Indonesia’s palm oil export ban leaves global buyers with no Plan B

MUMBAI – Global edible oil consumers have no option but to pay top dollar for supplies after Indonesia’s surprise palm oil export ban forced buyers to seek alternatives, already in short supply due to adverse weather and Russia’s invasion of Ukraine.

The move by the world’s biggest palm oil producer to ban exports from Thursday will lift prices of all major edible oils including palm oil, soyoil, sunflower oil and rapeseed oil, industry watchers predict. That will place extra strain on cost-sensitive consumers in Asia and Africa hit by higher fuel and food prices.

“Indonesia’s decision affects not only palm oil availability, but vegetable oils worldwide,” said James Fry, chairman of commodities consultancy LMC International.

Palm oil — used in everything from cakes and frying fats to cosmetics and cleaning products — accounts for nearly 60% of global vegetable oil shipments, and top producer Indonesia accounts for around a third of all vegetable oil exports. It announced the export ban, which will be in place until further notice, on Friday in a move to tackle rising domestic prices.

“This is happening when the export tonnages of all other major oils are under pressure: soybean oil due to droughts in South America, rapeseed oil due to disastrous canola crops in Canada and sunflower oil because of Russia’s war on Ukraine,” Fry said.

Vegetable oil prices have already risen more than 50% in the past six months, as factors ranging from labor shortages in Malaysia to droughts in Argentina and Canada — the biggest exporters of soy oil and canola oil respectively — have curtailed supplies.

Buyers were hoping a bumper sunflower crop from top exporter Ukraine would ease the tightness, but supplies from Kyiv have stopped because of what Russia calls its “special operation” in the country.

This had prompted importers to bank on palm oil being able to plug the supply gap until Indonesia’s shock ban delivered a “double whammy” to buyers, said Atul Chaturvedi, president of trade body the Solvent Extractors Association of India.

No alternative

Importers such as India, Bangladesh and Pakistan will try to increase palm oil purchases from Malaysia, but the world’s second-biggest palm oil producer cannot fill the gap created by Indonesia, Chaturvedi said.

Indonesia typically supplies nearly half of India’s total palm oil imports, while Pakistan and Bangladesh import nearly 80% of their palm oil from Indonesia.

“Nobody can compensate for the loss of Indonesian palm oil. Every country is going to suffer,” said Rasheed JanMohd, chairman of Pakistan Edible oil Refiners Association.

In February, prices of vegetable oils jumped to a record high as sunflower oil supplies were disrupted from the Black Sea region.

The price rise raised working capital requirements for oil refiners, who were holding lower inventories than normal in anticipation of a pullback in prices, said a Mumbai-based dealer with a global trading firm.

Instead, all oil prices have rallied further.

“Refiners have been caught on the wrong foot. Now they can’t afford to wait for a few weeks. They have to make purchases to run plants,” the dealer said.

As Indonesia has allowed loading until Thursday, consuming countries will have enough supply for the first half of May, but could face shortages from the second half, said a refiner based in Dhaka.

South Asian refiners will only slowly release oil into the market, as they know supplies are limited, he said.

In India, the world’s biggest vegetable oil importer, palm oil prices rose by nearly 5% over the weekend as industry priced in shortages in the coming months. Prices also rose in Pakistan and Bangladesh.

From spreads to shampoo, palm oil is part of everyday life

Indonesia’s plan to ban palm oil exports will deal a blow to the world’s top food and consumer products companies including Unilever, Procter & Gamble and Nestle.

Indonesia counts for more than half of the global supply of the edible oil, which is used in everything from cakes, chocolate, margarine and frying fats to cosmetics, soap, shampoo and cleaning products.

It is also key to Ferrero Rocher chocolates and Nutella spread, giving them a smooth texture and longer shelf life.

Here is a summary of how much palm oil the companies use, based on the most up-to-date data available:

Unilever

Unilever said in 2016 that it used about 1 million metric tons of crude palm oil and its derivatives and about 0.5 million metric tons of crude palm kernel oil and its derivatives.

It said it was the largest user of physically certified palm oil in the consumer goods industry.

The company declined to give more up-to-date data.

Nestle

In 2020, the maker of KitKat chocolate bars bought about 453,000 metric tons of palm oil and palm kernel oil, mostly from Indonesia and Malaysia, its website says.

It uses about 88 suppliers from more than 1,600 mills in 21 countries. It also buys from Latin America, Africa, and other parts of Asia.

Proctor & Gamble

The company used about 605,000 metric tons of palm oil and palm kernel oil, and their derivatives, in its 2020-2021 fiscal year, a company document showed. It is used in its fabric and home care categories and beauty products.

Its purchases account for about 0.8% of global palm oil production and it sells palm oil byproduct it cannot use. Some 70% of its palm oil is sourced from refineries in Malaysia and Indonesia.

Mondelez International

The Oreo cookie maker said that it purchases “large quantities” of palm oil in a securities filing.

It accounts for 0.5% of palm oil consumption globally, according to its website.

Danone

Danone said it purchased a total of 71,000 metric tons of palm oil in 2018.

Ferrero

The Italian maker of Nutella sourced 85% of its palm oil supplies from Malaysia and only 9% from Indonesia in the first half of 2021, according to its website.

L’Oreal

L’Oreal said in 2021 that it purchased less than 310 metric tons of palm oil and also used, from its suppliers, ingredients including palm derivatives in a quantity equivalent of 71,000 metric tons.