Indonesia palm oil export ban fuels global food inflation threat

Palm oil costs shot larger and the Indonesian rupiah misplaced floor on Monday after Jakarta levied a blanket ban on exports of the edible oil in a bid to include surging meals costs because of the warfare in Ukraine.

The transfer by Indonesia, the world’s largest exporter of palm oil, is the most recent meals export ban being carried out by international locations around the globe affected by hovering meals costs.

“This is yet another reminder of the vulnerability present across agricultural supply chains in an environment of already historically tight inventories, compounded by the indefinite loss of Ukrainian export volumes and historically high production costs,” mentioned Tracey Allen, a JPMorgan analyst in London.

Agricultural commodity costs have jumped after exports from Ukraine, a number one grain and sunflower oil provider to world markets, stopped as a result of warfare.

Benchmark wheat costs in Chicago have risen 21 per cent whereas corn has added 15 per cent, resulting in larger meals import payments for international locations reliant on worldwide markets for his or her grains.

Vegetable oil costs have additionally shot up, with retailers in lots of international locations beginning to ration provides. The UN Food and Agricultural Organization’s vegetable oil worth index has surged 40 per cent this 12 months.

The tight vegetable oil market has compelled retailers to start out rationing cooking oil. Supermarkets in some European international locations final month began limiting the quantity of cooking oil clients should purchase, whereas main UK retailers similar to Tesco and Waitrose adopted swimsuit over the previous few days.

Indonesian president Joko Widodo introduced a complete ban for outbound shipments of the oil on Friday. As markets reopened on Monday, palm oil traded in Malaysia jumped as a lot as 7 per cent to six,800 ringgit a tonne earlier than falling again to six,217 ringgit.

The Indonesian rupiah, which has been largely secure this 12 months regardless of strain on rising markets from anticipated US price rises, additionally dropped 0.7 per cent to 14,455 per greenback, marking the sharpest each day fall in half a 12 months.

Although the restrictions would most likely convey down costs in Indonesia, they might drive up costs for importers, together with India and China, mentioned one analyst. “Clearly this is a negative for the global consumer.”

The ban additionally spurred a sell-off for Indonesian palm oil producers, with Jakarta-listed Triputra Agro Persada falling about 7 per cent and rival Astra Agro Lestari down greater than 4 per cent.

Indonesia was already scuffling with a home palm oil scarcity earlier than the invasion of Ukraine, piling strain on the federal government to behave because the world’s largest Muslim inhabitants prepares for feasting through the Eid al-Fitr vacation, recognized regionally as Lebaran.

Earlier this month, college students took to the streets to protest rising inflation, in addition to rumours that Jokowi, because the president is popularly recognized, would search a 3rd time period.

The export ban, which can take impact on Thursday, marks the most recent protectionist transfer by Jokowi’s authorities, which had already launched necessities that producers commit a portion of output to home markets and lately raised Indonesia’s palm export levy.

Analysts mentioned the brand new restrictions had been launched forward of Lebaran vacation in early May. “We believe the suspension would be lifted soon after the passing of the Lebaran festive period, as consumption demand is set to normalise thereafter,” mentioned Lester Siew, an analyst at Citigroup.

Additional reporting by Neil Hume in London

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