Indonesia Bans Palm Oil Export, Will India Face Rise In Cooking Oil Prices?

Palm oil and its derivatives are used in producing several goods of daily consumption such as soaps, shampoos, biscuits, and noodles.

On Friday, Indonesia announced an export ban on palm oil with effect from April 28. The country is the world’s top palm oil producer. This export ban on palm oil may lead to disrupt supplies and drive up prices, impacting packaged consumer goods firms and consumers alike. 

As per the data, India imports about 8 million tonnes of palm oil annually, the commodity accounts for nearly 40% share in India’s overall edible oil consumption basket. The companies and industry associations flagged near-term pressure on both supplies and prices of products, including packaged foods and edible oils.

According to the media report of Livemint, analysts at Jefferies said in a note on Sunday, that:

“While there are a lot of unknowns, including the duration of the ban, input (on palm oil and its derivative) prices are likely to stay firm in the near term, with a potential risk to supplies as well. The unorganized sector may face severe constraint but given the tough demand environment, listed players face earning risks on demand and margins—Hindustan Unilever Ltd (HUL), Godrej Consumer Products Ltd (GCPL), and packaged foods have the highest exposure”.

Indian consumer staples have seen high inflation and volatility in input prices. “This development would exacerbate pressures and become a key worry for HUL, GCPL, Britannia, Nestle,” the analysts said.

In the last 12 months, palm oil prices have gone up by 50%; and nearly tripled over the last two years. Meanwhile, sunflower oil supplies and prices have remained volatile amid the Ukraine war.

Indian consumers are already paying more for everything from cooking oil and packaged food to soaps. These items are set to pinch even more.

Indonesia, the world’s biggest producer of palm oil, decided to halt exports of the commodity. It is used in nearly half the items on a supermarket shelf including pizza dough, bread, biscuit, chocolates, Nutella, face cream, lipstick, soaps, detergents, and more. Palm oil is even a biofuel input.

The world’s supply of cooking oil was already squeezed amid Russia’s war in Ukraine—the two top producers and exporters of sunflower oil. That drove prices of palm to soybean oil to a record. Indonesia’s export ban will leave manufacturers with no other alternative but to pass on higher prices.

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