India meets half of its 8.3 million tonnes of palm oil requirement from Indonesia
India meets half of its annual requirement of 8.3 million tonnes of palm oil from Indonesia
the story So FarIndonesia, the world’s largest producer, exporter and consumer of palm oil, is going to ban all exports of the commodity and its raw materials from April 28 to ease domestic shortages of cooking oil and its skyrocketing prices. The country’s president, Joko Widodo, announced on Friday, April 22, 2022, to reduce prices.
Indonesia’s Finance Minister Mr. Mulyani Indravati said the move would affect the supply of palm oil to other countries and that the government took “one of the most drastic measures” to stabilize the price of cooking oil in the country, Yet it was deemed necessary.
The announcement comes amid a rise in global food prices already as a result of the Russia-Ukraine conflict. According to the United Nations, global food prices rose by about 13% in March. It came on the same day that policymakers raised global food security concerns at spring meetings of the World Trade Organisation, the World Bank and the International Monetary Fund in Washington DC, stressing that countries should avoid hoarding food stockpiles and export controls. should avoid.
How important is palm oil to global supply chains?
Palm oil is the world’s most widely used vegetable oil, with its global production exceeding 73 million tonnes (MT) in the year 2020, according to the United States Department of Agriculture (USDA). It is estimated to be 77 million tonnes for the current year. Made from the African oil palm, it is used as a cooking oil, and is used in everything from cosmetics, processed foods, cakes, chocolate, spreads, soap, shampoo and cleaning products to biofuels. Is.
The oil palm industry has come under criticism due to alleged non-sustainable production practices, deforestation, and exploitative labor practices carried forward from the colonial era. However, palm oil is preferred by many because it is cheap; Palm oil produces more oil per hectare than some other vegetable oil plants, such as soybeans.
Indonesia and Malaysia together make up about 90% of global palm oil production, with Indonesia producing the largest amount at over 45 million tonnes in 2021.
According to Reuters, palm oil makes up 40% of the global supply of the four most widely used edible oils: palm, soybean, rapeseed (canola), and sunflower oil. Indonesia is responsible for 60% of the global supply of palm oil. India is the largest importer of palm oil.
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Why are the prices of edible oils rising?
Palm oil prices rose this year on increased demand due to short supply of alternative vegetable oils. A poor soybean season in major producer Argentina is likely to affect production of soybean oil, the second most produced oil this year. Canola oil production was affected by a drought in Canada last year; And the supply of sunflower oil, 80-90% of which is produced by Russia and Ukraine, has been badly hit by the ongoing conflict.
Consumers across the world are bearing the brunt of these factors and the pandemic has pushed global edible oil prices to record highs.
Following Indonesia’s unprecedented announcement of a complete ban on palm oil exports, global markets for other vegetable oils saw a boom. Soybean oil saw the price rise 4.5% on April 22, hitting a record high of 83.21 cents a pound on the Chicago Board of Trade. Soy oil prices have seen a rise of 50% so far this year.
Read | India set to shift diet to softer oils as Indonesia bans palm oil
How bad is Indonesia’s palm oil crisis?
Indonesia uses palm oil for cooking. Palm oil used for cooking is made by processing crude palm oil (CPO). Due to short supplies of alternative vegetable oils, lower-than-expected output from Malaysia, the second largest palm oil producer due to pandemic-induced labor shortages, and global food inflation linked to the pandemic and the Ukraine crisis, global CPO prices rose last year. By the end of it had grown considerably.
The CPO price has risen from an already high of $1,131 per metric ton in 2021 to an all-time high of $1,552 in February this year. The global increase affected the price of palm oil in Indonesia, which sells two types of cooking oil – the expensive branded cooking oil and the cheaper non-branded oil in bulk. The price of branded palm oil in the country increased from 14,000 Indonesian Rupiah (IDR) per liter in March 2021 to 22,000 IDR in March this year.
To make cooking oil affordable, the Indonesian government introduced price limits in late January; The MRP of a branded oil cannot exceed IDR 14,000, while the MRP of a local product will remain at IDR 11,500. The issue of reports of consumers hoarding the commodity and reselling it prompted the government to introduce a two-liter per capita rule for buying cooking oil. Some vendors were putting ink on the fingers of consumers, as was done during voting, to ensure that they do not buy twice.
Amid reports of hoarding of cooking oil by consumers and producers, and producers being discouraged from making more oil because of the gap between rising global prices and domestic prices, Indonesia, the largest palm oil producer, has decided to sell cooking oil. There has been a huge shortage of ,
To meet domestic demands, the government announced another policy called Domestic Market Obligation (DMO), which required CPO exporters to sell 20% of the export volume domestically at a fixed price of IDR 9,300 per kg. This was later increased to 30% of the export volume for domestic use.
These policies, observers said, had an adverse effect on domestic supply as price controls and domestic quotas became ineffective amid global price increases. The government withdrew price limits and export quotas in late March, but introduced a tax on exports should global prices exceed $1,500 per metric ton.
Indonesian Trade Minister Muhammad Lutfi also accused producers of engaging in illegal hoarding and cartel practices and obtaining illegal export permits amid export restrictions. The investigation of both these cases is currently going on in the country.
The shortage of cooking oil can be partly attributed to Indonesia using large amounts of crude palm oil in making biodiesel, which it has branded as ‘green diesel’, while reducing palm oil production. Considered environmentally degrading. At the end of 2019, the country increased the amount of palm oil used in biodiesel by 30%. Reuters reported that it used 7 million tons of palm oil on biodiesel in 2020 out of its total national production of 41.4 million tons.
How will this affect India?
According to the USDA, India is the largest importer of palm oil, making up 40% of its vegetable oil consumption. India meets half of its annual requirement of 8.3 million tonnes of palm oil from Indonesia. Last year, the Center also unveiled its plan to boost India’s domestic palm oil production.
Already battling record-high wholesale inflation, the access cost of CPOs to India was increased by 38% after Indonesia exercised export controls in late January. The price of soybean oil, the second most consumed oil after palm, rose 29% in the country this year; Whereas sunflower oil, 90% of which India gets from Russia and Ukraine, almost completely stopped coming.
Amidst this situation, India had requested Indonesia to increase shipments of palm oil in March to compensate for short supply and costly alternatives. Despite rising commodity prices, India’s palm oil imports rose 21% in March over the previous month, as traders turned to safer alternatives to sunflower oil, which can no longer be bought from Ukraine was, four dealers told Reuters.
Following the announcement of the ban by Indonesia, Atul Chaturvedi, President of the Solvent Extractors Association of India, told The Hindu Business Line: “This unwelcome action (by Indonesia) has had a massive impact for India. Local prices in Indonesia may increase. This decision may result in a fall, but prices in India could skyrocket. It’s going to be a tough time.”