Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

How Indonesia’s ban on Palm Oil exports will hurt India?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : National Edible Oil Mission-Oil Palm (NEOM-OP)

Mains level : India's import dependece for edible oils

The abrupt ban on palm oil exports by Indonesia, its biggest exporter, is expected to rock household economics globally.

Indonesia curbs palm oil export

  • Indonesia has clamped down on exports starting 28 April primarily because of soaring inflation in the country.
  • This is not the first time the South East Asian country decided to arrest local prices by banning exports—it had announced limited curbs in January too.
  • However, brokerages suggest that the ban will probably be a temporary measure of two to three weeks, as Indonesia cannot afford to lose out on exports for long.
  • Indonesia’s president Joko Widodo has stated that he would ensure that the availability of cooking oil in the domestic market becomes “abundant and affordable”.

How will this ban affect India?

  • 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.
  • The export ban could send food inflation soaring as India is the largest importer of palm oil from Indonesia.
  • It imports about 8 million tonnes of palm oil annually; the commodity accounts for nearly 40% share of India’s overall edible oil consumption basket.
  • 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.

How could it impact packaged goods 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.
  • Analysts said listed firms such as Hindustan Unilever Ltd, Godrej Consumer Products Ltd, Britannia Industries Ltd, and Nestle SA could feel the impact of the ban in the near term.

What are India’s import options?

  • 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.
  • Hence Malaysia is unlikely to be able to plug the gap.
  • Also the bilateral ties have soured since few years due to unwarranted comments by its former PM Mahathir Mohammed on Kashmir.
  • India could also explore importing from Thailand and Africa—they produce three million tonnes each.

How can India mitigate the impact of the ban?

  • Palm oil prices rose by nearly 5% over the weekend after the announcement of the export ban. Finding an immediate solution is going to be a challenge.
  • Even if India manages to find an alternative source, prices will be high as a major exporter is now out of the calculation.
  • 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.

Back2Basics:

National Edible Oil Mission (OP)

 

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