The Impact of Indonesia’s CPO Export Ban on World Food Stability

palm oil trees

After previously experiencing a cooking oil raw material crisis, the President of Indonesia, Joko Widodo, decided to ban the export of CPO starting April 28.

The ban on the export of Crude Palm Oil has received more attention from the world. It was stated that the policy of banning CPO exports from Indonesia could affect world food stability.

This is because the ban on exports of Indonesian palm oil can cause a spike in cooking oil prices worldwide. This new policy is even considered to exacerbate global food security concerns amid the effects of bad weather and Russia’s attack on Ukraine.

On Monday (4/25/2022), the Bursa Malaysia Derivatives Exchange reported that palm oil prices rose by more than 6 percent to approach the highest level of gain reached in March.

Quoted from Al-Jazeera on Tuesday (26/4/2022), a senior economist from Hong Kong Trinh Nguyen explained that the ban was considered to exacerbate pressure on world food prices.

“Indonesia is a major producer of palm oil. This means that the ban will have an impact on the price of vegetable oil supplies, which will soar and increase pressure on world food prices,” he explained.

Besides being used as the main ingredient for cooking oil, palm oil is also used in various food products to cosmetics. This will clearly have an impact on world trade inflation.

“Palm oil is also used in packaged goods such as shampoo, so the ban adds to the pressure on rising prices for household commodities globally,” said Nguyen.

Before setting the CPO export ban policy, Indonesia had imposed restrictions on oil exports last January, this has also resulted in a sharp increase in world crude palm oil (CPO) prices.

On the other hand, Ega Kurnia Yazid, a research assistant at the Center for Strategic and International Study, said that the CPO export ban policy will have an impact on the possibility of price increases for derivative products from palm oil such as olive oil to coconut oil.

“Since last March, the price of crude palm oil has soared. The ban on palm oil exports by the Indonesian government will certainly exacerbate the increase in CPO prices in the global market,” explained Ega.

“This increase is likely to be followed by an increase in the price of substitute products such as canola oil, olive oil, and coconut oil,” he continued.

Following the statement of the ban on the export of palm oil (CPO), the price of soybean oil, the second most widely used vegetable oil after palm oil, was reported to have increased by 4.5 percent.

After reviewing all the effects of price increases after Indonesia banned CPO exports, many people think that the ban will harm exporters and importers and will distort trade.

However, apart from that, some Indonesian analysts consider the prohibition policy as the right step for the government to prioritize consumer needs and local food availability.