Palm oil king Indonesia to cut prices for locals

Indonesia, the world's top oil palm grower, is finding it isn't immune to the impact of soaring prices as it plans to subsidise cooking oil sold locally.

The government will spend 3.6 trillion rupiah ($250 million) of funds raised from palm oil export levy to temper cooking oil prices by paying for the price gap and scrapping tax on 1.2 billion litres of edible oil, coordinating minister for economic affairs Airlangga Hartarto said in a press briefing on Wednesday.

Palm oil, the world's most consumed edible oil, surged to a record in October and posted a third straight year of gains. That added to concerns about global food inflation at a time when supply chains are hit by bad weather, Covid-19 disruptions and labour shortages. Prices are expected to stay elevated in the first quarter.

Indonesia has sounded caution about inflation after a year of muted price gains. A market intervention to stabilise costs during Christmas and New Year hasn't stopped the surge in edible oil. The government asked producers to sell simple packaged cooking oil at 14,000 a litre, with companies pledging to supply as much as 11 million litres to retailers, but prices still hit 18,500 rupiah (INR 96) in December.

The soaring prices are due to a lack of market efficiency rather than a supply shortage. Indonesia only consumes 5.1 million tonnes of the 8 million tonnes of cooking oil it produces, but many companies aren't integrated with local palm oil growers, the trade ministry said. Instead, the cooking oil producers buy at prices influenced by volatile global prices.