The global food market has been hit again by an Indonesian export ban on palm oil. The consequences for Dutch trade appear to be not too bad, because crude palm oil can still be exported. The vast majority of palm oil that the Netherlands processes is crude oil.
Indonesia’s Ministry of Agriculture announced in a statement on Tuesday that the country will ban the export of refined palm oil. This is oil that has already been purified, decolorized and deodorized. From Thursday, Indonesia will only export crude palm oil.
Indonesia is the largest exporter of palm oil in the world. Together with Malaysia, it accounts for 85 percent of global exports. In 2020, countries around the world imported $17.9 billion worth of palm oil from Indonesia, according to the Observatory of Economic Complexity†
The vegetable oil – derived from fruits with prickly skin and orange flesh – is used in a wide range of supermarket products. Think of biscuits and sauces, but also shampoo and detergent. In Asian countries such as Indonesia, the oil is also widely used for stir-frying and frying.
With the export ban, the Indonesian government wants to reduce domestic prices of and shortages of cooking oil. Other types of cooking oil, such as coconut oil, are no longer allowed to leave the country. In recent months it had become relatively expensive for Indonesians to, for example, stock up on palm oil for the upcoming Eid. Next Monday, the country, where 87 percent of the more than 275 million inhabitants are Muslim, will celebrate the end of Ramadan.
When the war in Ukraine started at the end of February, the prices of almost all vegetable oils rose rapidly worldwide. This was due to the acute shortage of sunflower oil, which arose due to the halt in trade with major exporter Ukraine. As a result, companies started looking for alternatives, including palm oil.
Indonesia has previously levied high export taxes on vegetable oils. Top producers Argentina (soy oil) and Hungary (sunflower oil) had also previously imposed export restrictions.
Due to disappointing palm fruit harvests in Indonesia, there was already a shortage in Ukraine before the war. The supply of palm oil has declined since the corona pandemic, partly due to a shortage of labor on the land.
What are the consequences of the export ban for the world market and for the Netherlands?
1 What will the export ban do to the world market?
Countries that buy a lot of refined palm oil from Indonesia, such as India, China, Pakistan and Spain, are being hit hard by the export ban. About 30 percent of the palm oil that India imports every year is refined – that’s about 2.4 million tons of refined palm oil. Acute shortages may arise, despite supply contracts that are still running. An export ban usually falls under ‘force majeure’, and is therefore sufficient reason to terminate a contract, says the Dutch chain organization for Oils and Fats (MVO). These countries will have to find alternatives, such as refining more crude oil themselves, switching to other types of oil, or purchasing from another country.
2 How does this affect the Dutch market?
The Dutch market is ‘not or barely’ affected by the Indonesian ban on the export of palm oil, says MVO. The Netherlands mainly imports crude oil and hard palm fats. Less than 5 percent of the palm oil that the Netherlands purchases from other countries is refined. According to Frans Claassen, chairman of the chain organisation, the Netherlands refines the vast majority of palm oil itself. Large companies such as Cargill and Wilmar refine the oil and sell it to Dutch and European customers.
In addition, the Netherlands also imports a lot of palm oil from other countries: only 17.5 percent of total imports came from Indonesia in 2021. The rest come from Malaysia, Papua New Guinea and Latin America.
If there are shortages of refined palm oil here and there, this could be solved reasonably well by refining more oil ourselves or by importing it from other countries, says MVO.
Unilever’s international division said in a statement that it does not expect major shortages in supply chains, including for consumers. The company has long been “mitigating risk and making supply chains resilient,” the company said.
3 What will the Dutch consumer notice?
Because so much palm oil is refined in the Netherlands and mainly crude oil is imported, Dutch consumers will hardly notice the export ban. The already rising prices of vegetable oils will increase further as a result of the ban. Ultimately, this will also be reflected in the prices of products in the supermarket.
The price of soybean oil, for example, skyrocketed last Friday, when Indonesian President Joko Widodo announced the ban. Claassen expects from MVO that this steep upward trend has already turned and will continue, because it has now become clear that the ban only concerns cooking oil and not crude palm oil.