Will Palm Oil Consumption be Recover in 2021?
The Covid-19 pandemic in 2020 was a tough year for the national palm oil industry. The pandemic and the lockdown policy or Pembatasan Sosial Skala Besar (PSBB) policy had an impact on reducing palm oil consumption in the domestic market, and also weakened the demand for importer countries, thereby reducing the performance of Indonesia’s palm oil exports.
The decline in palm oil consumption in the domestic market occurred in the food industry. Limited operating hours until the closure of FnB industries such as restaurant, cafe, hotel, or food traders MSME as an implication of social restriction policies in order to prevent the spreading of the Covid-19 virus, leading to decresed consumption of palm oil-based food products that are widely used by these industries such as cooking oil, butter, noodles, and other food products.
This is confirmed by Togar Sitanggang‘s presentation in the Virtual Indonesia Palm Oil Conferences 2020, which was states that the consumption of palm oil by the food industry has decreased by 16.5 percent compared to 2019. His statement also in accordance with GIMNI‘s estimation which states that production oleofood products in 2020 was only around 6.4 million tons, or missed from the initial production prediction around 7.1 million tons.
In contrast to the oleofood industry, the biodiesel and oleochemical industries has increase in palm oil consumption in 2020. The increase of blending rate biodiesel from 20 percent to 30 percent in the mandatory B30 policy caused palm oil absorption to increase from 5.8 million tons to 7.2 million tons or equal to 23.48 percent. Although due to PSBB policy has caused the decresed demand for biodiesel by 12 percent, experts of the global vegetable oil market have admitted that the consistency of the Indonesian Government in implmenting mandatory B30 policy amidst the Pandemic is considered successful policy to saving the national palm oil industry and being a game-changer in global palm oil demand.
The increase in consumption of hygienic products such as soap, detergent, hand sanitizer, and disinfectant which is quite significant in the midst of the Covid-19 pandemic, has also contributed to increasing consumption of palm oil as one of the raw materials for these products. It is recorded an increase in demand for palm oil for the oleochemical industry reached 48.96 percent from 2019.
Meanwhile, Indonesia’s palm oil export performance in 2020 experienced a decline as an implication of the lockdown policy that was widely implemented in Asian and European countries. The decline in export volume occurred for CPO, RPO, Lauric, and biodiesel products, while the export volume of oleochemicals increased. However, along with the improvement in economic conditions in countries that are affected by Covid-19, followed by the opening of port access in importer countries, the export performance of Indonesian palm oil products has increased since the third quarter and fourth quarter in 2020.
Although it has decreased in export volume, the export value of palm oil has increased. This is due to the increase in global palm oil price in 2020, even the appreciation of it’s price have reached the highest level in the last 10 years. The implication is that palm oil products are the main contributor to generating export foreign exchange on Indonesia’s trade balance in this year.
Then the question is, how consumption palm oil projection in 2021? Has continued to decline or has it recovered?
Palm oil market expert agree that palm oil consumption in domestic market continues to increase. This was revealed by the Deputy Chairperson of the Indonesian Palm Oil Entrepreneurs Association (GAPKI), Togar Sitanggang, who estimated that domestic palm oil consumption in 2021 would increase, which are food industry by 2.4 percent, the oleochemical industry by 12.5 percent, and the biodiesel industry by 11 percent.
Along with the recovery of economic and social activities due to the Covid-19 Pandemic, which was shown by the revival of activities in the catering/FnB industry such as restaurant, hotels, or MSME traders, which are almost running normally by implementing new normal adaptations are expected to increase demand for palm oil-based food products and hygiene products, as well as biodiesel.
The implementation of the B30 policy was also re-implemented. APROBI has also targeted biodiesel (B30) production in 2021 to reach 9.2 million kiloliters. With the implementation of the Minister of Finance Regulation (PMK) 191/2020 regarding the latest export levy tariffs, it is hoped that it will be able to increase BPDPKS’s funds to continue carrying out the B30 mandatory policy. One of Socio-Techno Economic researcher in IOPRI, Ratnawati Nurkhoiry M.Sc, also emphasized that domestic palm oil consumption in 2021 still expects the role of the B30 program.
Meanwhile, the export performance of Indonesian palm oil products in 2021 is estimated not to recover. The General Chairperson of GAPKI, Joko Supriyono, explained that the factors affecting the export market were due to the different economic situation of the destination export countries, there were some countries that had recovered their economies but there also some countries that experienced the third wave of the Covid-19 pandemic. In addition, Indonesia’s palm oil export performance has not yet recovered due to the adaptation of the new normal which may affect changes in consumption behavior.
The phenomenon of the high price trend of palm oil is predicted will occur until the first quarter of 2021, also has the potential to reduce competitiveness and demand especially in very price-sensitive importer countries such as India and China. In fact, exports of palm oil products to these two countries are gradually recovering as industrial activity returns to normal operations and access to export-import ports is open again.
Although there are many uncertainty variables that will affect global palm oil consumption in 2021, positive sentiment regarding the effectiveness of the Covid-19 vaccine is expected to have a positive effect on global economic recovery so that Indonesia’s palm oil exports will recover and the absorption/consumpetion of palm oil by the domestic industry will also increase.
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