Indonesia to raise price ceiling for domestic cooking oil subsidy by 10%

Indonesia, the world's largest vegetable oil producer and exporter, will raise the price ceiling of cooking oil under its domestic subsidy program known as Minyakita due to an increase in production costs, minister of trade Zulkifli Hasan said June 20.

Starting next week, the highest retail price of simply packaged cooking oil distributed under the Minyakita program will be set at Rupiah 15,500/liter ($0.94), up 10.7% from Rupiah 14,000/l, the trade minister said.

The current maximum price set in 2022 is no longer in line with the price of basic production cost and the exchange rate between Rupiah to the US dollar has also increased, the trade minister said.

The rupiah was previously at 14,500 to the dollar, but is now more than Rupiah 16,000 to the US dollar", Hasan said at an event in Surabaya, Indonesia. "We will worry that if we don't adjust it, the export price will be much different."

Indonesia is the world's largest palm oil producer, and exports about 65% of its production in crude and refined forms, according to data from the Indonesian Palm Oil Association, or Gapki. As a result, cooking oil prices in Indonesia are directly affected by international crude palm oil prices.

The June 20 announcement could pressure exports, market players told S&P Global Commodity Insights, while some said the markets had been expecting this for a while.

"The current opportunity cost of exporting palm oil is at $15-$20/mt. After the increase in [Domestic Price Obligation], this is estimated to drop by half," an Indonesian palm oil refiner said.

Platts, part of Commodity Insights, assessed the price of crude palm oil FOB Indonesia at $900/mt on June 21, down 1% from the start of the month.

The announcement could weigh on exports as domestic refined oil prices will increase, thereby pushing up sourcing costs for exporters, Anil kumar Bagani, head of research at Mumbai-based vegetable oil brokerage Sunvin Group said.

The Minyakita program was launched in July 2022 as part of Jakarta's DPO regulations to shield economically weaker citizens from rampant food inflation. Under the program, major palm oil producers were obliged to divert a certain ratio of their products to the domestic markets at a fixed price to be distributed across the country.

In the past year various stakeholders, such as the Association of Palm Oil Producers, or MGS, have called for an increase in the price ceiling, while consumer organizations have sought to prevent it.