Indonesia Lifts Palm Oil Export Ban, Reinstates Domestic Market Obligation

Published May 25, 2022

Indonesia reversed its ban on palm oil exports in yet another in a string of policy changes since the start of the year. Indonesia will resume its exports of palm oil, however, it is subject to domestic quotas set as so-called domestic market obligations. Social unrest and widespread discontent with the export ban led to it being lifted before domestic prices cooled to the target of IDR 14,000 /liter announced in the ban. International prices dropped slightly after the announcement but rebounded as details of the domestic market obligations emerged.

Indonesia’s president, Joko Widodo, announced on Thursday (May 19th), that the ban on palm oil exports will be lifted, and it took effect on May 23rd. According to the presidential statement, the availability of cooking oil in the domestic market has improved and domestic prices retracted. Instead, oil mills are required to allocate a portion of their production to the domestic market, a so-called domestic market obligation (DMO). The finer details surrounding the DMO are still not clear, but Indonesia plans to allocate 10 million mt to the domestic market and keep 2 million mt in reserves.

Uncertainty Amid a String of Policy Changes

The Indonesian government has made close to ten major policy changes related to palm oil exports since the start of the year. Many of these policy changes, which ranged from domestic market obligations, to export levies, to capping the price of packaged cooking oils, were reversed or replaced with another policy only a few weeks later. The reversal of the export ban was again inconsistent with prior statements. After the export ban began on April 28th, no termination date was announced. It was later clarified that the export ban will remain in place until domestic palm oil prices drop to IDR 14,000 / liter. However, domestic prices were still well above that, at around IDR 17,000 / liter when the ban was lifted last week.

Effects of the Export Ban

Where the ban was intended to quell any social unrest and keep food inflation in check, it had the opposite result in some ways.

The export ban, which took effect on April 28th, caused general discontent across the nation’s estimated 17 million workers employed in the industry. The ban resulted in lower palm oil crushings and according to one of Indonesia farmer’s groups, Apaksindo, the ban led to a quarter of Indonesia’s palm oil mills temporarily halting purchases from farmers. The ban culminated with large-scale protests last week, by many of the country’s farmers and farmer groups. Indonesia’s palm oil production averaged 4.275 million mt monthly during 2021, and was only 4.031 million mt on average for the first two months of 2022. Production tumbled in May as a result of the export ban.

Furthermore, the Indonesian Rupiah plummeted after the ban was announced, losing 2% against the US Dollar in less than a month. While domestic cooking oil prices did decrease, other imports became more expensive, adding to consumer inflation.

International Prices Drop After Ban Is Lifted, But Rebound After DMO is Announced

International prices retreated throughout last week as there was some anticipation that the export ban would be lifted in the wake of social unrest. Palm oil prices as traded on the Bursa Malaysia, dropped to MYR 6,635.50 / mt on Thursday, May 19th, from MYR 6,939.00 / mt a week earlier. However, prices climbed higher again on news of the DMO, and closed at MYR 6,840 / mt on Monday, May 23rd. Prices will find direction as more details surrounding the DMO emerge.