Indonesian Palm Oil: Strengthening Trade Relations and Ensuring Price Stability in Pakistan’s Market
GAPKI (03/12/2025) –
SUSTAINABLE INDONESIAN PALM OIL INDUSTRY – Policy Brief
Introduction
In Pakistan, edible oil is not just another grocery item. It is the invisible thread that binds together the country’s food economy. Every roti brushed with ghee, every samosa fried at a roadside stall, every packet of biscuits on a supermarket shelf, and even the soap used in homes has a link back to imported edible oil. Few commodities rival its role in daily life.
Yet beneath this ubiquity lies a stark vulnerability. Pakistan produces only a fraction of what it consumes. Domestic oilseed production supplies less than 20 percent of demand, with the remainder imported, primarily palm oil supplemented by soybean and rapeseed derivatives (USDA, 2025). This reliance is not a matter of choice but of necessity. Palm oil dominates because of its cost advantage and versatility, forming the quiet backbone of Pakistan’s kitchens, food processing industries, and consumer goods supply chains.
But reliance is growing. Total edible oil consumption is forecast to reach 5.13 million tonnes in 2025/26 up 5 percent from 2024/25 (USDA, 2025). With per capita use at about 22 kilograms annually, the pressures of population growth, shifting diets, and an expanding food service industry will continue to drive demand. Pakistan cannot meet this need on its own, making imports the lifeline of its edible oil economy and raising an urgent question: how can it secure stable, affordable supplies of a commodity that shapes both family budgets and national inflation?
Understanding Pakistan’s Edible Oil Landscape
The first step in answering this question is to understand the structural imbalance. Pakistan’s edible oil market is defined by demand growth outpacing domestic supply. Local cultivation contributes less than one-fifth of national needs, and despite government programs and pilot projects, output has remained stagnant at roughly half a million tonnes annually (Pakistan Economic Survey, 2024). Structural barriers, from water scarcity to fragmented farms and low-yield seed varieties, limit the scope for rapid expansion.
Imports, therefore, are inevitable. Palm oil fills this gap decisively because of its consistent affordability. In FY25, Pakistan imported 3.21 million tonnes of palm oil worth USD 3.4 billion, cementing its role as the cornerstone of national consumption (Profit, 2025). Other oils, including soybean, sunflower, olive, and corn, remain marginal, either too expensive for most households or too limited in volume to matter.
This reliance comes at a macroeconomic cost. Pakistan’s total food import bill reached USD 8.14 billion in FY25, with palm oil alone contributing more than 40 percent of that amount (Profit, 2025). In a country where foreign exchange reserves remain under strain, this dependency exposes the economy to global price shocks. And this is where the challenge moves beyond trade flows to something every Pakistani feels daily: inflation.
Experiencing Inflation Pressures and Price Stickiness
The burden of imports is not just measured in dollars. It is visible in the way global price movements ripple through domestic markets. When international palm oil prices spiked in late 2024, cooking oil prices in Pakistan rose almost immediately. But when global prices softened in early 2025, relief was slow to arrive. By March, the average retail price of edible oil in Pakistan was still USD 2.06/kg (USDA, 2025), underscoring a persistent disconnect between global affordability and local accessibility.
This stickiness reflects inefficiencies in Pakistan’s system. Tariffs and duties add layers of cost. Limited refining and bonded storage capacity prevent imports from being buffered against shocks. Long, intermediated supply chains dilute benefits before they reach consumers. As a result, global price declines do not translate quickly into relief at home.
The broader data confirm the challenge. Overall inflation stood at 3.46 percent year-on-year in May 2025, while food and non-alcoholic beverages rose by 3.07 percent in the same period (PBS, 2025). Over July-May FY25, average inflation was 4.61 percent, highlighting persistent pressures. Looking ahead, forecasts suggest inflation could climb back toward 5.1 percent by September 2025, largely on account of food costs (Arab News, 2025). For households, this means squeezed grocery budgets; for industries, rising input costs; and for policymakers, constant pressure to keep food inflation under control.
Positioning Indonesia as a Strategic Partner
Palm oil, therefore, is not simply an import commodity. It is a determinant of inflationary stability. Ensuring reliable and affordable flows is critical to protecting consumers and maintaining economic balance. The question then is: who can Pakistan rely on to provide that stability?
Stability in Pakistan’s edible oil market depends on stability of supply, and here, Indonesia plays the decisive role. As the world’s largest producer, responsible for about 58 percent of global output (USDA FAS, 2025), Indonesia already anchors Pakistan’s palm oil imports. Its strength lies not only in scale but also in flexibility and proximity. With around 46 million tonnes of crude palm oil production annually (USDA, 2025), Indonesia has the ability to tailor exports to Pakistan’s needs, supplying crude palm oil for local refining or refined products for faster delivery .
Its geographic closeness ensures shorter shipping routes to Karachi and Port Qasim, lowering freight costs and ensuring timeliness. Equally important has been Indonesia’s reliability during periods of global volatility. Consistent flows from Jakarta have allowed Pakistan to avoid deeper shortages and sharper price spikes in turbulent years. This track record positions Indonesia not just as a supplier but as a trusted partner. The opportunity now is to deepen this relationship by moving beyond transactional trade and building a strategic partnership grounded in cooperation.
Strengthening Palm Oil as Pakistan’s Inflation Buffer
Palm oil already plays this stabilizing role. Compared to other edible oils, it delivers a 10 to 15 percent cost advantage (USDA, 2025), cushioning household budgets and containing Pakistan’s food import bill. Without palm oil, both consumer prices and national spending on edible oils would be significantly higher.
But the benefit is blunted by inefficiencies at home. As earlier sections showed, retail prices in early 2025 stayed high despite falling global markets, reflecting bottlenecks in refining, storage, and distribution. This is where Indonesia’s role can extend beyond supply.
- Direct supply contracts between Indonesian exporters and Pakistani refiners would reduce reliance on volatile spot markets.
- Joint investments in refining and bonded storage at Karachi and Port Qasim would create buffers against global shocks and speed up the transmission of price relief to consumers.
In short, palm oil already acts as Pakistan’s inflation buffer. With deeper cooperation, Indonesia can make that buffer more effective and resilient.
Embracing Sustainability to Future-Proof the Partnership
While affordability and stability dominate today’s debate, tomorrow’s markets will be shaped by sustainability. Global buyers are demanding traceability and certified sourcing, and Pakistan’s food processors and exporters cannot afford to lag behind. Access to certified sustainable palm oil is becoming a precondition for entry into value chains.
Indonesia leads on this front. Its Indonesian Sustainable Palm Oil (ISPO) standard and participation in the Roundtable on Sustainable Palm Oil (RSPO) provide frameworks for compliance, traceability, and smallholder inclusion . For Pakistan, sourcing ISPO-certified palm oil ensures continuity of domestic supply while strengthening the export competitiveness of industries such as confectionery and processed foods. By treating sustainability as a value-added opportunity rather than a burden, Pakistan can secure its edible oil needs today while preparing its industries for tomorrow’s trade landscape. In doing so, it lays the groundwork for a deeper, future-proof partnership with Indonesia.
Unlocking Opportunities for Deeper Collaboration
Palm oil has already proven its importance in ensuring affordability and stability. The next step is to translate this reliance into a long-term strategic partnership. For Indonesia, Pakistan is a fast-growing, dependable market. For Pakistan, Indonesia offers scale, capital, and expertise that can address its structural bottlenecks.
Key opportunities include: https://i0.wp.com/gapki.id/en/dir-site/uploads/2025/11/supply_afreements_gapki.id_.jpg?w=897&ssl=1
Taken together, these steps would elevate palm oil from a commodity transaction to a platform for industrial cooperation, agricultural diversification, and long-term resilience.
Setting Policy Pathways for Pakistan
To seize these opportunities, Pakistan needs policies that turn intent into action:
- Securing long-term contracts with Indonesian suppliers for predictable pricing.
- Offering tariff incentives for ISPO-certified imports, aligning with global standards and giving local exporters a competitive edge.
- Establishing a Pakistan-Indonesia Palm Oil Working Group to resolve tariff, logistics, and certification issues.
- Promoting joint ventures in refining and storage to modernize domestic infrastructure and create efficiencies that pass through to consumers.
These measures would reposition palm oil from a short-term import necessity to a strategic pillar of Pakistan’s food security, industrial growth, and economic stability.
Positioning Palm Oil as a Strategic Asset
For Pakistan, the question is no longer whether to import palm oil, but whether to treat it as a routine commodity or elevate it as a strategic sector. The former path leaves the country exposed to volatility. The latter offers a chance to stabilize inflation, attract investment, and align with future trade norms.
For Indonesia, deepening this partnership secures a long-term market and demonstrates how palm oil can anchor regional food security. For Pakistan, it is an opportunity to convert dependence into strength.
In a world of volatile prices and shifting trade rules, building this partnership is more than an economic option. It is a hedge against instability, a platform for industrial cooperation, and a pathway to shaping the future of food security in South Asia. (*)