Your grocery bill is about to get even higher. Blame Indonesia.
2 min read 28 Apr 2022, 09:00 AM ISTHalf of India's edible oil imports come from Indonesia, say analysts
PremiumIndonesia’s cooking oil export ban kicked in from today in one of the most drastic cases of food protectionism since the war erupted in Ukraine. It adds to the impact of Russia’s invasion of Ukraine, which has already plunged the global edible oil market into disarray. Indonesia, the top shipper of palm oil has imposed a sweeping ban on cooking oil exports, covering palm oil products across the value chain. The tropical oil is found everywhere today -- in food, soap, lipstick and even printing ink -- which makes Indonesia’s move important for the world.
Indonesia accounts for a third of global edible oil exports. Restrictions will stay in place until domestic prices ease. India buys about 8 million metric tons of the edible oil annually, about half of which comes from Indonesia, according to an April 24 note from Jefferies India.
“Indian consumer staples have been grappling with high inflation and volatility in input pricing," Jefferies India analysts led by Vivek Maheshwari wrote in the report. “This development would exacerbate pressures."
Indonesia’s export ban is “inflationary for everyone," said Atul Chaturvedi, president of the Solvent Extractors’ Association of India. “If the supply chain is disrupted, companies will try to ration their supplies because they don’t know what’s going to happen tomorrow."
Indonesia's move adds to the impact of Russia’s invasion of Ukraine, which has already plunged the global edible oil market into disarray. The United Nations has urged leaders to keep trade open, warning that protectionism will drive up prices and lead to empty shelves in countries dependent on imports. But with world food costs surging to all-time highs, governments are taking steps to secure their own supplies.
Indonesia said earlier this month that it would suspend all shipments of cooking oil, sending prices of palm oil and its substitute soybean oil soaring. Then late Monday, reports emerged that only palm olein, a refined product, would be halted, prompting a swift retreat in prices and traders rushing to comply with the ban.
And later the government widened the ban to include crude palm oil, RBD palm oil and even used cooking oil. That covers the products across the entire supply chain.
The move is “one of the biggest acts of agriculture nationalism so far during this surge in food prices," said Tobin Gorey, an agri-commodities strategist at Commonwealth Bank of Australia.
President Joko Widodo late Wednesday said that the ban would be lifted once the local demand for food staples is met, adding that it was “ironic" that the country had difficulty getting cooking oil.
Palm oil prices have not only surged but Indonesia's export ban has also pushed up other cooking all prices. Soybean oil climbed to an all-time high in Chicago as Indonesia’s ban on crude palm oil exports further strains global commodities heavily relied on by developing nations for cooking food.
Indonesia's move also adds pressure on farmers in big oilseed-growing regions like North America to produce ample crops. The U.S. is already seeing signs of robust demand for future harvests, most notably from China.
