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Current Affairs

Indonesia’s palm oil export ban

Date: 27 April 2022 Tags: Miscellaneous

Issue

The largest producer of palm oil, Indonesia will soon ban the export of the commodity and also raw materials.

 

Background

Indonesia is suffering from domestic shortages of palm oil. The prices of palm oil have skyrocketed.

 

Details

  • The country clarified that the ban would only cover refined, bleached, deodorized (RBD) palmolein and not crude palm oil.

  • Indonesia is the world’s largest exporter and has a market share of 60%. Palm oil makes up 40% of oil producing raw material.

  • Prices of plam oil have grown by 50% in the last 12 months as a result of global shortage of commodity.

 

Rise in prices

Decline in production of oil seeds has caused shortages. Further, palm oil based biodiesel has been in demand in Indonesia and Malaysia.

 

Implications

  • The world is already suffering from a choked supply chain as a result of Ukraine war. The new export ban will cause further inflation.

  • Indian consumers will have to pay more for the commodity as about 63% of all vegetable oil imported into India is palm oil.

  • Indonesia supplies about 45% of India’s vegetable oil needs. The rest is supplied from countries such as Malaysia, Ukraine and Russia etc.

  • FMCG companies producing soaps, shampoo, fried items, noodles, biscuits etc will all be affected due to short supply.

 

Potential relief for India

  • Since only refined oil is banned, India can still import crude oil. Local refining industry will be benefitted in terms of production.

  • Refine oil is already controlled by the government. Crude oil is not controlled and can be easily acquired for refining.