Due to Indonesia's Yin and Yang Palm Oil Policies, Vegetable Oil Prices Crash Globally

Since Indonesia is the world's largest producer and consumer of Palm Oil, contributing roughly half of the global supply, the industry is vital to the country's economy. More than a third of all Palm Oil imports worldwide are made by China and India. From 2022 to 2023, it is anticipated that Indonesia and Malaysia will export 51.2 million tonnes of palm oil, or 89% of the world's total. In addition to serving traditional markets, Indonesia is currently concentrating on how to make a bigger effort to generate Biodiesel.

In a new effort to encourage exports and reduce large inventories, which won't affect government revenue—Indonesia has abolished its export charge for all palm oil goods until August 31, 2022. The decision by the world's largest exporter of Palm Oil could further lower prices, which have dropped by roughly 50% since late April to their lowest levels in more than a year. According to the US Department of Agriculture (USDA), world vegetable oil prices are "profoundly impacted" by Indonesia's yin and yang palm oil policies. 

Since the country enforced a three-week export ban through May 23 to lower domestic cooking oil values, Indonesian Palm Oil producers have struggled with huge stockpiles. Since the embargo was lifted, Jakarta has put regulations on required local sales, or the Domestic Market Obligation (DMO), to ensure that food is kept at home and converted to cooking oil. Due to this, the price of palm oil fell to its lowest point in a year, which also placed pressure on the price of other vegetable oils.

Between early June and early July, the price of South American soybean oil fell by almost 20%, while the price of palm oil fell by almost 30%. Considering the high oil content of Canola, its prices are strongly correlated with vegetable oil prices. Prices for palm oil have returned to levels from the end of 2021 but are still above average.

The USDA reported that there had been a shortage of vegetable oil around the world for the past year as a result of a poor canola crop in Canada, increased domestic consumption of soybean oil in the United States, and a halt in sunflower oil shipments from the world's top exporter of that product due to the conflict in Ukraine. Market participants reported that "palm oil prices had already been rising based on labor constraints in Malaysia and strong biofuel use in Malaysia and Indonesia."