Even as India grapples with oil and gas supply concerns arising from the West Asia war, another pressure point may be emerging in edible oils.
Indonesia and Malaysia, the world’s largest palm oil exporters, are increasingly diverting supplies to biodiesel blending programmes to reduce dependence on fossil fuels. This has implications for India, where domestic edible oil production is insufficient to meet demand, and palm oil accounts for the largest share of imports due to its lower cost. Any tightening of global supplies could add to food inflationary pressures and widen import vulnerability.
Global grip
Palm oil is among the world’s most consumed edible oils due to its low cost, high yield and wide use across food and industrial applications, including cooking oils, processed foods, bakery products and cosmetics. It is also far more productive per hectare than competing oilseeds such as soybean or sunflower, making it cheaper in global markets.
The global palm oil trade is highly concentrated, with Indonesia and Malaysia together accounting for nearly 57% of crude palm oil exports in 2025. Indonesia contributed 28.4%, followed closely by Malaysia at 28.3%.
Their dominance stems from favourable tropical conditions, large plantation networks, lower production costs and decades of investment in cultivation and export infrastructure. Beyond them, Thailand, Papua New Guinea and Colombia are smaller exporters. Given this concentration, policy shifts in Jakarta and Kuala Lumpur have outsized implications for global edible oil prices and import-dependent economies such as India.
Fuel first
To support its energy transition, Indonesia launched its biodiesel programme in 2008 with a 2.5% palm oil blending mandate. It has since scaled up sharply—from B20 (20% palm oil blended with 80% diesel) in 2018 to B30 in 2020, B35 in 2023 and B40 in 2025. Indonesia has now announced B50 from 1 July this year. The expansion comes even as crude palm oil production has risen only modestly, from 46.9 million tonnes in 2021 to 51.7 million tonnes in 2025.
As a result, a rising share of output is being diverted to biodiesel, leaving less for exports. Under B40, nearly 25% of Indonesian output, about 12 million tonnes annually, is used for biodiesel. Under B50, this could rise to around 41%, or nearly 21 million tonnes.
Malaysia, the second-largest exporter, has also expanded blending mandates, raising its requirement from B10 to B15 beginning June.
Price pressures
Global palm oil prices have risen sharply over the past 25 years, from about $261 per metric tonne in 2000 to nearly $997 in 2025, while remaining highly volatile due to weather shocks, energy costs, export restrictions and shifting demand.
Prices surged during the 2007–08 commodity boom, rose again in 2010–11 on strong emerging market demand, and climbed above $1,100 per tonne in 2021–22 amid pandemic-related supply disruptions and the Russia-Ukraine war, which hit sunflower oil supplies and increased reliance on palm oil.
Prices eased in 2023 as inventories recovered but have started rising again. Despite volatility, palm oil remains cheaper than alternatives. In 2025, soybean oil averaged about $1,420 per tonne and sunflower oil about $1,526 per tonne. That advantage, however, may narrow as top exporters expand biodiesel use and tighten global supply.
Domestic dependence
India’s edible oil consumption has risen steadily over the past two decades, with per capita use increasing from 5.76 kg in rural areas and 7.92 kg in urban areas in 2004-05 to 10.58 kg and 11.78 kg, respectively, in 2022-23.
Domestic production, however, has lagged demand due to low oilseed productivity and policy support that has historically favoured rice and wheat through minimum support prices and procurement.
As a result, more than 55% of India’s edible oil demand is met through imports, with palm oil accounting for the largest share due to its price advantage. Indonesia accounted for nearly half of India’s palm oil imports worth about $8.3 billion in 2024-25, followed by Malaysia at around 31%.
Short-term diversification is limited, as other exporters cannot easily match India’s import demand. The government has attempted to cut import dependence through the National Mission on Edible Oils launched in 2021, but progress has been slow, with only about 250,000 hectares brought under oil palm cultivation against a target of 650,000 hectares.
Diversification dilemma
India can partially offset palm oil supply shortages by increasing imports of other edible oils, but the scope is limited. Share of palm oil in India’s total edible oil imports declined from 57% in 2023-24 to 47% in 2024-25, as sunflower oil imports increased. More recently, palm oil imports fell 27% to a one-year low of 505,000 tonnes in April amid high global prices that squeezed domestic refining margins.
However, large-scale substitution remains difficult. Import of sunflower oil, largely sourced from Russia and Ukraine, and soybean oil from Argentina and Brazil, is smaller in scale and more expensive.
Higher freight costs, longer supply chains and geopolitical risks further limit substitution. Over the longer term, India may need to strengthen domestic oilseed production to reduce import dependence.
Puneet Kumar Arora is an assistant professor of economics at Delhi Technological University. Jaydeep Mukherjee is a professor of economics at Great Lakes Institute of Management, Chennai.