What Indonesia’s palm oil export ban means for India

Why has Indonesia banned export of palm oil?

Indonesia has banned export of palm oil from April 28 because, as in the words of its President Joko Widodo, the government is finding it difficult to get cooking oil for its people. Indonesia wants its citizens to get cooking oil below 14,000 rupiah (approximately ₹74) a litre but that was not happening. Widodo, in a statement, said he cannot let the problem persist and Indonesia has been short on supply despite trying various policies, which have proved ineffective. The ban’s objective is also to ensure availability of crude palm oil products, which could result in cooking oil being available at an affordable price in traditional markets, micro and small-sized enterprises. Widodo’s decision is also termed “political” as it is aimed at not providing any leeway to his political opponents and extremist elements, who could indulge in pitched battles.

How will this move impact India?

At least 70 per cent of India’s edible oil demand is met through imports. However, with edible oil prices surging, shipments into the country have dropped during the last two seasons (November-October). In the 2020-21 season, total shipments dropped below 15 million tonnes as prices soared. Palm group of oils make up nearly 60 per cent of total edible imports and sometimes more when prices rule low. 

Crude palm oil imports made up 57 per cent of total edible oil imports last season against 50.5 per cent in 2019-20. Indonesia’s share of the total crude palm oil imports last year was 45 per cent, while it accounted for 70 per cent of the total refined bleached deodorised (RBD) palmolein shipments. As Indonesia enjoys a large share in the Indian import basket, India will be hard pressed to find alternatives for a cheaper cooking oil such as palm oil. 

Have prices of edible oils risen?

Yes, and they continue to. On Friday, crude palm oil contracts for July delivery on Bursa Malaysia Derivatives topped 7,000 Malaysian ringgits (MYR) for the second time in the week. It quoted at 7,028 MYR ($1,615.08/₹1,23,700) a tonne. Prices of soyabean and rapeseed oils have also been rising in line with palm oil since both these oils are sold at a premium. Even prices of canola oil, which is of the mustard family, have surged to record 1,200 Canadian Dollar.  Since April 22, when Widodo announced the decision of his government to ban palm oil exports, the edible oils market has turned volatile with every bit of development or news either lifting the market or dragging it. 

Over the past year, the increase in palm prices in retail outlets in India by over 20 per cent has been higher than other edible oils, particularly premium ones such as sesame, groundnut and sunflower oils.

What is the outlook for the prices in the near future?

There are three things to watch out for on the edible oil prices front over the next few months. One, the Indonesian ban on crude and RBD palm oil. As long as the ban, which could go once prices in Indonesia drop to levels of 14,000 rupiah, continues, palm oil prices will continue to rule high due to supply concerns. Also, production in palm oil plantations which was affected due to the Covid pandemic has to return to norms. 

Two, the Ukraine war. Ukraine and Russia are the top suppliers of sunflower oil, making up over 60 per cent of the total exports. The conflict in eastern Europe has halted the oil’s shipments, leaving countries such as India scouring for alternative sources such as Argentina. As long as the war continues, edible oil prices will rule at elevated levels. 

Three, soyabean production is estimated to be lower this year at 350.72 million tonnes (mt) against 367.76 mt last year, according to the US Department of Agriculture. The crop has been affected in South American nations such as Brazil and Argentina due to dry weather. 

What steps has the Government taken to handle this development?

As of now, the government has the limited option of urging the processors or producers to cut down their margins. The Centre has been taking various measures such as lowering import duties on imports of edible oils. In November last year, it slashed the basic import duty on crude pal, soyabean and sunflower oils to nil from 2.5 per cent. It also reduced the agricultural infrastructure cess to 7.5 per cent for crude palm oil and 5 per cent for crude soyabean and sunflower oil from 20 per cent. Also, it cut the import duty on refined palmolein, soyabean and sunflower oil to 17.5 per cent from 32.5 per cent. Thus, these measures have left the Centre with limited options. 

How has India’s effort towards self-sufficiency in edible oil progressed?

According to the government’s response to a query raised in the Lok Sabha in August last year on the National Mission on Oilseeds and Oil Palm, which is aimed at achieving self-sufficiency in edible oils, the production of oilseeds has increased to 36.57 mt in 2020-21 from 27.5 mt in 2014-15. The area under oilseeds has also increased to 28.8 million hectares from 25.6 million hectares during the period. 

Over the last couple of years, the Centre has begun distributing oilseed mini-kits with high-yielding seeds of soyabean, groundnut and sesame. It distributed nearly 9.25 lakh mini-kits for last year’s kharif sowing. 

Though various governments have been trying to increase edible oil production over the past one-and-half decades, it is only now that farmers are seriously considering cultivating oilseeds, particularly with prices of soyabean and mustard ruling higher than the minimum support price fixed by the Centre.