Indonesia clarifies end of export ban, reinstates DMO/DPO scheme

The Indonesian government has provided further clarity on its plans to withdraw its palm oil export ban - a day after President Joko Widodo's original announcement revealing that the ban would end on May 23.

Speaking at a press briefing on Friday, Indonesian chief economics minister Airlangga Hartarto said that, together with the end of the ban, the government will reinstate the Domestic Market Obligation (DMO) and Domestic Price Obligation (DPO) scheme to ensure continued supply of domestic cooking oil.

The government had earlier this year set a 30% DMO through which palm oil exporters were required to retain a portion of their export volumes for supply into the domestic market before any export permits could be approved.

This was revoked on March 17 and replaced with an increase in the export duty for palm oil.

The government is looking to set a DMO amount of 10 million mt of cooking oil, with 8 million mt for domestic consumption and reserves of 2 million mt, Airlangga also noted.

“The Ministry of Trade will determine the amount of DMO to be met by producers,” Airlangga said.

“Producers who do not fulfill the DMO obligations or do not distribute to the public as determined by the government will be sanctioned according to the specified rules," he added.

On top of the DMO, the government will reissue the supply and price control arrangements (DPO) to ensure the availability of raw material for cooking oil production.

The DPO for crude palm oil and palm olein was set at 9,300 rupiah/kg ($0.630) and 10,300 rupiah/kg ($0.70) respectively in February this year.

Further details of the policies should be disclosed before the ban ends.

On top of reinstating the DMO and DPO, Airlangga also announced that the state food procurement agency Bulog will be assigned to set up a buffer stock of cooking oil at 10% of domestic demand.

While the president’s announcement yesterday brought some relief to the market, the added clarification implies that Indonesian supply remains restricted and subject to domestic conditions.

Crude palm oil futures on the Bursa Malaysia Derivatives Exchange were trading higher after retreating yesterday, with the benchmark August-delivery contract closing 3.7% higher at MYR 6,295 ringgit/mt ($1,431/mt) at the end of the early trading session as the market absorbed the announcement from Indonesia.