Indonesia bans refined palm oil exports
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Indonesia bans refined palm oil exports

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The world’s largest palm oil producer will no longer export cooking oil in order to push prices on the domestic market. This leads to even greater shortages and even higher prices worldwide.

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Indonesian President Joko Widodo announced on Friday that his country will no longer export cooking oil or cooking oil from April 28. He is imposing an export ban because prices for cooking oil, a product derived from crude palm oil, are skyrocketing in Indonesia. It is not known how long the export ban will last.

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“I will monitor and evaluate the implementation of this policy to ensure that cooking oil is abundantly available in the country at an affordable price,” Widodo said in a statement. He took the decision to temporarily stop exporting Indonesian cooking oil after protests in the capital Jakarta. Hundreds of protesters rallied against rising oil and food prices.

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According to François Van Hoydonck, the CEO of the Belgian plantation holding Sipef, there is more to it and Widodo has reacted in a fit of anger to some cases of export fraud.

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The Indonesian government had previously asked palm oil producers to set aside stocks for local use. But that measure was not enough to sufficiently depress domestic prices for cooking oil. “It is still too expensive for an average family to buy cooking oil,” said Indonesian Finance Minister Sri Mulyani Indrawati.

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The export ban on cooking oil also appears to be strongly politically inspired. Ramadan ends in Indonesia on May 1, and President Widodo may want sufficient affordable cooking oil to be available in the run-up to the Sugar Fest on May 2-3. Nevertheless, his sudden measure raises many questions. ‘I think the president has already received a lot of phone calls asking: what are you doing?’, says Van Hoydonck with a wink.

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A lot more expensive

Palm oil is commonly used in many Asian countries to prepare meals. The product has become considerably more expensive since last summer due to a combination of factors. Global palm oil production fell during the first two years of the coronavirus pandemic as the plantations had fewer migrant workers. This was especially the case in Malaysia, the second largest palm oil producer after Indonesia.

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It is also becoming increasingly difficult for plantation companies to further expand their acreage. Officially, in Indonesia, tropical forests are no longer allowed to be felled to create palm oil plantations.

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Poor harvests of other vegetable oils have also increased the demand for palm oil. Argentina, a major producer of soybean oil, is expected to export less this year after a less good season.

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In 2021, the Canadian canola harvest was already severely affected by the drought. The icing on the cake is the war in Ukraine a shortage of sunflower oil originate. Russia and Ukraine together account for three quarters of the world’s sunflower oil production.

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hunger crisis

Because it initially appeared as if the Indonesian export ban would also apply to crude palm oil, the palm oil price skyrocketed. In Kuala Lumpur, the main red oil market, one tonne of palm oil was paid up to 7,500 ringgit (about $1,720), more than 9 percent more than Friday evening and the highest level since March 11 (see chart)† Because it has now trickled in that the export ban only applies to cooking oil and many are questioning the sustainability of the measure, the price increase has already cooled down to around 1 percent.

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A complete export ban on palm oil threatened to further fuel global food inflation and a hunger crisis in developing countries to lead. But a ban on the export of cooking oil could still hit India hard.

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Palm oil, the liquid red gold

Palm oil is often seen in a bad light because oil palm cultivation is linked to deforestation, the felling of tropical forests and the destruction of natural habitats. However, more and more palm oil companies and consumers are opting for sustainable production, whereby only existing plantation lands are grown.

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Palm oil itself is a very versatile product. In Asia and Africa it is widely used as cooking oil to prepare meals, but there are many more applications. Food companies use it in pastries, candy and chocolate spread (Nutella). Palm oil is also used in many cosmetics: in facial creams, soaps, shampoos, lipsticks… Finally, a limited part of palm oil is processed into biofuel.

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An additional advantage of palm oil is the high yield. One hectare of oil palms produces about 4 tons of oil, five to ten times more than rapeseed, sunflowers or soybeans.

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