Explained: Indonesia’s surprise palm oil export ban and its impact on consumers of India

New Delhi, Apr 26: Indonesia, which is the world's largest producer of palm oil and meets nearly 50 per cent of the total palm oil requirement in India annually, had announced to ban exports till further notice apparently to contain edible oil prices in their domestic market.

Why did Indonesia ban palm oil exports?

Indonesia's decision to halt exports is driven by the political situation in the country. Indonesian President 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

Inflation is on the rise and President Joko Widodo's rivals are winning the popularity battle.

Should India worry?

It shoould be noted that India procures nearly half of its palm oil imports from Indonesia, while Pakistan and Bangladesh import nearly 80 per cent. Indonesia was levying USD 575 per tonne export duty.

And now ever since the ban buyers like India has limited alternatives.

Experts believe that importers such as India will try to increase palm oil purchases from Malaysia, which is our major alternate sourcing market. But the world's second-biggest palm oil producer will fail to fill the gap created by Indonesia.

"Nobody can compensate for the loss of Indonesian palm oil. Every country is going to suffer," said Rasheed JanMohd, chairman of Pakistan Edible oil Refiners Association (PEORA).

What does the ban mean for India?

The move by the world's biggest palm oil producer to ban exports from Thursday will increase prices of all major edible oils including palm oil, soyoil, sunflower oil and rapeseed oil, which are already at an all-time high, will go through the roof.

That will place extra strain on cost-sensitive consumers in Asia and Africa hit by higher fuel and food prices.

Impact on Indian consumers

With the Ukraine war, the sunflower and soybean oil is already under pressure as imports have halved but the situation was managed with other variants of oils. But, the Indonesian oil ban will have a "devastating effect" unless sorted out quickly, an edible oil refiner official said.

The last Indian Economic Survey had blamed rising price of oil and fats and it was 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.

Inflation both at the retail and wholesale levels for edible oil had begun in Q4FY19-20 and still continues. The Wholesale Price Index or WPI -based inflation already surged to 14.55 per cent in March 2022, after a 13.11 per cent reading in February 2022.

Edible oils such as palm oil are a key raw material for FMCG and HoReCa (hotels, restaurants and caterers) industries and a rise in the prices of these commodities impacts consumer goods beyond food products such as soaps, shampoos, etc.