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Indonesia, the Top Producer of the World’s Most-used Vegetable Oil, Set to Ban Exports

Neil lives in Canada and writes about society and politics.
Published: April 26, 2022
Indonesia is about to ban the world's most used vegetable oil, palm oil, from being exported amid a collapsing world food supply chain.
A March 7, 2021 file photo shows a worker transporting palm oil shells on a raft at a palm plantation in Sampoiniet, Aceh Province. Indonesia, the world’s top producer of palm oil, the world’s most widely used vegetable oil, utilized in everything from cooking in Southeast Asia to popular brand name soaps and toothpastes in America, is set to ban exports amid a domestic supply crisis. (Image: CHAIDEER MAHYUDDIN/AFP via Getty Images)

Indonesia, which produces the most palm oil of any country in the world, is set to ban exports amid a domestic supply shortage. 

Palm oil is the world’s most-used kind of oil.

The ban was announced by President Joko Widodo on April 23, according to Indonesian media outlet Bilyonaryo, and is set to come into effect on April 28.

Although palm oil is utilized very sparsely in North America, Ega Kurnia Yazid, a research assistant for Jakarta’s Centre for Strategic and International Studies, told Al Jazeera the inevitable increase in palm oil prices caused by the ban “will also likely be followed by an increase in the prices of substitute products like canola oil, olive oil and coconut oil.” 

What is palm oil used for?

According to environmentalist group World Wildlife Foundation, palm oil, which is not commonly seen for sale on North American grocery shelves, is nonetheless used in, well, “nearly everything.”

“It’s in close to 50% of the packaged products we find in supermarkets, everything from pizza, doughnuts and chocolate, to deodorant, shampoo, toothpaste and lipstick,” states the group.

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2019 reporting by The Guardian charmingly referred to palm oil as “a very special kind of oil that made cookies more healthy, soap more bubbly and crisps more crispy.”

“The oil could even make lipstick smoother and keep ice-cream from melting,” the outlet added.

The Guardian explained that palm oil has other distinct advantages, such as:

  • Being able to handle frying without spoiling
  • Maintains consistency after refining for processed foods
  • A natural preservative
  • Makes ice cream harder to melt
  • Cheaper than sunflower or cottonseed oils
  • Serves as the foaming agent in “in virtually every shampoo, liquid soap or detergent”
  • Is utilized extensively in cosmetics
  • Doubles as utilization in the growing biofuel trend
  • Serves as an adhesive for particle board and plywood

Familiar grocery store products containing palm oil

According to a missive published by NGO Friends of the Earth, palm oil is extensively utilized in everyday dinner table brands and items found in U.S. and Canadian grocery stores, such as:

  • Old El Paso salsa and chips
  • Cheerios
  • Nature Valley granola bars
  • Cool Whip
  • Kraft Macaroni and Cheese
  • Oreos
  • Heinz products
  • Weight Watchers products
  • Colgate toothpastes
  • Colgate-Palmolive shampoos and conditioners
  • Dove soap
  • M&M’s and snickers
  • Mars bars and Twix
  • Sara Lee ice cream, lasagnas, and quiche

Other names for palm oil

Additionally, Friends of Earth states that while palm oil is contained in a dramatic “50 percent of all processed foods, cosmetics and cleaning products,” palm oil is very often “hidden behind other ingredient names, or labeled generically as ‘vegetable oil.’”

Here is a brief list of alternative names for palm oil or palm oil-derived ingredients you may find on packaging during a shopping trip:

  • Palm Kernel Oil
  • Palmitate, Vitamin A, or Asorbyl Palmitate
  • Sodium Laurel Sulphate
  • Stearic Acid
  • Hydrated Palm Glycerides
  • Elaeis Guineensis
  • Glyceryl Stearate

Palm oil production and consumption data

According to the U.S. Department of Agriculture’s Foreign Agriculture Service April 8 Oilseeds: World Markets and Trade datasheet, palm oil and palm kernel oil amount to a staggering 81.50 million metric tons of global production in 2021, accounting for 39.46 percent of all vegetable oil production. 

Second place is soybean oil at 59.16 million metric tons of production in 2021. 

Notably, when it comes to imports and exports, palm oil is in its own league with 47.46 and 48.19 million metric tons respectively.

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Second place for import and export again belongs to soybean oil, but with only 11.75 and 12.56 million metric tons respectively.

In the critical “Major Vegetable Oils” category of the USDA dataset, Indonesia is bar-none the world leader, creating nearly a quarter of the world’s total supply of all major oils in 2021 at 49.50 million metric tons. 

China came in second at 27.96 million metric tons. 

Indonesia is also the world’s leading exporter in the major vegetable oil category, selling 28.98 million metric tons—or 33.97 percent of global supply—in 2021.

Malaysia came in second at 17.32 million metric tons.

A stunning 92 percent of Indonesia’s 2021 vegetable oil exports are palm oil. The country produced 43,500 metric tons in 2021, exporting just shy of 62 percent of its wares, leaving the remainder to supply its own 273 million people. 

2021’s top importers of palm oil were India at 8,411 metric tons, followed by China at 6,818 metric tons and the European Union in third place at 5,970 metric tons.

The trio amount to a combined 44.66 percent of all palm oil imports.

Indonesia and Malaysia combined for 88.7 percent of global palm oil exports in 2021, USDA data shows.

Palm oil inflation

While USDA data also shows that global palm oil production has increased steadily from 44.51 million metric tons in 2008 to 77.05 in 2021, exports have also risen from 35.00 to 49.62 million metric tons over the same time period. 

Data also shows that industrial use has nearly tripled from only 9.63 million metric tons in 2008 to 24.00 in 2021.

And although domestic palm oil food consumption increased globally from 31.88 million metric tons in 2008 to 50.20 in 2021, global surplus reserves have also more than doubled since 2008, ending in 14.59 million metric tons in 2021.

But alarmingly, although from 2010 to 2020, palm oil prices nonetheless actually headed in a positive trend—for buyers—falling from an average price of $1,154 USD per metric ton in 2010 to $645 USD per metric ton in 2020, everything changed in October of 2020. 

Starting in October of 2020, prices took a sudden 18.9 percent increase to $767, increasing steadily to a punishing $1,318 USD per metric ton by October of 2021. 

Prices remained stable in this range for only a short period of time, quickly jumping to $1,540 and $1,778 USD per metric ton in February and March of this year.

Why did the palm oil price increase?

Palm oil’s explosive rise in price is directly attributable to failing supplies of alternative vegetable oils, specifically soybean oil, as a result of Argentina, the world’s third largest producer of soybeans behind Brazil and the United States, suffering a poor harvest year, according to Indian media outlet The Hindu.

March reporting by South American media outlet Merco Press stated that forecasts for the current season were as low as 40.5 million tons, down dramatically from the 45.1 million tons realized in 2021.

Although Argentina is only the third largest producer of beans, it is the world leader in soybean oil exports, shipping nearly half of global supply at 6,135 million metric tons, according to the USDA. 

Second place goes to Brazil at 1,262 million metric tons by comparison. 

Nonetheless, a fortuitously timed April 25 Reuters press release cited the USDA Foreign Agricultural Service as stating that Argentina’s soybean production for the 2022-2023 season was primed to actually increase dramatically to 51 million metric tons.

However, the boon appears to not come without potential downsides, noted as the result of “farmers shift[ing] acreage out of cereal crops that require more fertilizer.”

The release conceded that 41 million metric tons was indeed the expected yield for the 2021-2022 growing season.

Indonesia bans palm olein

The good news—at least if you’re in a country that doesn’t rely on palm oil as a cooking oil—is Indonesia announced on April 25 that its export ban would only apply to RBD palm olein, a processed form of palm oil utilized for food, while crude palm oil could continue to be sold, according to Bloomberg.

The difference is palatable for commodities traders, as crude palm oil and palm olein possess separate futures contracts on the Chicago Mercantile Exchange, both of which are trading in the same, albeit highly inflated, pattern as of time of writing. 

Ban may yet extend to crude palm oil

But according to April 26 reporting by Malaysia’s The Star, a government presentation “presented to palm oil companies” and verified as legitimate by a senior official stated that the Indonesian Government was keeping  its cards close to its chest. 

“If there is shortage of refined palm oil, then further export bans can be carried out,” stated the presentation.