Top Palm Oil Grower Indonesia Warns Inflation May Hit Prices

(Bloomberg) -- Indonesia, the world's top oil palm grower, is finding it isn't immune to the impact of soaring prices as it plans to subsidize 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 liters 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 labor shortages. Prices of crude palm oil climbed for a fourth day to 5,037 ringgit a ton on Wednesday and are expected to stay elevated in the first quarter.

Indonesia Airs Inflation Warning After Year of Tepid Prices

Indonesia has sounded caution about inflation after a year of muted price gains. A market intervention to stabilize 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 liter, with companies pledging to supply as much as 11 million liters to retailers, but prices still hit 18,500 rupiah in January.

The soaring prices are due to a lack of market efficiency rather than a supply shortage. Indonesia only consumes 5.1 million tons of the 8 million tons 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.