Indonesia’s move to channel palm oil exports through a central agency could disrupt supplies of the world’s most traded edible oil, according to a Reuters report.
As the world’s leading palm oil producer, Indonesia accounts for more than half of global shipments of the commodity and the move could also concentrate pricing power and potentially boost exports from the second leading producer Malaysia, the 20 May report said.
On 20 May, President Prabowo Subianto announced the government would require exports of palm oil, coal and ferro alloys to go through a state agency, as part of its bid to tighten control over natural resources and boost state revenue.
The country’s previous export-restricting moves to prioritise local sales and boost supplies for biodiesel had lifted prices of palm oil as well as rival edible oils like soyabean and sunflower oil, Reuters wrote.
In addition, the palm oil market was facing tighter flows from rising biodiesel demand and dry El Niño-related weather, according to the report.
“The palm oil market is trying to adjust to rising energy prices driven by the Middle East conflict,” said Aashish Acharya, vice president at Indian edible oil importer Patanjali Foods.
“Indonesia's move is likely to add another layer of uncertainty and increase volatility in the market.”
According to industry sources, the move could reshape Indonesia’s palm oil trading structure by concentrating pricing power and altering existing market mechanisms.
“A centralised export mechanism could undermine the current market-based trading ecosystem by concentrating pricing power within a state-linked entity,” MR Chandran, the former head of the Malaysian Palm Oil Association (MPOA), was quoted as saying.
“This may increase market uncertainty, reduce transparency and introduce greater political influence into commercial trade flow,” he added.
Chandran said Malaysia could benefit from Indonesia’s move as buyers looking for more stable policies and supply diversification could switch to its palm oil.
Eddy Martono, chairman of the Indonesian Palm Oil Association (GAPKI), said established trade relationships with overseas buyers could be at risk if export flows were centralised without careful management.
According to Mansuetus Darto of POPSI, a group representing small palm oil growers, Indonesia has millions of smallholder planters who could be at a disadvantage under the new structure.
“When the number of buyers shrinks and market access is controlled by a single point, farmers’ bargaining power automatically decreases,” Darto said.
