Jakarta – President Joko "Jokowi" Widodo's abrupt decision last Friday to ban the export of cooking oil and its ingredients as of from April 28 is inimical to the business climate and will have major repercussions on state revenues, the incomes of millions of oil palm smallholders and the outlook of the whole palm oil industry.
But we fully understand the draconian measure as necessary shock therapy to force big palm oil companies to support the government policy of shielding the people from the impact of the skyrocketing cooking oil prices over the past few months.
Jokowi must have been deeply moved by the scenes in TV daily news footage over the past four months showing people in many cities having to stand in long lines for many hours just to buy a liter or two of cooking oil, a basic staple food.
The price of cooking oil has risen steeply and its supply on the domestic market has decreased sharply since late last year after the international price of crude palm oil (CP0) rose due to a decline in production and higher demand induced by the post-pandemic economic recovery.
The Trade Ministry tried to protect the people from the impact of the skyrocketing prices by setting a range of retail price ceilings in late January and strengthened the price control mechanism by requiring producers to sell in the domestic market a minimum of initially 20, then 30 percent, of their export volume. But the measure failed to stabilize prices. Cooking oil stocks disappeared from the market but then suddenly inundated retailers' shelves immediately after the government abolished the DMO in late March.
So we understand how angry the President is with the uncooperative attitude of the 10 largest integrated palm oil industrial groups, especially after the Attorney General's Office arrest last week of three businesspeople and the foreign trade director general of the Trade Ministry on charges of collusion in the issuance of palm oil export licenses in violation of trade regulations.
Indonesia is the world's largest producer of CPO with an annual output of over 50 million tons and has a total cooking oil production capacity of over 16 million tons, while the nationwide need is only about 5.8 million tons.
True the international CPO price has more than doubled to almost $1,800/ton from $800 early last year, but this should not cause the domestic CPO production cost to rise sharply because the import content of the palm oil industry is almost nil. They just need to share part of the windfall profit with the people during this difficult time.
We only hope the export ban will not last very long as it will adversely affect state revenues and the incomes of millions of oil palm smallholders as well.