China to ramp-up Indonesian palm oil exports, offsetting EU slump

By Tingmin Koe

- Last updated on GMT

The plan to buy more Indonesian palm oil is aimed at helping smallholder farmers, according to China premier Li Keqiang. ©Getty Images
The plan to buy more Indonesian palm oil is aimed at helping smallholder farmers, according to China premier Li Keqiang. ©Getty Images
China will buy 500,000 tons more of palm oil, Chinese Premier Li Keqiang said at a China-Indonesia business summit last Monday.

The deal is set to take place annually, noted Indonesian president Joko Widodo.

He was quoted to have said "Premier Li Keqiang has especially agreed to increase (Indonesia's) palm oil exports to China by up to 500,000 tonnes (per year),"​ the Jakarta Post​ reported.

Li said boosting palm oil imports was aimed at helping smallholder farmers in Indonesia.

China is one of the top buyers of Indonesia’s palm oil. Around 12% of Indonesian palm oil exports are sold to China, according to Bloomberg​.

Higher demand from China could counter a potential fall in Indonesia’s export to the EU states.

Earlier this year in January, the European Parliament had approved a number of draft measures to meet climate goals, which included a ban​ on the use of palm oil in motor fuels from 2021, a move that Malaysia called ‘crop apartheid’​.

Late last month, the Indonesia Palm Oil Association had already expected local palm oil exports to China to rise, since China had introduced higher tariffs on soybeans from the US.

Indonesia’s palm oil export to China had been on a steady rise recently.

During this year’s Chinese New Year celebration, China’s demand for Indonesia CPO continue grew 6%, from 307.49 thousand tonnes in January to 326.30 thousand tonnes in February.

Last year, palm oil exports from Indonesia alone was 3.73 million tonnes, which is over 70% of palm oil consumption (5 million tonnes) in China, and higher than export figure of 3.23 million tonnes in 2016.

Trading other products

Besides palm oil, more tropical fruits, coffee, swift’s nest, mangosteen, bananas and cocoa will be exported into China.

This is a move to further reduce Indonesia’s trade deficit with China, explained foreign minister Retno Marsudi.

In return, Li Keqiang urged Indonesia to import more Chinese oranges by relaxing Indonesia's import restrictions on the fruit.

Indonesia had been on the losing side with it comes to trade with China. Things have turned for the better during 2015 to 2017, when it managed to reduce its trade deficit with China to 11.63%.

Last year, China invested US$3.36 billion into Indonesia, a significant increase from $2.66 billion in 2016.

Malaysia not left out  

Malaysia, another palm oil producing giant, will also enjoy more palm oil trade with China.

In February this year, Chinese ambassador to Malaysia Bai Tian stated that China will be importing more palm oil and palm-based products from Malaysia.

He even added that “we (China) will not set any limit”​ on the imports and that Malaysia could "rely on us as a friendly party," ​quoted local daily The New Straits Times​.

According to Malaysian Palm Oil Board data, palm oil shipment into China has been declining since 2009’s peak of four million tonnes.

However, last year, Malaysia's palm oil exporters saw a positive turn when volume rose from 1.88 million tonnes to 1.92 million tonnes, a 2% increase.

Both Indonesia and Malaysia are palm oil rich. Together, they are responsible for nearly 90% of the world’s palm oil production.     

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