What if EU were to stop importing palm oil from Indonesia?

What if EU were to stop importing palm oil from Indonesia?
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SINGAPORE (April 17): Indonesia’s Agriculture Minister is planning to “evaluate” palm oil exports to Europe, reported Antara news agency.

The move follows the recent release of a report on palm oil and the deforestation of rainforests at the European Parliament.

The report alleged that the Indonesian palm oil industry has caused problems such as deforestation, corruption, exploitation of children, and abolition of rights of traditional communities.

In retaliation, the agriculture minister urged palm oil producers to stop exporting to the EU. To offset the fall in demand, Indonesia will implement the B-30 programme to produce diesel with at least 30% bio content. This will require 13 million metric tonne of palm oil; implying that Indonesian palm oil exports will decline.

In 2016, Indonesia was the largest single exporter of palm oil to Europe, accounting for more than 5 million metric tonnes out of 7 million metric tonnes in total imports, according to Oil World.

In a Monday research report, lead analyst Ben Santoso says the issue of environmental impact from palm oil cultivation has been an ongoing issue and assesses a scenario in which Indonesia no longer exports palm oil to Europe.

In a scenario where Indonesia reduces its exports to Europe by 2.5 million metric tonnes among other assumptions; Santoso calculates that the export levies will need to increase by almost 85% to boost the biodiesel blend to 5.6 million metric tonnes.

This would put further burden on Indonesia’s oil palm smallholders, whose livelihoods involve selling fresh fruit bunches (FFB).

For now, DBS believes that the complete halt on Indonesian palm oil exports to Europe is very unlikely though.

However, if it occurs, trade restrictions will have inflationary consequences — both direct and indirect — on CPO prices and competing edible oils.

“This will affect all planters — whether or not they sell directly into Europe,” adds Santoso.

Bumitama Agri was trading higher 0.5 Singaporean cent higher at 73 cents during mid-afternoon break today, but First Resources was down 3.5 cents at S$1.805; Wilmar was down 7 cents at S$3.44; Indofood Agri was down 1 cent at 48 cents; and Mewah was down 0.5 cent at 33 cents.