COVID-19 palm oil depression: Indonesia sees volumes fall drastically for country’s top export commodity

By Pearly Neo contact

- Last updated on GMT

Indonesia has seen export volumes for its palm oil, its top agricultural commodity, drop drastically since the start of the COVID-19 pandemic outbreak, with even bigger slumps set to come. ©Getty Images
Indonesia has seen export volumes for its palm oil, its top agricultural commodity, drop drastically since the start of the COVID-19 pandemic outbreak, with even bigger slumps set to come. ©Getty Images

Related tags: COVID-19, Indonesia, Palm oil

Indonesia has seen export volumes for its palm oil, its top agricultural commodity, drop drastically since the start of the COVID-19 pandemic outbreak, with even bigger slumps set to come.

Indonesia is the world’s largest exporter of palm oil, exporting 36.18 million tonnes of palm oil and related products in 2019, a 4.2% year-on-year increase as per data from the Indonesia Palm Oil Association (GAPKI).

The COVID-19 outbreak has rapidly reversed this situation for 2020: As of March 2020, GAPKI reported a drop in demand from China and India, two of Indonesia’s largest palm oil import markets, where exports by volume to China dropped by 57% (381,000 tons) and to India by 22% (141,000 tons).

“The decline in exports has occurred in just about all the destination countries for our palm oil exports – apart from India and China, declines were also seen for those in the West such as the European Union (EU) which dropped by 30% (188,000 tons) and the United States by 64% (129,000 tons),”​ said GAPKI Executive Director Mukti Sardjono in a formal statement.

“This drastic drop [has been exacerbated] by the coronavirus pandemic that has affected most of the world, uncertain oil prices due to the disagreement between the Organisation of the Petroleum Exporting Countries (OPEC) and Russia, and the overall political-economic situation worldwide currently.”

The only exception to this trend was highlighted as Bangladesh, which increased imports by 52% (40,000 tons).

The decline in exports to India, one of the world’s largest vegetable oil importers, is expected to hit Indonesia doubly hard as the latter had just passed a ruling to loosen quality requirements on sugar​ imports from the former so as to gain access to a larger palm oil export share.

It had also been banking on much higher demand from India after Malaysian palm oil was banned from the latter following a disagreement between the two countries over Malaysia’s then-Prime Minister Tun Dr Mahathir Mohammad’s criticism of India’s actions in Kashmir and a new citizenship law.

In addition to export volumes, GAPKI also faces issues in terms of palm oil prices: Indonesian palm oil production also saw an all-time high (47.1 million tons crude palm oil (CPO) and 4.6 million tonnes of palm kernel oil) in 2019, and held about 4.6 million tons in stockpiles by the end of the year, according to Reuters​ – so drastic price drops could poise a lot of trouble for the country.

“The Indonesian National Agency for Disaster Countermeasures (BNPB) is concerned that COVID-19 related pressures in the country could last until Eid al-Fitr this year (Festival of Breaking Fast for Muslims, to be held on May 23 to 24 this year) as many international experts predict that this pandemic will peak around May to June,”​ added Sardjono.

“What GAPKI fears is that this [prolonged] situation is going to further depress the prices of vegetable oil in general, and palm oil in particular.

“In a few months Indonesia will enter the dry season, where forest and land fires are likely to flare up again, [so a lot of] planning and coordination is required between palm plantation companies and the relevant agencies [to avoid any tragedies].”

Indonesia was one of the latest countries to confirm any COVID-19 cases, with ministers previously rejecting any possibility of infections​ due to ‘prayer’ and divine protection. As of April 23, the country has reported over 7,400 cases and 635 deaths, but it is widely believed that there are many more cases undetected in the community due to late and limited testing.

Palm oil and Ramadhan in COVID-19

Despite all this, GAPKI is still hopeful that palm oil industry can at least see more stability during the upcoming Ramadhan month, where demand is traditionally known to rise.

 “We were doing very well last year, and had utmost confidence that this year would be even better for palm oil than last year – that was until Q1 of this year when [COVID-19 hit],”​ GAKPKI Chairman Joko Supriyono said on a televised CNBC Indonesia​ interview.

“We expect local demand to go up during the Ramadhan month, but are unsure whether social distancing restrictions will still be ongoing and will affect any of the usual festivities and ceremonies.

“If that happens, it could affect domestic demand for palm oil – but we are not sure yet.”

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