Indonesian Government Further Tightens Palm Oil Export Restrictions... Concerns Over Food Prices

Indonesia Raises Domestic Supply Obligation Ratio from 20% to 30%

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Cha Min-young] Indonesia, the world's largest palm oil exporter, has raised the domestic supply obligation ratio for palm oil exporters to 30% to stabilize edible oil prices within the country, raising concerns about rising food prices.

According to CNBC Indonesia and others on the 9th (local time), Muhammad Lutfi, Minister of Trade, said at a press conference that "the domestic distribution of edible oil is still not smooth, and market supply is insufficient," and announced that the domestic supply ratio would be increased to 30%.

With this measure, the domestic market supply obligation for exporters of crude palm oil (CPO) and its derivatives will increase from 20% to 30% starting on the 10th. The Indonesian government will continue export regulations until prices normalize and will prioritize supply to the domestic market until consumers can purchase edible oil at normal prices.

Earlier, the Indonesian government temporarily introduced the 'Domestic Market Obligation (DMO) system' from January 28, which permits exports on the condition that 20% of export volumes are supplied domestically, and also announced a ceiling on domestic consumer prices. International palm oil prices rose to over $1,300 per ton last year, nearly tripling compared to 2018, prompting palm oil producers to increase export volumes, causing a supply emergency domestically.

However, since Russia's invasion of Ukraine earlier this year, Indonesia's palm oil futures prices have risen more than 18%, and international palm oil prices have continued to fluctuate, leading to hoarding sentiments detected again within Indonesia. It is believed that the government has taken additional measures in response to this 'edible oil crisis.' Given Indonesia's food culture preference for fried or stir-fried dishes, edible oil prices are directly linked to public sentiment.

Following the announcement of Indonesia's expanded palm oil export restrictions, international prices have already shown an upward trend. According to foreign media, the price of Malaysia's palm oil futures, the benchmark index for international palm oil prices, surged more than 7% after news of strengthened export regulations was reported.

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