Explained: How Indonesia's Palm Oil Export Ban Will Impact India? Which Products May See Price Rise?

Due to the impact on the supply of palm oil, oil prices in the domestic market may be affected. In such a situation, there may be losses for FMCG companies including Britannia, HUL and ITC.

New Delhi: The decision of the Indonesian government to ban export of palm oil from April 28 has come as a huge setback to India, which is already reeling under the impact of high prices for edible oil since the Ukraine-Russia war broke out. Indonesia is the world's largest producer and supplier of palm oil.

The decision has already created a buzz in the Indian market, with traders wary of the impending shortfall and price hike. India imports roughly 80 lakh tonnes of palm oil from Indonesia, Malaysia and Thailand annually. 

How Will The Palm Oil Export Ban Impact India?

The latest decision by Indonesia is likely to have a big impact on India as it is the largest importer of edible oils. India imports more than 50 per cent of palm oil from Indonesia. Of the approximate six lakh tonnes of palm oil India imports per month, almost three lakh tonnes come from Indonesia, according to Solvent Extractors' Association (SEA), IANS reported.

Sunflower and soybean oil prices have seen an increase due to the Russia-Ukraine war. Russia and Ukraine are the largest sunflower and soyabean oil-producing countries in the world. 

The supply has been affected due to the war. At the same time, the ban on export of palm oil from Indonesia will have a direct impact on the supply to India. In such a situation, pressure can be seen on the prices in the domestic market. Earlier in January, Indonesia had banned the export of palm oil, although the ban was lifted in March.

Which Commodities May See A Rise In Prices?

Due to the impact on the supply of palm oil, oil prices in the domestic market may be affected. In such a situation, there may be losses for FMCG companies, including Britannia, HUL and ITC.

"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," said Solvent Extractors Association of India (SEA) director-general BV Mehta as mentioned in a report in PTI.

“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," he said.

"India consumes 22.5 million tonnes of edible oil annually, of which 9-9.5 million tonnes is met by domestic supplies and the rest by imports. About 3.5-4 million tonnes of palm oil is imported by India annually from Indonesia," he said as per the report.

Worry For Indian Consumers?

The Central government spends Rs 50,000 crore annually on the import of palm oil. According to a report published in The Hindu Businessline, Indian consumers should gear up for the difficult times to come.

It has been said in this report that the Indian market is already facing inflation in the post-Covid era during the Ramzan and wedding season. In such a situation, after the move of Indonesia, the prices of edible oil there will come down, but its prices in India will shoot up significantly.

According to a report published in the Indian Express, traders in India may see an increase in the price of edible oils by Rs 3,000 to 5,000 per tonne. 

What Are The Uses Of Palm Oil In India?

Palm oil is the most broadly consumed vegetable oil in the world. About 50 per cent of products the average urban Indian uses daily contain palm oil.

In India, it is generally used as cooking oil and as an ingredient in a wide range of customer merchandise. Shampoo, ice cream, cooking oil and lipstick -- all contain palm oil. 

Palm oil and its derivatives are used to manufacture several daily consumption goods such as soaps, margarine, shampoos, noodles, biscuits and chocolates. So, any rise in palm oil prices will push up the input costs across these industries.

What Is National Mission On Edible Oils - Oil Palm (NMEO-OP)? 

To reduce dependence on imports, the government last year launched the National Mission on Edible Oils - Oil Palm (NMEO-OP) to augment the availability of edible oil in the country by harnessing area expansion and increasing crude palm oil production.

Under this scheme, more than Rs 11,000 crore will be invested, which will promote oil palm cultivation in the northeastern states and Andaman and the Nicobar Islands. 

Between 2020 and 2021, palm oil prices have increased by more than 50 per cent. Due to this, the prices of edible oils have increased by more than one and a half times. To control the rising prices, the government had to reduce import duty. But India's increased inflation remains a cause for concern amidst the economy hit by the Covid-19 pandemic. 

In an effort to become self-reliant in the matter of palm oil, the Government of India has set a target of cultivating palm on about one million hectares of land by the year 2029-30. That much land will be equal to the Tripura state of India.