Slipping from your palm
Indonesia Bans Export Of Palm Oil - Everything About The News
Arpita Chakraborty, GT Network
Reported: President of Indonesia, Joko Widodo announced a ban on export of palm oil. Proposed as a ban initially on both crude and refined oil, the move was later revised to a blanket ban on crude, refined, as well as its derivatives. The news sent the entire world in a tizzy, including ten-year-old Arsh who had a slew of questions. Thankfully, GT had answers.
Why did the government ban palm oil export? Was it unprofitable?
Of course not! In fact, palm oil export amounts to 8-10% of total export earnings for Indonesia and has strengthened the forex reserves of the country. The price of Indonesian crude palm oil has gone from 545 USD in April 2020 to 1700 USD in April 2022. Now that’s a lot of money and a lot of profit.
And yet the government chose to ban its export? Why?
For the welfare of its own people. If you can sell your pencil for 5 INR in your school and 20 INR outside your school, where will you sell it? Outside, obviously. Palm oil producers in Indonesia were doing the same thing. They were selling palm oil in the global market at the highest price possible, resulting in local shortage and inflation. This hike created a black market, pushing the price as high as 14,000 rupiahs per litre. The government introduced various measures to control the situation but they didn’t help. So, perhaps a blanket ban on exports was their last choice.
Ok. But what’s the fuss about palm oil when there are so many other edible oils out there?
Palm oil isn’t just a cooking oil. Its derivatives are used in detergents, food products, biofuels and cosmetics. From everyday items like soaps, shampoos, biscuits, noodles to luxury products like lipsticks and chocolates, all of them make use of palm oil or its derivatives. Since this oil is resistant to oxidation, it can remain stable at even higher temperatures, making it an ideal ingredient for various products.
But why is the entire world worried? Isn’t this a problem of a few countries?
Indonesia is the world’s largest supplier of palm oil, so the entire global market will face a shortage of the commodity. The ban will remove palm oil supply amounting to 2 million tonnes from the global market every month, ie, 50% of global monthly trade volume. This will lead to a rise in substitution demand of other oils, consecutively resulting in an overall price rise of edible oils, which have already gone up by 25% in the past year.
The pricing situation prior to the ban was bad anyway, courtesy – Ukraine Russia war. Both the countries were prime exporters of sunflower oil. Now, the war has halted exports, leaving countries to look for other alternatives. Add to it, soybean production is estimated to be lower this year at 350.72 mt against 367.76 mt last year. Dry weather in South American nations such as Brazil and Argentina has resulted in poor yield. This will impact the supply of soybean oil. So, with supply of sunflower oil and soybean oil already in a flux, the export ban of palm oil is a reason enough for the world to be worried.
And how will it affect India?
India is the largest importer of palm oil in the world, with the country importing 8.5 million tonnes of palm oil every year. 45% of this import (four million tonnes approx) comes from Indonesia. Palm oil prices in India have already been on an upswing by 20% as compared to other edible oils. The spike has been particularly higher for premium oils as sesame, groundnut and sunflower oil. Given the existing surge in prices of edible oils, this is likely to make matters worse. India’s import bill for vegetable oil jumped by 63% in 2020-21, and is expected to go up further this year, owing to spike in prices globally. Other than the price of edible oils, this will also push the prices of various essential commodities. So, it barely comes as a surprise that the announcement of the ban has sent shockwaves across the country, resulting in a 6% drop in the shares of FMCG products.
So, should I be worried?
Well, not as of now. Experts say that the ban is a short-term measure and is likely to be lifted soon. Indonesia produces close to 45 million tonnes of palm oil and consumes only 40% of it, ie, somewhat close to 17 million tonnes. Extending the ban for a longer period will overwhelm the storage systems of the country. Besides, the Indonesian government too has said that it will revoke the ban once the prices of domestic cooking oil in the country come down by 30%.