TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Better governance needed in navigating the commodity-price cycles
Although the export ban was imposed only for about one month, the draconian measure inflicted devastating impacts on the industry and millions of smallholders.
Change Size
Workers transport oil palm fruits onto trucks from PT Wanasawit Subur Lestari's plantation in Pangkalan Bun, Central Kalimantan, on Dec. 19, 2015.. (JP/Dhoni Setiawan)
B
oom and bust are common cycles in the commodity market. Data show that palm oil prices have undergone at least 18 cycles over the past thirty years.
Therefore, palm oil smallholders and companies have adapted to these recurring cycles, learning how to use profit and expenditures wisely, when to spend and when to be frugal. Profits during boom are saved for spending during bust cycles.
Nonetheless, this is the second time we have encountered a palm-oil-price super-cycle. Unfortunately, the government and consumers are not prepared in mitigating the impact and managing the consequences.
Back in 2011, during the last super-cycle, the government was more elegant in dealing with the surge in palm oil price, partly due to the wise management of prominent economist Mari Pangestu as the then-trade minister. Mari created the cheap alternative of bulk cooking oil, packaged in pouch bags, distributed widely across the country.
The palm-oil-price super-cycles are likely triggered by unexpected increases in demand. This one was caused by the demand side of post-pandemic-economic recovery, and supply crunch of vegetable oils due to the Ukraine war. It is an anomaly defined as an extended period, during which commodity prices are well above or below their long-standing trend. They generally last much longer than business cycles.
However, the palm oil super-cycle lasted only for several months, having now been disrupted by a series of flawed-domestic policies internally, and externally by the combination of better harvests of all edible oils and weaker demand caused by economic recessions.
The total palm oil-export ban from April 28 to May 23 showed how vital is the international market for the survival and growth of the palm oil industry in Indonesia as the world’s largest producer. Indonesian domestic consumption accounts for only one third of the annual production of 46 million to 50 million tons.
