Indonesia Raises Palm Oil Export Levy Amid Domestic Cooking Oil Shortage

Workers load palm oil seeds into the back of a truck at a plantation area in Pelalawan, Riau province in Indonesia's Sumatra island on Sept. 16, 2015. Adek Berry /AFP/ file/Getty Images

Indonesia’s government issued a new regulation on Friday that raises the palm oil export levy up to $375 per tonne, when the edible oil’s reference price reaches $1,500 per tonne, in a bid to tackle the country’s cooking oil shortage.

The new regulation, which took effect immediately, introduced higher progressive rates when the reference price for the edible oil hit at least $1,050 a tonne. For every $50 increase in the reference price, the levy will be raised by $20 up to the maximum of $375 per tonne, according to the finance ministry regulation.

Previously, the maximum export levy was $175 per tonne when the reference price hit at least $1,000 per tonne.

Authorities have been struggling to control the domestic market for palm oil-based cooking oil after prices surged 40 percent at the start of the year due to high global prices.

Two Indonesian women reportedly died after waiting hours in line to purchase cooking oil at a minimarket in East Kalimantan. Sandra, a 41-year-old housewife, fainted while queuing for hours and was pronounced dead on her way to the hospital.

The second woman, 49-year-old Rita Riyani, was rushed to the intensive care unit after collapsing, but she died two days later, local media Jakarta Post reported.

Indonesian trade minister Muhammad Lufti announced the levy hike at a parliament committee hearing on Thursday, during which he was accused by some lawmakers of “panic policymaking” due to his ministry changing laws at least six times since January.

His ministry has also withdrawn the palm oil export volume restrictions, also known as the Domestic Market Obligation (DMO), after it was raised to 30 percent from 20 percent in late January.

Lufti argued that rising global commodity prices since last year had impacted all global economies, exacerbated by Russia’s invasion of Ukraine. He assured that the palm oil exports would continue to be restricted by the high levy even after the DMO was removed.

The government has also removed a 14,000 rupiah (98 U.S. cents) for premium packaged cooking oil and a 13,500 rupiah (94 U.S. cents) ceiling for second-tier quality oil, while providing subsidies for bulk cooking oil.

Indonesia’s President Joko Widodo said on Twitter on Tuesday that the government decided to subsidize the price of bulk palm oil after taking into account the rising prices of cooking oil, including global prices of palm oil.

The government has allocated more than $500 million to subsidize bulk cooking oil over the next six months, with approximately 202 million liters slated to be supplied monthly. Indonesian exporters are required to pay an export tax on palm oil shipments on top of the export levy.

“The government also continues to pay close attention to the availability and distribution of cooking oil in the market,” Widodo said.

Reuters contributed to this report.