Context: The abrupt ban on palm oil exports by Indonesia, its biggest exporter, is expected to impact 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.
|Must Read: Explained: Indonesia’s palm oil crisis, and its implications for India|
How will this ban affect India?
The export ban could lead to an increase in food inflation, as India is the largest importer of palm oil from Indonesia.
– The commodity accounts for nearly 40% share of India’s overall edible oil consumption basket.
– So, 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.
Impact on packaged good 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.
What is the solution to this problem?
Mitigating the impact of the ban: Palm oil prices rose by nearly 5% over the weekend after the announcement of the export ban by Indonesia. Finding an immediate solution is going to be a challenge. Even if India manages to find an alternative source, prices will be high.
– 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.
Finding another exporting country:
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.
– India could also explore importing from Thailand and Africa—they produce three million tonnes each.
Source: This post is based on the article “How Indonesia’s ban on palm oil exports will hurt us” published in the Livemint on 26th Apr 22.