Come Thursday and Indonesia will ban the export of crude palm oil. This will make everything from cakes to cosmetics, spreads to shampoos costlier in India
Indonesia has decided to ban the export of crude palm oil from 28 April. The timing could not be worse; the ban comes at a time when edible oil prices are already surging.
Indonesia’s decision to halt exports is driven by the political situation in the country. Inflation is on the rise and President Joko Widodo’s rivals are winning the popularity battle.
What does the ban mean for India?
India gets 50 per cent of its crude palm oil from Indonesia. It imports around eight million tonnes of palm oil every year, accounting for about 40 per cent of the share in total edible oil consumption. With the ban, edible oil prices, which are already at an all-time high, will go through the roof.
Russia’s invasion of Ukraine forced nations to switch to palm oil as a substitute for sunflower oil. Ukraine and Russia are the world’s largest exporters of sunflower oil in the world – 46 per cent comes from Ukraine and 25 per cent from Russia, according to the Observatory of Economic Complexity, a data visualisation site for international trade.
India is the world’s largest importer of vegetable oil.
Higher crude palm oil prices will further force domestic fast-moving consumer goods (FMCG) companies to increase prices.
The ban will increase the price of everyday items like cosmetics and shampoos. Pixabay
What products are likely to become more expensive?
With the ban coming into place from Thursday, the prices of all major edible oils including palm oil, soy oil, sunflower oil, and rapeseed oil will see a bigger increase.
Palm oil is used in many everyday items – from cakes to frying fats, from cosmetics to cleaning products, and from biofuels to detergents. It is used in chocolates, margarine, noodles, biscuits, soaps, and shampoos. A rise in palm oil prices then will impact the cost of all these consumer goods.
What companies are likely to be impacted?
Unilever said in 2016 that it used about one million tonnes of crude palm oil and its derivatives and about 0.5 million tonnes of crude palm kernel oil and its derivatives, according to a Reuters report.
In 2020, Nestle, the maker of KitKat chocolates, purchased about 453,000 tonnes of palm oil and palm kernel oil, mostly from Indonesia and Malaysia, its website says.
Ferrero, the Italian maker of Nutella and the Ferrero Rocher chocolates, both of which are made using palm oil, sourced nine per cent from Indonesia, according to the report.
Santosh Meena, research head, Swastika Investmart Head told news18.com, “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.”
Analysts at brokerage firm Jefferies said that the ban will become a key worry for Hindustan Unilever, Godrej Consumer Products Limited, Britannia, and Nestle, according to the report.
After the ban by Indonesia, edible oil prices are expected to rise by 10 to 15 per cent in the short term. Over the weekend, prices already rose by five per cent.
India gets 50 per cent of its crude palm oil from Indonesia. AFP
What is the way ahead for India?
India will turn to Malaysia, which is the world’s second-largest producer of palm oil. But it is unlikely to fill the gap.
The cooking oil national industry body, Solvent Extractors’ Association (SEA) of India, has suggested immediate initiation of government-to-government dialogue with Indonesia on the proposed palm oil export.
“We have suggested our government initiate dialogue with Indonesian counterparts at the highest diplomatic level on the cooking oil export ban. This will have serious repercussions in our domestic market as half of our total imports of palm oil is from Indonesia and no one can fill up this void,” SEA director-general B V Mehta said.
Pakistan and Bangladesh will also be impacted by the ban as they too like India are dependent on Indonesia for palm oil imports.
“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), reports The Economic Times.
How long will the ban continue?
Abneesh Roy of Edelweiss Securities told moneycontrol that the ban was temporary. “In our view, most likely this will be a temporary measure of two to three weeks as Indonesia will lose out on exports,” he said.
With inputs from agencies
Read all the Latest News, Trending News, Cricket News, Bollywood News,
India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.
