Indonesia Has Imposed a Restriction On Palm Oil Exports, Providing Buyers Such as India with Few Options

Indonesia, the world’s largest producer of palm oil, which supplies about half of India’s total palm oil demand each year, has put a restriction on exports till further notice, allegedly to keep edible oil prices in their domestic economy in check.
From April 28, Indonesia will prohibit the export of the commodity and its raw materials in order to relieve domestic cooking oil shortages and lower the country’s surging prices.

Importers like India, Pakistan, and Bangladesh will try to buy more palm oil from Malaysia, but the world’s second-largest palm oil producer won’t be able to cover the void left by Indonesia. Palm oil prices in India increased by roughly 5% over the weekend as the sector anticipates supply problems in the coming months. Pakistan and Bangladesh experienced price increases as well. Indonesia provides about half of India’s total palm oil imports, while Bangladesh and Pakistan purchase virtually all of their palm oil from Indonesia.

Vegetable oil prices soared to new highs in February when supplies of sunflower oil from the Black Sea region were hampered. Following Indonesia’s sudden ban on palm oil exports, purchasers sought alternatives, which were already in short supply due to extreme weather and Russia’s invasion of Ukraine, leaving global edible oil consumers with few options but to pay the maximum price for supplies. The world’s top palm oil producer’s decision to cease exports on Thursday, according to industry analysts, will hike prices for all major edible oils, including palm oil, soy oil, rapeseed oil, and sunflower oil. Higher fuel and food prices will put additional strain on Asia and Africa’s budget-conscious consumers.

Palm oil is a crucial raw ingredient for the FMCG, restaurant, hotel, and caterer industries, which might lead to a growth in goods like shampoos and soaps, in addition to food. Palm and its by-products account for more than 20% of consumer industries’ input cost basket, implying that any price increase will further pressure their margins, resulting in yet another round of price hikes. Palm oil is used in everything from frying fats and cakes to cleaning products and cosmetics, accounting for around 60% of worldwide vegetable oil supplies, with Indonesia contributing to roughly a third of all exports. In order to fight rapidly rising prices, it declared an export restriction on April 22nd, which will remain in effect until further notice.

In the worst-case scenario, the cooking oil industry hoped for a change in Indonesia’s export tariff, which is now grappling with a 40-50 percent increase in cooking oil costs in its domestic market.