Indonesia lowers domestic sales mandate for palm oil sellers, raises price cap

Indonesia lowered its mandate for the amount of palm oil companies must allocate to a government run-cooking oil program and raised the price cap under its Domestic Market Obligation policy Aug. 19, to enhance participation from local sellers.

The new DMO target is set at 250,000 metric tons per month, down from 300,000 t/m, Trade Minister Zulkifli Hasan said, adding that the ruling has been in effect since Aug. 14.

Indonesia, the world's largest palm oil producer and supplier, set up the DMO policy in early 2022, under which palm oil producers contribute a government-mandated amount of cooking oil for local buyers at subsidized rates in exchange for export permits.

Jakarta also raised the price cap on subsidized palm oil under its Minyakita scheme to Rupiah 15,700 ($1) per liter, from Rupiah 14,000/liter, effective Aug. 14.

The Minyakita scheme allows economically weaker citizens to purchase cooking oil collected from the DMO policy at a lower price set by the government. In the past year, various stakeholders, such as the Association of Palm Oil Producers, have called for an increase in the price ceiling, while consumer organizations have opposed it.

The change in rules do not specify how export quotas issued to palm oil companies will be affected by the reduced DMO mandate.

Currently, export quotas are set volumetrically at four times the amount of palm oil that companies supply locally to the Minyakita scheme.

This link between the Minyakita scheme to exports has reduced its effectiveness, some palm oil players said.

As exports decline, the realization of DMO has also dropped. For example, in January 2024, the realization of palm oil DMO was only 212,116 metric tons, or 70.7% of the monthly target set of 300,000 metric tons. During that period, Indonesia's palm oil exports reached 1.89 MMt, Indonesian Palm Oil Association, or GAPKI, chairman Eddy Martono said in April.

In February and March, the realized collection was significantly lower at 131,486 metric tons and 85,890 metric tons, respectively, according to the GAPKI head.

Platts, part of S&P Global Commodity Insights, assessed the price of crude palm oil FOB Indonesia at $947/t Aug. 16, up 3% from the start of the month.