Indonesia Bans Palm Oil Exports – Indian Industries will Get Impacted

02 May 2022

Already squeezed by the Russia-Ukraine war, the world’s supply of cooking oil will be hit hard due to Indonesia’s decision to ban palm oil exports which will come into effect from April 28. The country decided in the wake of a local shortage and soaring prices. According to our data available till Sep, Indonesia shipped US$16.7 billion worth of palm oil to the world in 2021, among which China (13%) and India (12%) were the biggest buyers. Here’s a complete overview of Indonesia’s palm oil exports to India and the world and how it will affect India.

Indonesia’s palm oil exports to India and the World in 2021

India imports around 8 million tonnes of palm oil every year, accounting for about 40% of the share in total edible oil consumption. According to our database, Indonesia supplied US$16.7 billion of palm oil to the world in 2021 (till Sep data). To India, Indonesia exported palm oil worth US$2 billion. Below given chart shows the dollar amount of Indonesia’s palm oil exports to the world and India last year by quarter (till Sep data).

Effect on various industries in India

Following Indonesia’s ban on palm oil export, the prices of edible oil and packaged goods in India are likely to see a jump amid its lower availability in the country. The disruption in supplies can increase the input costs for companies that are using oil in their products. This can further stroke the inflation that is already running high at a 17-month high level.

Indonesia’s ban on the export of palm oil will come into effect from April 28. The decision was taken in view of the severe shortage and skyrocketing prices of edible oil in the Southeast Asian nation. Indonesia is the biggest palm oil producer in the world. Palm oil and its derivatives are used in food products, biofuels, cosmetics, and detergents. These are used to manufacture several daily consumption goods such as chocolates, biscuits, noodles, shampoos, margarine, soaps, and so on. Here are key highlights of how Indonesia’s ban on palm oil exports would affect various industries in India.

According to market analysts, due to Russia’s invasion of Ukraine, the world cooking oil supply was already in a huge supply deficit, driving prices of palm and soy oils to record highs.

Palm oil and its derivatives are used in producing several commodities for daily consumption like noodles, biscuits, shampoos, and soaps. This will negatively affect FMCG companies as they use palm oil in their products and any increase in the prices of palm will increase the prices of these commodities as well.

After Indonesia’s ban, domestic edible oil prices are likely to jump 10-15% in the short term.

Russia-Ukraine war has already affected sunflower supplies in India, adding pressure to household budgets.

The second-largest palm oil exporter, Malaysia is also facing a production shortfall due to a pandemic-induced labour shortage and is unlikely to be able to plug the gap.

     Industry experts said that Indonesia’s decision affects not only palm oil availability but vegetable oils worldwide. Retail inflation in India jumped to a 17-month high of 6.95% in March 2022, mainly on account of costlier food items. High petrol and diesel prices in the country have already lifted the food and other commodity prices.  

Indonesia’s palm oil exports to the world by the year

Indonesia’s palm oil shipments to the world were highest in 2017, as per data for the last ten years. In 2020, Indonesia exported palm oil worth US$17,364 million, which may increase in 2021 as the country supplied palm oil worth US$16,732 million till September. However, after announcing the export ban, Indonesia’s exports of palm oil will decline in 2022. Below given chart shows the dollar amount of Indonesia’s palm oil exports to the world by year.

Indonesia’s top palm oil export partners in 2021

Indonesia is the biggest producer of palm oil, the world’s most consumed edible oil. Its decision to ban palm oil exports will send U.S. futures tied to soybean oil, an alternative to palm. In the United Kingdom, some supermarkets limit cooking oil like sunflower, olive, and rapeseed.

China and India are the biggest importers of Indonesian palm oil, together accounting for over 25% in 2021 (till Sep data). According to Indonesia export data of palm oil 2021 (available till Sep), Indonesia exported US$2,243 million worth of palm oil to China and US$2,044 worth of palm oil to India. Other buyers of Indonesian palm oil were Pakistan, the United States, Malaysia, Bangladesh, Spain, Egypt, Myanmar, and Russia. Below given chart shows the dollar amount and value in percentage of these countries.

Russia’s invasion of Ukraine has thrown the trade of sunflower oil into chaos and is squeezing already tight supplies of other vegetable oils used in biofuels, food, and personal care products. Now the global food crisis will further deteriorate from Indonesia’s decision to ban palm oil exports. The rates of food purchase products in India will further increase after a rise in petrol and diesel prices.