Indonesia's palm oil export ban will affect India's edible oil market
Indonesia, one of the biggest exporters of palm oil to India, has banned all exports from April 28 this year. Nearly 38% of edible oil demand in India is of palm oil. The ban, coupled with the Ukraine-Russia war, may lead to a further rise in edible oil prices in the country where inflation is already soaring.
Sarah Khan 2 May 2022 11:51 AM GMT
Last week, on April 28, Indonesia's ban on the export of palm oil came into force. The world's largest island country, Indonesia, is one of the biggest exporters of palm oil to India, which meets 38 per cent of the country's edible oil demand.
This palm oil export ban has raised concerns as it comes at a time when India is already facing a shortage of sunflower oil due to the ongoing Ukraine-Russia war, and edible oil prices in the country have gone through the roof. India meets a large chunk of its sunflower oil demand through imports from these two countries.
Residents of rural India are already facing a pinch due to the rising price of edible oils and overall high inflation. The ban on the export of palm oil from Indonesia may accentuate their worries as edible oil prices may rise further, point out some sector experts.
Of the total edible oil consumption of 1.8 million tonnes per month in the country, more than one million tonnes is met through imports, B.V. Mehta, the executive director of the Mumbai-based Solvent Extractors' Association of India, informed Gaon Connection. This organisation is the apex body of representatives of the solvent extraction industry in the country. The annual edible oil consumption in the country is 21-22 million tonnes (see graph: Total edible oil consumption in India 2020-21, and graph: Imported edible oil).
In 2020-21, out of India's total edible oil consumption of 21.66 million metric tonnes, palm oil consumption was 8.23 million metric tonnes – 38 per cent of the total edible oil consumption. India's dependence on palm oil has grown over the years and official data indicates an increased reliance on the import of palm oil (see graphic: Palm oil consumption in India).
Ripple effect of palm oil ban
Palm oil in India is mostly used by the packaged consumer goods industry, such as cookies, packaged bread, namkeen, instant noodles and even lipsticks too. In rural India, mustard oil is a preferred medium of cooking, but as per experts, the palm oil ban will have an impact on mustard oil prices too.
"With regard to the export ban on palm oil, the price of mustard oil will be most affected," shared Pramod Rai, the director of the Bharatpur (Rajasthan)-based Directorate of Rapeseed-Mustard Research of the Indian Council of Agricultural Research.
"The demand and supply gap for edible oil in the country is huge. The supply of palm oil has shrunk after the Indonesian ban," said Rai. "The gap can be met through mustard oil but its supply is already low out of the total edible oil demand in the country," he added.
There are experts, such as B.V. Mehta of the Solvent Extractors' Association of India, who claim that the palm oil ban by Indonesia won't sustain for long and isn't a cause of worry for India.
"This decision (to ban palm oil export) could have also been taken due to Eid and their domestic prices of oil have also soared so they will take two to four weeks to stabilise the prices and eventually withdraw the ban because they also need to export their surplus produce," Mehta explained.
Simplifying the palm oil shortage created due to the ban by Indonesia, Mehta stated that India consumes 21-22 million tonnes of edible oil per annum, which means the monthly requirement of edible oil is 1.8 million tonnes.
"Out of this 1.8 million tonnes, we import 1 - 1.1 million tonnes, and our domestic supply meets the remaining 0.7 million tonnes demand," Mehta told Gaon Connection. "Palm oil constitutes 0.6 million tonne out of the 1 - 1.1 million tonne, and out of that figure, India imports 0.3 million tonne from Indonesia and Malaysia each, and a very small quantity from Thailand," he explained.
Palm oil ban: 'Not a long term concern'
The executive director of Solvent Extractors' Association of India further informed that the shortage of 0.3 million tonnes created due to the ban shouldn't be seen as a long-term problem since Indonesia currently produces approximately 48 to 49 million tonnes of palm oil per annum.
"Indonesia's own consumption is 17 million per year and 30 million is exported. And its monthly production is 4 million and its domestic consumption is 1.5 million so it has a surplus of 2.5 million tonnes monthly," Mehta noted.
According to the data provided by Solvent Extractors' of India, India's biggest contributors of palm oil import include Indonesia, Malaysia and Thailand in that order.
Between November 2021 and March 2022, India imported 982, 123 metric tonnes of palm oil from Indonesia, and 1,469,017 metric tonnes of palm oil from Malaysia, whereas only 202,113 metric tonnes of palm oil was imported from Thailand.
Ukraine-Russia war and edible oil prices
Mehta of the Solvent Extractors' Association of India acknowledged that the "prices of edible oil have definitely been affected, the prices have doubled in the last ten years but Indonesia is not to be blamed for that and there are other factors such as the Ukraine-Russia war because of which sunflower oil imports have come to a halt."
Two million tonnes, or nine per cent, of the country's total edible oil demand is met through sunflower oil. Of this, India imports 1.744 million tonnes from Ukraine whereas the remaining 0.348 million tonnes is imported from Russia. This data was shared as an answer by the Minister of State for Ministry of Rural Development and Consumer Affairs, Food and Public distribution, Sadhvi Niranjan Jyoti, in Lok Sabha on March 23, 2022.
The minister also assured that mustard oil's production in the country was better in 2022 and it will replace the gap created due to the palm oil ban.
"I don't see any effect of this ban in the coming two to three weeks because the vessels that have come from Indonesia, they can be put to use and we can still import from Malaysia and Thailand," Mehta noted.
Though he did agree that the price of edible oil will increase due to the imbalance due to demand and supply, he added, "We are in a comfortable level and there is no shortage."
Rising edible oil prices
As per the data provided by the Department of Consumer Affairs, which monitors the daily average retail price of commodities, one kilogram (kg) of packed mustard oil was priced at Rs 184.62 as on April 30 this year. A year ago, it was priced at Rs 163. 69, thus indicating an increase of 12 per cent over the period of one year.
The prices of all edible oil have shot up over a period of the last one year – one kg of packed ground nut oil increased from Rs 172 to Rs 185; one kg of palm oil increased by 20 per cent from Rs 130 to Rs 157, and sunflower oil witnessed an increase of 15 per cent, from Rs 164 to Rs 189 within the same time period.
While the consumption of palm oil in the country is a whopping 38 per cent, the consumption of mustard oil is 14.1 per cent.
As per news reports Central Organisation for Oil Industry and Trade (COOIT), the national apex body that represents the interest of the vegetable oil sector in the country, has estimated mustard seed production to be 10.95 million tonnes in 2021-22.
India imported 0.052 million tonnes of edible mustard oil to meet its domestic requirements. Rai of the Directorate of Rapeseed-Mustard Research believes that mustard oil might fall short of meeting the void created due to the ban on export of palm oil by Indonesia.
Rising inflation in rural India
The provisional Consumer Price Index (CPI General) for March 2022 for rural areas has been estimated at 7.66, a huge jump from February's CPI of 6.38 for the same year. The data was shared by the National Statistical Office of the Ministry of Statistics and Programme Implementation in its recent press release of April 12.
Commenting on the huge rise of CPI in rural India, both Mehta and Rai agreed that rural and urban India will be affected. "The poor, lower middle class and middle class are most affected because the oil which used to be available at Rs 90 a litre is now available at Rs 200," Mehta said.
He also suggested that in order to reduce the burden of rising oil prices on the poor, the central government should ensure provision of subsidised oil at a rate of Rs 25/30 per litre in the public distribution system like the Tamil Nadu government does.