Palm oil is too important to Indonesia's tax base to remain untaxed indefinitely.
When a government intervenes in markets to protect its own citizens from rising prices, it often discovers that the cure carries its own costs — in this case, warehouses swollen with unsold palm oil and farmers feeling the financial strain. Indonesia, having banned exports to cool domestic cooking oil prices, now finds itself in a race to unwind that surplus before the policy window closes, courting India's vast appetite ahead of Diwali with discounts that reflect both urgency and pragmatism. It is a familiar arc in commodity governance: restriction, accumulation, and the scramble back toward equilibrium.
- Indonesia's self-imposed export ban left it holding nearly 6.7 million tonnes of palm oil by June — almost double year-end 2021 levels — creating a financial crisis for farmers and producers alike.
- With levy waivers now in place through October, Indonesian sellers are undercutting Malaysian rivals by up to $5 per tonne, racing to reclaim market share they surrendered during the restrictions.
- India, hungry ahead of Diwali and drawn by prices near $940 per tonne, is expected to buy up to 2 million tonnes from Indonesia between August and November — three times its recent pace.
- Indonesia's trade minister traveled to India personally to urge buyers to act, signaling just how seriously Jakarta views the inventory overhang as a national economic problem.
- Stocks are projected to fall toward 4.5–5 million tonnes by September's end, but the relief is temporary — markets widely expect export levies to return once warehouses normalize.
Indonesia's palm oil industry is running hard against a surplus of its own making. By late June, storage facilities across the archipelago held 6.69 million tonnes of the commodity — nearly double what the country had at the close of 2021. The cause was the government's own export restrictions, which culminated in a three-week total shipment ban in May aimed at cooling domestic cooking oil prices. The policy worked at home but sent global palm oil futures to a record $1,598 per tonne and left Indonesian producers with nowhere to send their oil.
Now, with restrictions lifted and export levies waived through October, Indonesia is moving aggressively to clear the backlog. India — the world's largest vegetable oil importer — has emerged as the critical outlet, with demand rising ahead of the Diwali festival season. Industry officials expect India to purchase as much as 2 million tonnes of Indonesian palm oil between August and November, roughly triple its pace from the prior four months. The prices are compelling: around $940 per tonne delivered to Indian ports, undercutting Malaysian competitors and sitting well below soybean oil alternatives.
The strategy is showing results. The Indonesian Palm Oil Association projects stocks could fall to between 4.5 and 5 million tonnes by September's end, aided by a natural post-harvest production slowdown. Trade Minister Zulkifli Hasan traveled to India last month to personally urge buyers to increase purchases — a diplomatic signal of how seriously Jakarta views the inventory problem.
The episode has not been without lasting consequence. Malaysia seized on Indonesia's absence from the market and displaced it as India's top palm oil supplier for the 2021–22 marketing year. Indonesian sellers have had to offer discounts as steep as $15 per tonne below Malaysian prices to begin winning that business back. Market observers expect the current generosity to be short-lived: once stocks normalize, Jakarta will almost certainly reinstate the export levies that fund biodiesel programs and government revenues. Palm oil is too central to Indonesia's fiscal architecture to remain untaxed for long.
Indonesia's palm oil industry is in a race against its own surplus. By late June, warehouses and storage facilities across the archipelago held 6.69 million tonnes of the commodity—nearly double what the country had on hand at the end of 2021. The buildup was a direct consequence of the government's own policy: a series of export restrictions that culminated in a three-week total ban on shipments in May, meant to cool domestic cooking oil prices but instead sent global palm oil futures to a record high of 1,598 dollars per tonne.
Now, with those restrictions lifted and export levies waived through the end of October, Indonesian producers are moving aggressively to clear the backlog. They've found a willing buyer in India, the world's largest importer of vegetable oils, where demand is climbing ahead of the Diwali festival in October and November. Industry officials expect India to purchase as much as 2 million tonnes of Indonesian palm oil between August and November—triple what it imported from Indonesia in the previous four months. The sales come at prices that make the math work: Indonesian sellers are offering palm oil at roughly 940 dollars per tonne delivered to Indian ports, undercutting Malaysian competitors by as much as 5 dollars per tonne and sitting well below the 1,288 dollars per tonne being asked for crude soybean oil.
The strategy is working. Eddy Martono, secretary general of the Indonesian Palm Oil Association, projects that stocks could fall to between 4.5 and 5 million tonnes by the end of September, helped along by a natural slowdown in production now that the peak harvest season has passed. The government's decision to waive export levies—taxes that normally fund biodiesel programs and replanting efforts—signals how serious the inventory problem has become. Officials grew increasingly worried about the financial strain on palm farmers as warehouses filled and prices fell.
Indonesia's earlier export restrictions had handed market share to competitors. Malaysia, the world's second-largest palm oil producer, seized the opportunity and has now displaced Indonesia as India's top palm oil supplier for the 2021-22 marketing year. Soybean oil and sunflower oil, which are normally far more expensive than palm, briefly became price-competitive during the shortage, further squeezing demand. Now Indonesian sellers are fighting to win back that business through aggressive discounting. In July and August, when the levy waiver first took effect, some producers were offering discounts as steep as 15 dollars per tonne below Malaysian prices.
The Indonesian government is clearly invested in the outcome. Trade Minister Zuklifli Hasan visited India last month and personally urged Indian buyers to increase their purchases from Indonesia. The message was clear: help us move this oil. Yet market observers expect this window of opportunity to close. Once stocks return to normal levels, they say, Jakarta will almost certainly reinstate the export levies that have long been a reliable source of government revenue. Palm oil is too important to Indonesia's tax base to remain untaxed indefinitely. For now, though, the discounts are real, the demand is there, and the race is on to empty the warehouses before the policy shifts again.
Notable Quotes
India has been aggressively buying palm oil from Indonesia since prices are attractive and festival demand is approaching. We are expecting imports of 2 million tonnes between August to November.— Sandeep Bajoria, CEO of Sunvin Group vegetable oil brokerage
Once stocks come down, it will start levying the exports. Palm oil is big contributor in its tax kitty. It can't waive off taxes indefinitely.— Mumbai-based palm oil dealer
The Hearth Conversation Another angle on the story
Why did Indonesia's stocks balloon so dramatically in the first place? Wasn't the export ban supposed to help?
The ban was meant to lower domestic cooking oil prices, but it backfired globally. When Indonesia shut off exports, palm oil futures hit record highs, and other producers—especially Malaysia—rushed in to fill the gap. Meanwhile, Indonesian producers couldn't move their oil, so it just piled up.
And now they're selling at a loss to clear it?
Not exactly a loss, but at much lower margins than they'd prefer. They're offering discounts to undercut Malaysia and make the prices attractive enough that India will buy in volume. It's a volume play—move the oil quickly rather than wait for better prices.
What happens to those export levies that fund replanting and biodiesel?
That's the real question. The government waived them temporarily to move inventory, but those levies are a major revenue source. Once stocks normalize, officials will almost certainly bring them back. This relief is temporary.
So India is getting a deal, but it won't last?
Exactly. India is buying aggressively now because prices are attractive and Diwali demand is coming. But once Indonesia's warehouses are empty, the tax structure returns, and prices will rise again. This is a window.
What about the farmers? Are they hurt by this?
They're the reason the government waived the levies in the first place. The bloated stocks and falling prices were squeezing their margins. Moving the oil, even at lower prices, is better than watching it sit in storage while their costs mount.