Indonesia's coconut oil market is poised to experience a significant price increase in March 2025 due to a mix of adverse climatic conditions, supply shortages, and high demand across the world. Industry experts believe that the price increase will be underpinned by the sustained climatic disturbance in the form of extended impacts of the La Niña climatic phenomenon that has significantly affected coconut production volumes across Indonesia's top production zones.

Key Takeaways

• La Niña-induced weather disruptions have affected coconut production in key regions.
• Copra production is expected to fall to 1.68 MMT in 2024/25, worsening the supply shortage.
• Rising global demand, especially in Europe and North America, is intensifying competition with palm kernel oil.
• Indonesia faces stagnant coconut yields, adding pressure to the market.

La Niña has caused excessive rains, floods, and typhoons, and has impacted coconut production. These climatic disruptions have intensified already prevailing supply chain issues. Indonesia's copra production, which is further processed to create coconut oil, is anticipated to decrease marginally. The U.S. Department of Agriculture (USDA) forecasts 1.68 million metric tons of copra in the 2024/25 crop year. This is lower than last year's output. The decline in copra production will intensify the already tight supply of coconut oil, increasing prices.

Global demand for coconut oil has remained strong, particularly in Europe and North America, as consumers increasingly shift to natural and environmentally friendly products. The food, cosmetic, and industrial markets are therefore vying for an increasing share of coconut oil, once more limiting the market. The trend is reducing the price gap between coconut oil and its biggest substitute, palm kernel oil, in line with the increasing competitive squeeze in the edible oil market.

Indonesia's coconut industry also has long-term productivity issues. Indonesia's coconut output has remained at around 1.1 tons per hectare, far short of the levels targeted. This raised a cause for concern by industry players regarding long-term sustainability in the nation for the production of coconut oil.

In spite of these challenges, Indonesia's export prices for coconut oil are climbing as 2025 progresses. The interplay between constricting supply, robust demand, and regulatory adjustments is leading to the market's growing instability. Coconut oil prices are expected to continue being high in the first half of 2025 with little respite in sight unless drastic measures are taken in the shape of optimizing production and supply chain efficiency.

The future of the Indonesian coconut business in the next few months will rely heavily on the producers' reaction to the challenges. Industry stakeholders are holding their breath as the events are still unfolding, looking for ways to ride out the challenges as well as the opportunities of the dynamic market. With no chance of the decline of coconut oil demand in the world, Indonesia's position as the top exporter will remain a key determinant of the fate of the coconut oil business.