On April 28 this year, Indonesian suddenly stopped the export of palm oil from its own country. The ban was promulgated on April 22. The direct reason for the announcement of President Joko Widodo was that the Indonesian government wanted to control the price of edible oil in China. Before that, Indonesia had introduced a series of policies to try to curb the rise in prices of food and necessities. Edible oil was one of the fastest-rising categories, but until the end of April, all other means, including subsidies, price limits and purchase restrictions, failed to make the price of edible oil really fall.
htmlIn the last week of April, the Indonesian government expressed its strong determination to implement the " nuclear weapon " ban on exports to the end. At the beginning of the ban on the 22nd, the category of restricted exports did not include the most important palm crude oil. At the same time, the outside world's Indonesian government, whose policy stance has changed from time to time, is still doubtful about the degree of seriousness of the ban. However, within a week from the ban to its implementation, the Indonesian government not only directly expanded the scope of the ban to palm crude oil exports, but also dispatched navies in the first two days after the ban was implemented and seized several freight ships that were about to leave the port.
Palm oil is one of the most important vegetable oils in the world, accounting for more than one-third of the global edible oil trade, and Indonesia is the world's largest exporter - its production accounts for 60% of the global output, and is the main source of palm oil imports shared by China, India, Pakistan, , Philippines and other countries. Current reports show that nearly 300,000 tons of palm oil exported from Indonesia to India alone remain in Indonesia.
is both a key bulk food commodity and Indonesian palm oil, which has focused on environmental issues in the past two decades, is at the intersection of two increasingly approaching global crises: on one side is the increasingly close food shortage, and on the other side is the already reality of global warming . Considering storage capacity, the economy's dependence on exports, and relatively limited consumption in Indonesia, almost no one believes that Indonesia's export ban can last too long, but at the same time, this sudden move still dramatically pushes up market expectations of Indonesia's palm oil.
fatal price increase
This round of domestic necessities price increases in Indonesia are not only directly related to the global inflation that has started in the second half of last year, but also has a strong "Indonesian characteristics" in multiple senses.
This rise began around July 2021. By the end of 2021, the surge in basic food prices has become the top priority in Indonesia's domestic politics. Indonesian House Speaker Puan Maharani proposed before the New Year's holiday that basic foods such as peppers, onions, and eggs have become "very expensive".
edible oil shelves in an Indonesian supermarket / network
In Southeast Asia and even the entire Asia, the price of basic food in Indonesia has always been at a relatively high level: The World Bank A report released in 2020 pointed out that Indonesia's food prices are the highest among all countries in the region. Although rice is the only core of Indonesia's food security policy in fact, more than 80% of rice is produced by Indonesia and enjoys high government subsidies, its rice prices are still much higher than those of other Asian countries, and more than twice that of other rice producers such as Vietnam, Myanmar and Thailand. Similarly, Indonesia's fruit and vegetable and livestock products have remained high, resulting in an average expenditure on food for Indonesian households as high as 55.3%, and this figure exceeds 66% of the bottom 10% of households.
The COVID-19 pandemic in the past two years has caused nearly 20% of families to fall into new poverty in Indonesia. On this basis, the outbreak of food prices directly impacted the daily lives of ordinary people, and immediately caused general dissatisfaction in Indonesia.
The most deadly thing among them is the price increase of edible oil: daily palm oil, used by Indonesia as the main edible oil, began to fall into shortages in the last two months of 2021, and the price soared, and by December 2021 it had exceeded 20,000 2/liter - although the government's guide price was 11,000 rupiah per liter.The rise in the price of palm crude oil in the international market is considered to be the main reason for this round of price increases, which is the raw material for the production of edible palm oil.
In addition to the cooking needs of ordinary families, Indonesia is also active in a large number of street vendors who make a living by making and selling fried food on the street. The shortage of cooking oil and the price increase are even more fatal to them. Two more months later, the Russian-Ukrainian war broke out, and the two key sunflower seed oil exporters "strike" at the same time, forcing the market to immediately find substitutes. The prices of all edible oils, including soybean oil, palm oil and coconut oil, rose rapidly after February 2022, and the price of palm oil rose by more than 40%. This should have been good news for Indonesia, the number one palm oil exporter, but the fact is that it further exacerbated the already severe trend of palm oil outage in Indonesia - is a difficult task in the world's largest palm oil production site, and even in the main production areas of oil palm such as Riau and West Kalimantan.
This cannot be ignored in social sentiment: Indonesian President Joko Widodo's approval rating has been declining since January this year and has fallen below 60% by April, which is the lowest since the outbreak of the new crown epidemic. More than one-third of people say the rising cost of basic commodities is the reason for their dissatisfaction, and four-fifths say they have difficulty buying cooking oil recently.
Joko Vidodo's support rate changes in the past year / Web page screenshot
For Joko Vidodo, whose support rate has remained at a high level since his election, this situation is untolerable. In early April, a high-level corruption investigation into palm oil export license suddenly started, and a Ministry of Commerce official and three representatives from three giant palm oil companies became suspects. The corruption investigation was found to be directed at uncontrollable edible oil prices after a series of failed regulatory policies, and at the same time, it directly led to the export ban on April 22.
Failure regulation
It cannot be said that the Indonesian government does not pay enough attention to related issues, but The conventional policy tools are counterproductive in reality : At the end of January 2022, the Indonesian government first introduced a price limit policy, which divided the high-quality daily palm oil (the conventional Indonesian palm oil into three types: bulk, simple packaging and hardcover, and the prices increased in turn) to 14,000 IDR/liter. The price limit (HET) then went into detail for each daily palm oil product, but this policy did not alleviate the price increase trend, but directly caused out-of-stock and rush to buy. In February, due to domestic supply pressure, the Indonesian government launched a domestic market obligation (DMO) mechanism, mandating that manufacturers limit 20% of their output to domestically sell. By mid-March, the DMO share was raised to 30%.
This is a disguised export restriction measure, but the problem has not been solved. On the one hand, the degree of implementation of the policy itself is extremely limited, and the restricted exports have only increased palm oil inventory, but have not alleviated the domestic shortage of edible oil; on the other hand, the sudden change in the international market situation after the Russian-Ukraine War also seriously changed the trading direction of Indonesia's domestic palm oil.
In early 2022, due to the shortage of edible oil, some supermarkets in Indonesia introduced purchase restrictions. Online
A week later, on March 17, during a 180-degree policy shift, the price limit (HET) and domestic market obligations (DMO) were suddenly cancelled, and they switched to higher export tax rates and provided subsidies to specific commodities, trying to rely on market mechanisms to adjust prices and supply. This adjustment still did not have the expected effect. Although the shortage has eased, as of March 19, the price of edible oil in various places monitored by the BBC Indonesia channel had reached 25,000 rupiah per liter. People do not queue up in stores because edible oil can no longer afford for many families.
By April, the high edible oil price pushed Indonesia's inflation level to its highest point in six years. Joko Widodo was eventually forced to use his trump card, and announced another 180-degree turn to announce a direct ban on palm oil exports.The ban has no deadline, and Joko only promises that "the ban will be lifted once the domestic price level returns to NET level."
The total amount of palm oil consumed in Indonesia nationwide is less than one-third of the export volume, and the palm harvest season is coming. According to common sense, this ban is undoubtedly temporary. However, the reality is that until today, there is still no sign of loosening of palm oil prices in Indonesia. The Indonesian Food Bureau, which is responsible for distributing palm oil, has not received a formal commission from the government. According to Sahat Sinaga, an entrepreneur and executive director of the Indonesian Vegetable Oil Industry Association (GIMNI), the just-passed Eid Festival also hinders the real implementation of the ban and the work of regulating domestic prices.
As the world's largest producer, why can't Indonesian palm oil be purchased normally in its country?
Because they may have been sent to two other places: Export warehouse and biofuel plant .
In 2015, Indonesia's then Minister of Economic Coordination Sofyan Djalil created the coordination agency "Palm Garden Fund Management Agency (BPDPKS)" which aims to improve the management level of the palm oil industry, and reached a plan to create a subsidy fund with a commission of export tax with major palm oil companies. Since the agency is also given the goal of promoting the sustainable development of Indonesia's palm oil industry and reducing industrial carbon emissions, "biodiesel" that is greener than ordinary diesel has occupied an important position in the subsidy allocation mechanism of BPDPKS - sending palm raw materials to biofuel plants will bring a certain amount of government subsidy to palm garden owners.
is similar to Indonesia's rice subsidy mechanism, which has caused quite a lot of controversy. This palm subsidy is quite high, making more producers prefer to send palms to diesel rather than give priority to the domestic edible oil industry.
A palm garden in Bogor City, West Java, Indonesia / Wikipedia
As BPDPKS funds come from the tax rate commission on palm crude oil exports, it undertakes almost all fund mobilization tasks related to palm oil subsidies. Even the state subsidies provided by the Indonesian government to reduce the price of edible oil are entirely derived from this money in the past few months. At this point, things have entered a logical closed loop: without exports of , subsidies cannot be paid, resulting in more producers raising palms for export, or sending them to biodiesel manufacturers to compete for subsidies .
The four international palm oil giants have the right to speak or even decision-making power in BPDPKS, as well as the resulting extremely imbalance in subsidy allocation, which is already just one aspect of the bigger problem.
What is worse than injury is that biodiesel's superficial low-carbon emission reduction efforts may not actually have much mitigation of the environmental damage caused by palm oil to Indonesia. Not all companies involved in biodiesel projects have complied with the NDPE commitment (no deforestation, no peatland development, no exploitation). The actual environmental benefits of this project, which was called "oversuccessful" by Asmiati Malik, an assistant professor at Barkri University in Indonesia (so much so that it has negatively affected other fields), are still being heatedly controversial. The ban on
is not sustainable, but the current situation is the same. Indonesia is a high-export export-oriented economy. It is unimaginable in all senses: until now, most analysts believe that the ban will not last for more than a month, and some even question the degree to which the ban is implemented at the realistic level. Arie Rompas, Forest Project Manager at Greenpeace , Indonesian Office, told the world that the possible impact of the ban is difficult to predict when the current duration and specific coverage are unclear, but Greenpeace tends to believe that the current measures are only temporary and will be lifted in the short term.
She also pointed out that the palm oil crisis shows that the Indonesian government's previous attempt to make the palm oil industry self-regulate has failed, but the series of temporary measures that followed have not been able to solve the substantive problems."The challenge for the government is to ensure better regulation and enforcement in the future, rather than reacting subconsciously to the crisis and then doing everything as usual without major structural reforms."
Asmiati Malik, assistant professor at Barkri University in Indonesia, also believes that this may be the beginning of a new market mechanism reform, or at least prompts the Indonesian government the urgency and necessity of reform: from uncontrollable palm oil prices to the ensuing investigation of corruption cases, the Joko Widodo government is currently in an extremely passive position and has been "forced to the edge" in a political sense. In a comment published by Nikkei news, Asmiati Malik pointed out that the Indonesian government will eventually "must pay more attention to palm oil distribution channels" to "fundamentally reform the market structure of Indonesia's palm oil industry to prevent another crisis in the future."
And how will this ban interfere with the sustainable palm oil reform process that Indonesia is advancing? The sharp expansion of the palm oil industry is one of the most important reasons for the loss of biodiversity in Southeast Asia over the past three decades. Some studies have shown that the deforestation process in Indonesia since the 2000s is positively correlated with international palm oil prices, because higher prices will stimulate more production, but it must be admitted that under the slowdown in Indonesia's deforestation pace that has begun to slow in the past two years (the true formation mechanism is still unclear), it remains to be seen how the violent fluctuations in exports will affect the production side today.
Outside Indonesia, the sudden palm oil ban on Jakarta has added another piece of fuel to the already serious global inflation and food crisis. Palm oil is the most widely used vegetable oil in the world. It not only occupies an important position in the food industry, but also involves daily chemical industries such as cosmetics and detergents. Once Indonesia's total production is shut down, no country can fill its gap in the short term.
India, which is heavily dependent on Indonesian palm oil imports, has begun to worry about the possible shortage of edible oils. Pakistan and the Philippines are also on the list of the first wave of countries that may be affected. On a larger scale, a new round of price increases in packaged foods and daily chemicals can be expected, which means that the purchasing power of ordinary people around the world has once again decreased significantly. "Dissatisfaction with rising food prices has led to an increasingly hot summer," said Trinh Nguyen, a senior economist at Natixis, who used this sentence to end in a commentary article recently published. "Economic, political and social consequences are spreading around the world." (Thanks to Greenpeace for helping this article)
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