Indonesia's embargo on Palm oil export: How is it affecting India, its biggest Importer

New Delhi, India: On April 28, Indonesian President Joko Widodo placed an export embargo on crude palm oil, RBD palm oil, and used cooking oil, citing growing inflation and the need to assure food supply at home in the aftermath of Russia's invasion of Ukraine. The Indonesian government's ban on palm oil exports had a significant impact on the Indian market, as India is the world’s largest importer and imports roughly half of the 700,000 tonnes of Palm oil from Indonesia. Fears of shortages in the upcoming months have pushed up palm oil prices by over 5% in the last few days in India’s domestic market.

This ban is the latest setback for the global food and agriculture businesses, which has been already shaken by the Ukraine conflict and consequent surge in oil costs. Because of the soaring food prices, the authorities stated that the restriction would remain in effect until domestic cooking oil costs ease.

Palm oil is not just limited to the cooking oil, it is also utilized in an array of applications such as bakery, beauty products, cleaning agents, laundry detergents, margarine, and more. It's no surprise that shares of Fast-Moving Consumer Goods (FMCG) companies fell as much as 6% on April 25 after news broke that Indonesia has halted the export of crude and processed palm oil. Consumer goods companies including Hindustan Unilever and ITC are starting to face increased margin pressure as prices rise.

Every year, India consumes approximately 24 million tonnes of edible oil. In which, domestic production meets about 10.5 million tonnes of demand, with the remaining 13.5 million tonnes coming from imports. Palm oil accounts for more than 60% of this, or around 8 million tonnes, with 45 percent coming from Indonesia and the rest from Malaysia.

As Indonesia supplies over half of India's entire palm oil requirement, the Solvent Extractors' Organisation (SEA), country’s leading association of cooking oil traders, have warned that Indonesia's decision will force Malaysia to raise cooking oil prices, as Malaysia is the world's second-largest exporter of palm oil and, is already struggling to meet higher demand levels. The prices of vegetable oils such as mustard oil, soya oil, sunflower oil, and palm oil have risen by up to 25% in the last year.

Palm oil is widely used in India's food service business, since it is less expensive, lasts longer, and is more stable at high temperatures than other edible oils. In the fiscal year FY'22, the latest Indian Economic Survey highlighted rising oil and fat prices as a primary driver of inflation in the foods and beverages sector.