Age of cheap palm oil ends amid Indonesia’s biofuel push: ‘those days are gone’

Prices of cooking oil could be buoyed up for years by stagnating production and a biodiesel push in top producer Indonesia that are making traditionally cheap palm oil costlier, eliminating an advantage that also curbed prices of rival oils. Used in everything from cakes and frying fats to cosmetics and cleaning products, palm oil makes up more than half of global vegetable oil shipments and is especially popular among consumers in emerging markets, led by India. After decades of cheap palm oil, thanks to booming output and a battle for market share, output is slowing and Indonesia is using more to make biodiesel, respected industry analyst Dorab Mistry said. “Those days of US$400-per-tonne discounts are gone,” added Mistry, a director of Indian consumer goods company Godrej International. “Palm oil won’t be that cheap again as long as Indonesia keeps prioritising biodiesel.” Indonesia increased the mandatory mix of palm oil in biodiesel to 40 per cent this year, and is studying moving to 50 per cent in 2026, as well as a 3 per cent blend for jet fuel next year, as it seeks to curb fuel imports. The biodiesel push will reduce Indonesia’s exports to just 20 million tonnes in 2030, down a third from 29.5 million in 2024, estimates Eddy Martono, chairman of the southeast Asian nation’s largest palm oil association, GAPKI. Jakarta’s biodiesel mandate, coupled with lower production because of floods in neighbouring Malaysia, has already lifted palm oil prices above rival soyoil, prompting buyers to cut purchases. In India, the largest buyer of vegetable oils, crude palm oil has commanded a premium over crude soybean oil for the past six months, sometimes exceeding US$100 per tonne. As recently as late 2022, palm oil traded at discounts of more than US$400. Indians were paying US$1,185 a tonne for crude palm oil last week, up from less than US$500 in 2019. As buyers switch to soy and sunflower, their prices shoot up too Sanjeev Asthana, India’s Patanjali Foods Higher vegetable oil prices could complicate governments’ efforts to rein in inflation, whether in palm oil-reliant nations or those dependent on rival soybean, sunflower, and rapeseed oils. Palm oil production, dominated by Indonesia and Malaysia, nearly doubled every decade from 1980 to 2020, fuelling criticism over deforestation to add plantations. During that time, average annual production growth of more than 7 per cent was roughly in line with demand. But Malaysia’s palm oil production stagnated more than a decade ago because of lack of space for new plantations and slow replanting, while deforestation concerns have slowed growth in Indonesia. Even in Indonesia, replanting by smallholders, who generate 40 per cent of its supply, remains sluggish. As a result, global production growth has slowed to 1 per cent annually over the past four years. In the current decade, production growth is likely to average 1.3 million tonnes a year, said analyst Thomas Mielke, executive director of Hamburg-based forecaster Oil World, less than half the average of 2.9 million in the decade to 2020. Production could lose even more momentum from the impact of labour shortages, ageing plantations and the spread of Ganoderma fungus, which is hurting yields, Mielke said. Oil palms, which start losing productivity after 20 years, need to be replaced after 25 years, with new trees taking three to four years to yield fruit, rendering land unproductive until then and making farmers reluctant to replant. Malaysia replanted 114,000 hectares (282,000 acres), or just 2 per cent of total planted area in 2024, against a target of 4 per cent to 5 per cent, Plantation Minister Johari Abdul Ghani said in February. In Indonesia, slow replanting has brought lower yields amid as plantations get older, said GAPKI official Fadhil Hasan. Its yields of crude palm oil fell 11.4 per cent to 3.42 tons per hectare in a decade. While countries from Colombia and Ecuador to Ivory Coast and Nigeria have boosted palm oil output, industry officials say growth among newer players falls short of rising demand, particularly for biofuel. Both Mistry and Mielke called for Indonesia to resume issuing new permits for palm oil plantations, a practice it halted in 2018. “If Indonesia keeps the moratorium on new planting, there will be periodic shortages and spells of very high palm oil prices,” Mistry said. The restricted production that resulted would inflict higher prices on 3 billion to 4 billion consumers in the developing world, he added. Demand is already softening in key markets thanks to rising prices, and even industrial buyers are seeking alternatives, SD Guthrie International CEO Shariman Alwani Mohamed Nordin told an industry conference in February. Still, palm oil consumption will keep surging, fuelled by demand from chemicals and biofuel, industry officials say. “We see huge demand increase happening for palm oil and with the limited land, we feel there would be demand and supply imbalance,” said Harish Harlani, vice-president at P&G Chemicals. Higher palm oil prices could ripple out to boost those of rival oils as demand shifts, said Sanjeev Asthana, CEO of India’s Patanjali Foods Ltd. “As buyers switch to soy and sunflower, their prices shoot up too,” he added. “Plus, there’s only so much of those oils available, so they can’t completely take palm oil’s place.”

Age of cheap palm oil ends amid Indonesia’s biofuel push: ‘those days are gone’

Jakarta’s push to use more palm oil for biodiesel production coincides with a slowdown in plantation growth in both Indonesia and Malaysia