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Trade4go
Apr 18th, 2025
Original content
In response to the United States (US) imposing 32% reciprocal tariffs on Indonesian exports, Indonesia’s palm oil industry and farmer groups have urged the government to reduce export costs to mitigate market distortions. The Oil Palm Smallholders Union (SPKS) warned that the tariffs could lower farmgate prices by up to 3% and called for the removal of the current USD 196 per metric ton (mt) export tax and levy. While Indonesia announced a tax adjustment expected to ease exporter burdens by about 5%, the Indonesian Palm Oil Association (GAPKI) is proposing a targeted USD 100/mt cost reduction for US-bound shipments to preserve competitiveness against Malaysia, where export costs are notably lower. The US, Indonesia's fourth largest palm oil export market, accounted for 7% of the country's palm oil exports in 2023.
Indonesian palm oil producers are intensifying efforts to diversify exports to Europe, Africa, and the Middle East amid uncertainty over a proposed 32% US tariff. Although implementation has been temporarily paused for 90 days, the sector views this window as critical for negotiations. GAPKI emphasized the importance of market diversification, as the US accounted for 2.5 million metric tons (mmt) of imports in 2023. Concerns persist over potential overcapacity and price pressures, particularly among smallholder farmers. In response, Indonesia has reduced export taxes and is exploring trade concessions, including increased energy imports from the US, to strengthen its negotiating position.
The imposition of a 32% reciprocal tariff on Indonesian palm oil exports to the US has created an opportunity for Malaysian producers to gain market share, as they face a lower tariff of 24%. In 2024, 88% of US palm oil imports were from Indonesia, but the tariff disparity could lead to a shift in supply chains in favor of Malaysia, whose producers will benefit from more competitive pricing. CGS International, a research and advisory firm specializing in the agribusiness sector, highlighted the potential for Malaysian plantation companies to outperform Indonesian counterparts due to tariff impacts, Indonesian government policies on land control, and a weakening rupiah, which could raise costs for Indonesian producers.
The Malaysian Palm Oil Board (MPOB) minimized the impact of the 24% US tariff on Malaysia's palm oil exports, noting that exports to the US accounts for less than 1% of Malaysia's total production. While the tariff may lead to higher prices for consumers, the impact on demand is expected to be minimal, as palm oil remains essential for niche markets. MPOB also continues to diversify its export markets, with a focus on high-value sectors.
In Feb-25, Peru exported 11,457 mt of palm oil, generating USD 12.6 million in revenue, a 19% drop in volume, and a 5% decline in value year-on-year (YoY). Despite lower export levels, the average price rose 18% to USD 1.10 per kilogram (kg). Crude palm oil (CPO) dominated shipments with 64%, followed by refined palm oil with 30%, and processed forms with 6%. Mexico emerged as the top buyer, importing 4,309 mt for USD 4.8 million, followed by Chile and Ecuador.
Indonesia’s palm oil prices fell to USD 1.26/kg in W15, reflecting a 17.65% month-on-month (MoM) decline from USD 1.53/kg despite remaining 27.27% higher YoY. The sharp monthly drop comes amid mounting uncertainty over a proposed 32% US tariff on Indonesian palm oil, prompting fears of oversupply and weaker farmgate prices. Although the tariff’s implementation has been temporarily paused, the potential market disruption has already led to calls for cost relief, including a proposed USD 100/mt reduction for US-bound shipments and broader export tax adjustments. If the tariff proceeds, Indonesia’s exporters may face intensified competition from Malaysia, where export costs are lower, further pressuring prices.
In W15, Malaysia’s palm oil prices declined to USD 1.01/kg, reflecting a 6.48% week-on-week (WoW) drop and a 7.45% YoY increase. The recent price softening aligns with rising domestic inventories. In Mar-5, stocks rose 3.52% to 1.56 mmt, the first increase in six months, driven by a 16.76% rebound in CPO production. Although exports grew marginally by 0.91%, the supply outpaced demand, exerting downward pressure on prices. While the 24% US tariff has had limited impact given Malaysia’s minimal export volume to the US, the country’s competitive edge in niche markets and continued diversification into high-value sectors may help limit further price declines and support future market resilience.
Thailand's palm oil prices declined to USD 1.07/kg in W15, representing a 6.14% WoW and 2.73% MoM decrease. The drop coincides with broader economic uncertainties stemming from impending US tariff policies, including a proposed 36% duty on certain Thai exports. Rising palm oil output, aided by recovery from El Niño conditions, may further pressure prices if demand fails to keep pace.
Given the high exposure to the US market and the risk of long-term tariff escalation, Indonesian palm oil exporters should accelerate efforts to diversify exports toward Europe, Africa, and the Middle East. This includes securing bilateral trade agreements, improving supply chain transparency to meet sustainability standards, and tailoring marketing strategies to niche demands in these regions. Diversification will help stabilize export revenues and reduce vulnerability to geopolitical shocks.
To counteract the impact of the 32% US tariff and safeguard farmgate prices, Indonesian authorities should prioritize the implementation of a targeted USD 100/mt cost reduction for US-bound palm oil. This measure, coupled with a reassessment of the USD 196/mt export tax and levy, would help sustain market share in the US and prevent a shift in buyer preference toward Malaysian suppliers benefiting from lower trade barriers.
Amid rising competition and price volatility, producers across Southeast Asia should invest in developing value-added palm oil derivatives—such as oleochemicals, biodiesel, and specialty fats—to reduce dependence on crude exports. By targeting high-margin sectors and promoting sustainable certifications, exporters can increase resilience to commodity price swings while tapping into growing demand in specialized and environmentally conscious markets.
Sources: Tridge, Agro Peru, Ukr AgroConsult, News Central, The Pinnacle Gazette
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