil.