Indonesia’s shock decision to block all exports of palm oil risks driving food prices even higher and spillover effects into other agri commodities, experts are warning. 

President Joko Widodo announced last week that the export of cooking oil and associated raw materials would be prohibited indefinitely, starting from April 28. Indonesia is the world’s largest producer and exporter of palm oil, with Malaysia a distant second. 

He said the measures were being taken to protect the availability of cooking oil, following civil uprising over soaring food prices. 

However, the export ban has prompted warnings that food prices – already undergoing rapid inflation in line with several other commodities – could increase further, causing serious shortages in countries dependent on Indonesian exports, such as India, Pakistan and Bangladesh. 

The restrictions come just days after a joint statement from several influential organisations, including the World Trade Organization, World Bank and International Monetary Fund, appealed to governments to “keep trade open” by avoiding bans on vital food and fertiliser exports. 

“Indonesia’s ban on exports is likely to further fuel global food inflation,” says an analysis by Gro-Intelligence, a New York-headquartered technology company focused on climate and agriculture. 

“In the US, a basket of vegetable oils commonly used by food manufacturers currently costs 41% more than a year ago, and has surged in price by 151% over the past two years, outpacing overall food inflation.” 

That compares to an average increase of 25% for other food types, it says. Gro-Intelligence adds cooking oil importers are “already scrambling  for alternative supplies because of the Russia-Ukraine war”, which has caused shortages of other goods such as sunflower oil and seeds. 

At the same time, poor growing seasons in South America and Canada have caused shortages of soybean and rapeseed oil. 

Rasheed JanMohd, chairman of the Pakistan Edible Oil Refiners Association, warns that “every country is going to suffer” as a result of the restrictions. 

India and China are the world’s largest importers of vegetable oil, with India sourcing around half of its palm oil from Indonesia. The figure for Pakistan and Bangladesh is around 80%, the Guardian reports. 

Indonesia’s announcement had an immediate impact on pricing of other commodities, with soybean futures for May jumping 4% to their highest level on record, Gro-Intelligence notes. 

Domestically, however, the Indonesian government hopes to stall dramatic price rises, with the price per litre rising around two-thirds to US$1.50 in recent months. This has also made it more attractive for producers to export, the company notes. 

Officials have already taken other measures to keep palm oil affordable. Initially, last month, Indonesia introduced price caps and demanded producers sell at least 30% of their planned export volumes domestically, though these steps were later replaced with a subsidy system. 

Trading Economics data shows palm oil prices are up 11% week-on-week and 78% year-on-year, as of press time. 

The Indonesian government has not published extensive details of the restrictions, but its agriculture ministry told local government leaders on April 25 that crude palm oil shipments are exempt from any ban. The country exports around six times more refined palm oil than crude. 

Lester Siew, an analyst at Citigroup, tells the Financial Times that restrictions could be eased following the Lebaran holiday in the first three days of May, which has driven up domestic demand.  

“Consumption demand is set to normalise thereafter,” Siew says.