- Indonesia is prioritising biodiesel production over palm oil exports.
- In India, crude palm oil has been priced higher than crude soybean oil for the past six months at $100 per ton.
The global cooking oil market is undergoing a significant shift as Indonesia, the world’s largest palm oil producer, prioritises biodiesel production over exports. According to industry experts, this move is driving up prices and erasing palm oil’s historical cost advantage over rival oils.
Palm oil, which accounts for more than half of global vegetable oil shipments, is a key ingredient in food products, cosmetics, and household goods. It has traditionally been the most affordable vegetable oil, particularly for consumers in emerging markets like India. However, years of cheap palm oil may be coming to an end.
Indonesia’s increasing reliance on palm oil for biofuel is a major factor behind rising prices. The government recently raised the mandatory biodiesel blend to 40% and is considering a further increase to 50% by 2026.
In addition, the country plans to introduce a 3% palm oil blend in jet fuel next year, further tightening supply for global markets. Dorab Mistry, a director at Indian consumer goods company Godrej International and a respected industry analyst, emphasised the long-term impact of these policies.
“The days of palm oil being $400 per ton cheaper than rival oils are gone,” Mistry stated. “As long as Indonesia prioritises biodiesel, palm oil prices will remain high.”
While demand for biofuels surges, palm oil production is stagnating. Heavy floods in Malaysia, the world’s second-largest producer, have further constrained output, exacerbating supply shortages.
Eddy Martono, chairman of the Indonesian Palm Oil Association (GAPKI), predicts that Indonesia’s palm oil exports will shrink by a third, from 29.5 million metric tons in 2024 to just 20 million by 2030.
This reduction in supply has already caused palm oil to trade at a premium over crude soybean oil, a rare occurrence in the market. In India, the world’s largest vegetable oil importer, crude palm oil (CPO) has been priced higher than crude soybean oil for the past six months, sometimes exceeding a $100 per ton premium.
This marks a stark contrast from 2022, when palm oil sold at discounts of over $400 per ton. Last week, Indian buyers paid $1,185 per ton for CPO, more than double its 2019 price of under $500.
The rising cost of vegetable oils, driven by palm oil’s price surge, could have widespread economic consequences. Countries heavily dependent on palm oil and those relying on alternatives like soybean, sunflower, and rapeseed oil may face increased food inflation.
Increasing edible oil prices could complicate governments’ efforts to control inflation. With Indonesia’s biodiesel policies set to limit exports further, analysts warn that palm oil prices may remain elevated for years, reshaping the global edible oil trade and forcing importers to reconsider their sourcing strategies.