JAKARTA (BLOOMBERG) - Indonesia, the world's top oil palm grower, is finding it is not immune to the impact of soaring prices as it plans to subsidise cooking oil sold locally.

The government will spend 3.6 trillion rupiah (S$340 million) of funds raised from palm oil export levy to temper cooking oil prices by paying for the price gap and scrapping tax on 1.2 billion litres of edible oil, Coordinating Minister for Economic Affairs Airlangga Hartarto said at a press briefing on Wednesday (Jan 5).

Palm oil, the world's most consumed edible oil, surged to a record last October and posted a third straight year of gains. That added to concerns about global food inflation at a time when supply chains are hit by bad weather, Covid-19 disruptions and labour shortages.

Prices of crude palm oil climbed for a fourth day to RM5,037 a tonne on Wednesday and are expected to stay elevated in the first quarter.

Indonesia has sounded caution about inflation after a year of muted price gains. A market intervention to stabilise costs during Christmas and New Year has not stopped the surge in edible oil. The government asked producers to sell simple packaged cooking oil at 14,000 rupiah a litre, with companies pledging to supply as much as 11 million litres to retailers, but prices still hit 18,500 rupiah in January.

The soaring prices are due to a lack of market efficiency rather than a supply shortage.

Indonesia consumes only 5.1 million tonnes of the eight million tonnes of cooking oil it produces, but many companies are not integrated with local oil palm growers, the Trade Ministry said. Instead, the cooking oil producers buy at prices influenced by volatile global prices.