Indonesia’s cooking oil crisis explained

REUTERS/Willy Kurniawan

An export ban has infuriated farmers, amid soaring prices and claims that a ‘palm oil mafia’ is operating in the country

Indonesia, the world’s biggest exporter of palm oil, halted shipments on April 28 in a bid to flood the domestic market with supplies and control the soaring price of cooking oil.

The tough policy has rattled edible oil markets and cost hundreds of millions of dollars in lost revenue – but the price of cooking oil, a staple for Indonesian families, has not come down. Now the approval rating of President Joko Widodo is suffering too.

How are Indonesian authorities trying to rein in cooking oil prices?

The authorities in Jakarta have unrolled a bewildering array of measures over the past six months in an attempt to bring down prices, including subsidies, export permits and a palm oil levy as well as the export ban. So far, these have failed to reduce the cost of the household necessity, which is used by most people in the world’s fourth most populous country, to meet a government target.

What has happened to cooking oil prices?

Indonesian officials have pledged to remove the export ban once bulk cooking oil prices return to 14,000 rupiah ($0.95) a litre across the nation. The cooking oil price has slipped somewhat, but trade ministry data on Friday showed that cooking oil averaged 17,300 rupiah a litre. This is down from an average of 18,000 rupiah in April, but still well above the 13,300 rupiah reported in July 2021.

Indonesian minister blames a ‘palm oil mafia’

On March 18, Muhammad Lutfi, Indonesia’s trade minister, blamed a “palm oil mafia” for exploiting the situation. A month later, Sanitiar Burhanuddin, the attorney general, sent a chill through one of the country’s main export sectors by launching a corruption investigation over export permits. A trade ministry official and three palm oil executives have been arrested.

What is hindering cooking oil distribution?

Government efforts to bring down prices include getting state food procurement agency, Bulog, to distribute more cooking oil. But last week Bulog said a regulatory framework was not yet in place, meaning a plan to distribute subsidised cooking oil at the 14,000 rupiah price had not started.

Bulog said the regulations were needed to avoid any misstep in implementation and to ensure clarity on how costs would be covered.

Red tape undermining policies

Gulat Manurung, chairman of the smallholders group APKASINDO, blames government bureaucracy for stalling subsidy efforts.

The government is setting aside a subsidy to pay producers for any gap between production costs and selling prices.

But for palm refiners to be paid by Indonesia’s palm oil fund agency BPDPKS, a highly detailed list of distributors and retailers must be provided, subject to a state audit and with any errors potentially punishable by jail time.

“The factories have the cooking oil, but they are not selling to consumers,” said Gulat, who believes the system should be streamlined.

How do authorities say they are trying to improve distribution?

On Tuesday, the trade ministry unveiled a programme aimed at ensuring cheap cooking oil reaches low-income households in thousands of locations. The statement said retailers would be able to sell in bulk at 14,000 rupiah per litre to people who provide them with identity cards.

Asked about distribution, ministry official Merrijantij Punguan Pintaria said there were many components but logistics and transport limitations were key obstacles.

What will the endgame be?

“Jokowi”, as the president is popularly known, has said the need for affordable food trumped revenue concerns and the export ban would be lifted only after domestic needs were met. Palm oil traders have speculated the ban could be at least partially lifted soon, particularly with storage tanks filling up.

Politics is likely to play a key part in the timing. A survey this week by pollster Indikator Politik Indonesia showed the president’s approval rating is at a six-year low, largely tied to the rising cost of cooking oil and knock-on inflationary effects.