A senior official said on Tuesday that Indonesia will remove a subsidy on bulk cooking oil and replace it with a price cap on the raw materials sold to local refiners, and will implement a domestic market obligation DMO to ensure the supply of vegetable oil at home.
The government has struggled to lower the price of cooking oil this year despite attempts to control exports using the DMO policy.
A three-week ban on Monday has helped to stabilise bulk cooking oil prices at around 17,000 rupiah per liter, but still well above the target 14,000 rupiah price.
Indonesia produces about 60 per cent of the world's palm oil, and repeated changes in its export policies this year have shaken global markets at a time of uncertain edible oil supplies due to the war in Ukraine.
A subsidy provided to cooking oil makers to help control retail prices will be stopped after May 31, when the government will put in place a new policy to control raw material prices, according to Putu Juli Ardika, Director General for Agriculture at the Industry Ministry.
According to an interview with the World Economic Forum in Davos, Chief Economic Minister Airlangga Hartarto said the government was aiming for a 20 per cent DMO on exports of palm oil, meaning companies must provide a fifth of their supply to the local market.
He said that the DMO is currently 30 per cent but it will be reduced to 20 per cent if oil prices fall.
Indonesia's Trade Ministry issued rules on Monday stating that companies must obtain an export permit that would only be granted to those able to meet DMO.