Indonesian curbs on palm oil stokes inflation concerns
3 min read . Updated: 09 Feb 2023, 06:23 AM IST
PremiumIndia’s import bill doubled to $10 bn in FY22 from $5 bn in FY20, owing to supply chain disruptions and high commodity prices
International palm oil prices turned volatile a day after Indonesia, the world’s largest exporter of the commodity, said it will suspend some export permits to cool cooking oil prices ahead of next month’s Ramzan.
Indonesia currently allows palm oil manufacturers to export six times what they have sold at home under a policy called domestic market obligation (DMO). Exporters will be allowed to use those rights only after the situation has calmed, Reuters reported, citing Indonesia’s senior cabinet minister Luhut Pandjaitan. Around a third of the total exports quota could be used now, while the rest could be used after 1 May, another official said.
The move assumes significance as India is the largest palm oil buyer from Indonesia and depends heavily on its imports. Experts fear that a long-term curb could drive up prices in India.
“This report has sparked a lot of uncertainty," said B.V. Mehta, executive director of the Solvent Extractors’ Association of India (SEA). “ It’s unclear if Indonesia wants to restrict exports or improve domestic supply. There are contradictory signals. So, there is little clarity. The market has tightened because of this report. There is a fear that if Indonesia again restricts exports, prices in India could rise. The commodity market would stabilize only when we have clarity," Mehta added.
“We need to wait for official announcement to give any comments," the commerce ministry said in response to Mint’s query.
Every year, India imports about eight million tonnes of palm oil, accounting for nearly 40% of its overall edible oil consumption basket. Palm oil and its derivatives are used to manufacture soaps, shampoos, biscuits, and noodles, and supply disruptions promise to have a wide-ranging impact.
Palm oil prices in the international market doubled from $1,000 to $2,000 when Indonesia last banned palm oil exports. Mehta said Indonesia might avoid restricting exports as it suffered heavily in August. At a meeting in Delhi, Indonesian officials had requested Indian importers to restart buying as they ran out of storage capacity, and the fruits started to rot, triggering farmers’ protest, he said.
“Indonesia cannot afford to lose the confidence of importers. I don’t think they will curb exports for a long time," Mehta added.
India’s import bill doubled to $10 billion in FY22 from $5 billion in FY20, owing to supply chain disruptions and high commodity prices. India imported 80,50,731 metric tonnes (mt) of palm oil during FY22, compared to 85,91,302 mt in 2019-20.
“Since Indonesia is one of the major suppliers of palm oil, any disruption on the supply side with the demand remaining the same is definitely going to have an impact, though it may not be immediately because we may have the inventory. But if the trend continues, then, of course, it is bound to increase prices," Ajay Sahai, director general and CEO of the Federation of Indian Exports Organisation.
“So, the crucial question is how long this kind of restriction will continue. But it had removed it in a short duration as it is one of their principal items of export. And with an otherwise slowdown in exports, each country would like to have as many dollars as possible. At the moment, I am not expecting much increase in prices, but this kind of disruption causes a physiological impact in the market, which causes price rise," Sahai added.
“This is a temporary measure on the part of Indonesia to cool down palm oil prices. Indonesia produces a huge quantity of palm oil. The impact will be limited in the long term. It’s done keeping Ramzan in mind and, therefore, should not last for over two months," D.N. Pathak, executive director of the Soybean Oil Processors Association (SOPA) of India.
Last year’s ban boosted prices everywhere, Pathak said, adding global prices were at a record high following the Ukraine war. Soya bean oil prices were $2,000/mt, but it is significantly lower at $1,300/mt. Palm oil prices were quoting $8,000/mt, it has cooled down since then to nearly half, he stated. “Palm oil cannot be stored for long. Besides, the fundamentals will work according to global supply and demand. And the global supply of edible oils is adequate. Soya bean is going to come from Argentina and Brazil in the next three months. A huge crop will be coming from 30 mt of extra soyabeans being grown in Brazil. So, the supply position has to be taken in totality," Pathak added.
