The recent announcement of a total export ban by Indonesia, the world’s largest producer, exporter, and consumer of palm oil, has raised serious concerns over its impact on global markets. The move is intended to alleviate domestic shortages, curb escalating prices, and reduce dependence on imports. India, which relies on Indonesia for half of its annual 8.3 million tons of palm oil needs, is expected to bear significant repercussions from the ban.
Palm Oil: A Pervasive Commodity
Derived from the reddish pulp of oil palms, palm oil is an edible vegetable oil used extensively in cooking. However, its uses are not limited to culinary practices: it is also found in a range of products from cosmetics, processed foods, soaps, shampoos, and cleaning products to biofuel. With the rising trend of green energy, crude palm oil is increasingly being used in the manufacture of ‘green diesel’.
Indonesia and Malaysia combined produce almost 90% of the world’s palm oil, with Indonesia itself accounting for over 45 million tonnes in 2021. Despite criticisms of unsustainable production leading to deforestation and controversial labour practices, palm oil remains popular due to its affordability, and oil palms’ higher oil yield compared to other vegetable oil plants like soybeans.
Integral to Global Supply Chains
As the world’s most widely used vegetable oil, palm oil has a significant role in global supply chains. Over 73 million tonnes were produced in 2020, and this figure is projected to rise to 77 million tonnes for FY 2022-23. Further highlighting its dominance, palm oil constitutes 40% of the global supply of the four most widely used edible oils: palm, soybean, rapeseed (canola), and sunflower oil.
Rising Prices of Edible Oils: Reasons and Consequences
Key factors behind the soaring prices of palm oil include increased demand due to a shortfall in the supply of alternative vegetable oils and disruptive weather events. The production of soybean oil, the second most-produced oil, is likely to decline this year amid a poor soybean season in Argentina, a major producer. Canola oil production was affected last year due to a drought in Canada, and sunflower oil supplies (80-90% produced by Russia and Ukraine) have been severely impacted by ongoing conflicts.
Understanding the Impact on India
As India is the largest importer of palm oil, deriving 40% of its vegetable oil consumption from it, the repercussions of Indonesia’s export ban could be substantial. The move may exacerbate the current problem of record-high wholesale inflation. It is noteworthy that India has taken steps to boost domestic production through the National Mission on Edible Oil-Oil Palm, launched last year.
Finding a Way Forward
Two strategies can be considered as part of India’s response. Firstly, increasing domestic production of palm oil would lessen dependency on imports. This could involve incentivising Indian farmers to expand the cultivation area under oil palm. Secondly, diversification in procurement and usage could prove beneficial. Procuring more palm oil from other countries and exploring the potential of tree borne oilseeds (TBOs) like sal, mahua, olive, jatropha, neem, jojoba, wild apricot, walnut, tung, among others, could serve as viable alternatives, ensuring less vulnerability to global market volatilities and providing a sustainable path forward.
Last Modified: February 15, 2024