Home / Markets / How Indonesia's ban on palm oil exports will hurt us

The abrupt ban on palm oil exports by Indonesia, its biggest exporter, is expected to rock household economics globally. Palm oil is among the world’s most-used cooking oils, and India’s dependence on Indonesia is expected to deal a supply-side shock. Mint takes a look:

Why did Indonesia take this step?

Indonesia has clamped down on exports starting 28 April primarily because of soaring inflation in the country. This is not the first time the South East Asian country decided to arrest local prices by banning exports—it had announced limited curbs in January too. However, brokerages suggest that the ban will probably be a temporary measure of two to three weeks, as Indonesia cannot afford to lose out on exports for long. Indonesia’s president Joko Widodo has stated that he would ensure that the availability of cooking oil in the domestic market becomes “abundant and affordable".

How will this ban affect India?

The export ban could send food inflation soaring as India is the largest importer of palm oil from Indonesia. It imports about eight million tonnes of palm oil annually; the commodity accounts for nearly 40% share of India’s overall edible oil consumption basket. Pradeep S. Mehta, secretary-general, CUTS International, says edible oil prices could surge as much as 100-200% in India if the government fails to find a new source of palm oil. Cooking oil prices are already at record levels as the Ukraine war disrupted shipments of sunflower oil. Prior to the war, the Black Sea region made up over 75% of global sunflower oil exports.

Stopgap measure
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Stopgap measure

How could it impact packaged goods firms?

Since palm oil and its derivatives are used in the production of several household goods, the impact of the ban could eat into the margins of Indian packaged consumer goods players. Analysts said listed firms such as Hindustan Unilever Ltd, Godrej Consumer Products Ltd, Britannia Industries Ltd, and Nestle SA could feel the impact of the ban in the near term.

What are India’s import options?

India is most likely to turn to Malaysia, the second-biggest palm oil exporter, to plug the gap. But Malaysia is also facing a labour shortage owing to the pandemic which has resulted in a production shortfall. In a recent note, Edelweiss said Malaysia is unlikely to be able to plug the gap. Malaysia exports 18 million tonnes of palm oil annually compared to 30 million tonnes exported by Indonesia. India could also explore importing from Thailand and Africa—they produce three million tonnes each.

How can India mitigate the impact of the ban?

Palm oil prices rose by nearly 5% over the weekend after the announcement of the export ban. Finding an immediate solution is going to be a challenge. Experts said even if India manages to find an alternative source, prices will be high as a major exporter is now out of the calculation. The industry expects India to engage with Indonesia on an urgent basis, before the ban comes into effect on 28 April. Besides, the Centre is likely to negotiate with other oil-supplying nations in Latin America and Canada.





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