Indonesia on Thursday began enforcing a complete ban on exports of palm oil. Indonesia is the biggest producer of palm oil—used in cooking, cosmetics and other fields—in the world.
The Indonesian government enforced the ban citing shortage of cooking oil and soaring prices domestically. “Authorities in Southeast Asia's most populous country fear the scarcity and rising costs could provoke social tensions and have moved to secure supplies of the product, which is used in a range of goods such as chocolate spreads and cosmetics,” AFP reported.
Indonesian President Joko Widodo justified the ban, noting that supplying his country's 270 million residents was his government's “highest priority”.
The ban applies to supply of crude palm oil, RBD palm oil and used cooking oil. The government said the ban would be in force until domestic cooking oil prices ease. The move by Indonesia marks the latest disruption to the global food industry, which has been rocked by the Ukraine war and subsequent rise in oil prices.
Economists told The Jakarta Post that if the ban stayed in place for a month, it would lead to a revenue loss of up to $1.4 billion to Indonesia.
Impact on India
Indonesia supplies about 50 per cent of India's total palm oil requirement. Earlier this week, Solvent Extractors' Association (SEA)—India's main association of cooking oil traders—claimed Indonesia's move would push Malaysia to increase prices of cooking oil. Malaysia is the second-largest exporter of palm oil globally.
“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,” director general of SEA B.V. Mehta had told PTI.
The last Indian Economic Survey had blamed rising price of oil and fats as a major driver of inflation in the foods and beverages category in the fiscal FY'22. Oil and fats contributed to around 60 per cent of food and beverages inflation in the country, despite having a weight of only 7.8 per cent in the basket.
Santosh Meena, head (research) at Swastika Investmart, told News 18, “Palm oil and its derivatives are used in producing several goods for daily consumption such as soaps, shampoos, biscuits, and noodles. This will negatively affect FMCG companies like HUL, Nestle, Britannia, Godrej Consumer Products Ltd, Marico Ltd., etc. The high prices will leave packaged food products manufacturers, soap manufacturers, and other personal care manufacturers with no other option than to raise prices and thus affecting their volumes.”
While the ban could worsen the inflation situation across sectors, Indonesia's action also has a silver lining. “In certain ways, however, it is also helpful to the Indian local refining industry, as every action to limit the import of refined oils boosts domestic crushing and refining of oil-seeds. Indonesia's curbing of refined imports will help domestic refining even more,” Kshitij Purohit, Lead Commodity at CapitalVia Global Research, told The Times of India.
