Indonesia halts palm oil exports, complicating supply chains and lifting food prices

Apr. 22, 2022 1:32 PM ETPG, TTE, CL, CVX, E, DAR, GIS, NTOIF, KHC, PLO:COMBy: SA News Team48 Comments

Oil Palm Plantations

Vaara/E+ via Getty Images

  • Indonesia's President Joko Widodo announced a palm oil (PLO:COM) export embargo Friday; the ban is set to begin April 28th.
  • Edible oils have rallied ~40% year to date, with the UN edible oils index hitting all-time highs in March; soybean oil in Chicago bounced ~3% on the back of Friday's announcement.
  • Indonesia accounts for over half of global palm oil production, though palm oil is widely used in food processing and cooking, it's also a major ingredient in personal care products, including everything from soap and shampoo, to lotion and makeup.
  • For energy investors, it's noteworthy that palm oil has long been a feedstock in the production of bio-diesel; in Europe, palm oil feedstocks accounted for ~18% of bio-diesel production in 2020 (TTE) (E).
  • A palm-oil embargo could complicate sourcing for consumer goods producers like Procter (PG) and Colgate (CL), while also posing challenges for processed food producers like General Mills (GIS) and Kraft (KHC).
  • With the DOE planning for a 24% increase in bio-diesel production during 2022, and producers (DAR) (OTCPK:NTOIF) (REGI) competing for lucrative government subsidies to shift food into the fuel supply, reduced feedstock imports will likely lead to increased domestic food costs.

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