Exports of palm oil, the most widely used edible oil, whose raw material is widely used in a range of products from cosmetics to cakes, has been halted by the world’s top palm oil producer Indonesia. Indonesia and Malaysia account for more than half of the global palm oil supply.
Indonesian President Joko Widodo imposed the export ban citing rising inflation and wanting to ensure the availability of food products at home following Russia’s invasion of Ukraine.
The move is anticipated to give an unwanted push to global inflation and increase the prices of edible oil.
Should India worry?
India is the largest importer of vegetable oil. Palm oil prices rose nearly 5 per cent over the weekend over fear of shortages in the coming months.
Countries like India, Bangladesh and Pakistan are in a fix as they import most of the palm oil from Indonesia. While Malaysia is a strong second, it is unlikely to be able to fill the gap created by Indonesia.
India procures nearly half of its palm oil imports from Indonesia, while Pakistan and Bangladesh import nearly 80 per cent. Like India, prices in Pakistan and Bangladesh have also increased. Rasheed JanMohd, chairman of Pakistan Edible oil Refiners Association (PEORA) said, “Nobody can compensate for the loss of Indonesian palm oil. Every country is going to suffer,” as mentioned in a report in Reuters.
The shortage thus created is of significance considering the sunflower oil supply disruption from the Black Sea region.
Indonesia has allowed loading till April 28 but consuming countries are likely to face a shortage after the first half of May.
Atul Chaturvedi, president of trade body the Solvent Extractors Association of India (SEA) called the move unexpected and said that the export ban will hurt customers in India, as well as globally.
The trade body also urged the government to initiate immediate government-to-government negotiations with Indonesia.
“This will have serious repercussions in our domestic market as half of our total imports of palm oil is from Indonesia and no one can fill up this void,” said SEA Director General BV Mehta as mentioned in a report in PTI.
I have added that upon the development, Malaysia, one of India’s major alternate sources, will end up increasing oil prices too.
“India consumes 22.5 million tonnes of edible oil annually, of which 9-9.5 million tonne is met by domestic supplies and the rest by imports. About 3.5-4 million tonnes of palm oil is imported by India annually from Indonesia,” he said as per the report.
Global prices of crude palm oil have also surged to historic highs due to weakening supply and rising demand. FMCG companies such as Unilever, Nestle, Proctor & Gamble, Mondelez International etc. are likely to be impacted.
Unilever said in 2016 that it used about 1 million tonnes of crude palm oil and its derivatives, while Nestle bought 453,000 tonnes of palm oil and palm kernel oil, mostly from Indonesia and Malaysia. Proctor & Gamble used about 605,000 tonnes of palm oil and palm kernel oil, and their derivatives, in its FY21, while Mondelez said that it purchases ‘large quantities’ of palm oil. Personal care company L’Oreal said in 2021 that it purchased nearly 310 tonnes of palm oil and also used palm derivatives equivalent of 71,000 tonnes.
Palm oil is a key raw material for FMCG and HoReCa – hotels, restaurants and caterers – industries, which could lead to an increase in products such as soaps, and shampoos, apart from food products.
(With Reuters and PTI inputs)
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