Home Lifestyle Receipes Indonesia bans palm oil exports, should food makers be worried?

Indonesia bans palm oil exports, should food makers be worried?

Indonesia bans palm oil exports, should food makers be worried?

According to 2018 figures, a total of 72m tonnes of palm oil is produced annually – the majority (57%) of which comes from Indonesia, followed by Malaysia (27%). This week’s global headline was Indonesia. The country is the largest palm oil producer in the world.

In response to the shortage in palm oil supply, Indonesia’s government declared plans last week to prohibit exports. This will have a significant impact on industry around the globe and could lead directly or indirectly, to reducing production. Do the drinks and food industries need to be concerned?

Crude palm oil excluded from ban…temporarily

When the Indonesian government first announced the ban, its specifics were unclear.

It was clear that the global vegetable oil market had been and continues to be in crisis. Mintec analyst Kyle Holland explains that this is a result of the conflict in Ukraine. It also has to do with a low Canadian Rapeseed harvest and high demand from key international players like India.

In these circumstances, the majority of the market anticipates vegetable oil prices to increase as buyers tend to be’short’. A’scramble to supply’ may occur as producers try to meet volume requirements, Holland told FoodNavigator. A ban on exports by the world leader in palm oil production may have made food and drink manufacturers concerned.

palm oil ThamKC

Most palm oil derivatives Europe is interested in, such as crude and refined palm oil, will likely be unaffected by the ban, we were told. GettyImages/ThamKC

This concern was short-lived. The Indonesian agricultural ministry announced that all crude palm oil exports would be exempted from the ban on Monday. As reported by Reuters, the embargo – expected to come into force 28 April – applies to refined, bleached and deoderized (RBD) palm olein, which is used for cooking.

Ban extended to cover crude and refined palm oil

However yesterday (27 April), in a press conference Indonesia announced the ban would be extended to cover crude palm oil, refined palm oil and used cooking oil, among other palm oil products. Refined palm oil is used in many packaged foods, including cookies, cakes, ice creams, breads, pizza dough and instant noodles. Mintec expects that the market will take several days to digest this information and determine where it leaves global demand and supply balances.

“That being said, Indonesia accounts for over half global palm oil exports and the announcement comes as Ukrainian production and exports of sunflower oil have dropped substantially, whilst destination demand for vegetable oils is high as key buyers are short on cover and global stocks are limited.

“Therefore, everyone expects this to be exceedingly bullish for prices across the vegetable oil complex as buyers look towards substitutes for palm and sunflower oil.

“No one knows how high prices may go but the next few days should help clarify where new levels will be.”

palm oil ic36006

The ban may impact some countries where the domestic palm oil refinery capacity is not sufficient to meet its market requirements, according to RSPO. GettyImages/ic36006

Food makers in Europe are keeping a keen eye on the situation.

“We monitor this situation closely, but have no comment to make at this time,” a Nestle spokesperson told this publication on Monday. Nestle makes a variety of products using responsibly sourced palm oils, such as its famous Kit Kat bars.

Unilever is also following the development. The Vegetarian butcher is a plant-based company that uses palm oil responsibly. In a statement on Monday, the FMCG noted it was aware of the export ban from 28 April and is ‘monitoring the situation closely’.

“We are already well placed to look at alternative materials due to our supply chain resilience programmes, and currently have sufficient supplies to cover our needs. We do not foresee any immediate product shortages.”

There was no new update from Unilever as of today (28 April).

‘Satisfying market demand must be done sustainably’

Another stakeholder keeping its finger on the pulse is the Roundtable on Sustainable Palm Oil (RSPO). According to recent information, Indonesia’s palm oil export ban will apply to crude palm oil as well as refined palm oils. The Roundtable on Sustainable Palm Oil (RSPO) is another stakeholder keeping an eye on the situation.

“The production of certified sustainable palm oil (CSPO) will continue to be governed by RSPO standards, and certified CSPO mills in Indonesia also have the option of selling CSPO through the RSPO Credits supply chain model,” explained Dr Inke van der Sluijs, Global Director of Market Transformation.

RSPO is committed to supporting the procurement and production of certified sustainable palm oils. Other major producers of CSPO are Malaysia (25%), Papua New Guinea (4%), Colombia (2%) and Guatemala (2%).

“RSPO is continuing to monitor the situation closely for certified sustainable palm supply chain systemic risks and advise its members accordingly,” Dr van der Sluijs continued.

“CSPO is an essential commodity for global food security, and we are committed to doing everything we can to support our members to ensure its availability. It is crucial that as suppliers look to satisfy market demand for vegetable oils, this is done sustainably.”


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