Indonesia’s palm oil crisis, and its implications for India

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Indonesia’s palm oil crisis, and its implications for India

  • The world’s largest producer and exporter of palm oil, Indonesia, is facing domestic shortages, leading to price controls and export curbs.
  • It’s rare for any country that is the largest producer and exporter of a product to experience domestic shortages of the same product.

What is Oil Palm?

  • An edible vegetable oil derived from the mesocarp of the fruit of the oil palms.
  • Usage: Food manufacturing, Beauty products, and Biofuel.

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Palm oil production in Indonesia

  • Year 2021-22: Almost 60% of the total global output and way ahead of the next bigger producer: Malaysia (18.7 mt).
  • It is also the world’s No. 1 exporter of the commodity, at 29 mt, followed by Malaysia (16.22 mt).

Recent Development

  • Indonesia has seen domestic prices of branded cooking oil spiral, from around 14,000 Indonesian rupiah (IDR) to 22,000 IDR per litre between March 2021 and March 2022.
  • Much recently, the government imposed a ceiling on retail prices at 14,000 IDR.
  • This led to the product disappearing from supermarket shelves, amid reports of hoarding and consumers standing in long queues for hours to get a pack or two.

India’s imports of palm oil (in lakh tonnes)

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Plausible factors

Ongoing War

  • The possible reason has to do supply disruptions — manmade and natural — in other cooking oils, especially sunflower and soybean.
  • Ukraine and Russia together account for nearly 80% of the global trade in sunflower oil, quite comparable to the 90% share of Indonesia and Malaysia in palm.
  • Russia’s invasion of Ukraine has resulted in port closures and exporters avoiding Black Sea shipping routes.
  • Sanctions against Russia have further curtailed trade in sunflower oil, the world’s third most exported vegetable oil after palm and soybean.

Diversion for Biofuels

  • Another factor is linked to petroleum, more specifically the use of palm oil as a biofuel.
  • The Indonesian government has, since 2020, made 30% blending of diesel with palm oil mandatory as part of a plan to slash fossil fuel imports.
  • Palm oil getting increasingly diverted for biodiesel is leaving less quantity available, both for the domestic cooking oil and export market.

Impact on India

  • India is the world’s biggest vegetable oils importer.
  • Out of its annual imports of 14-15 mt, the major share is of palm oil (8-9 mt), followed by soybean (3-3.5 mt) and sunflower (2.5).
  • Indonesia has been India’s top supplier of palm oil, though it was overtaken by Malaysia in 2021-22.
  • The restrictions on exports, even in the form of levy, take into cognizance Indonesia’s higher population (27.5 crores, against Malaysia’s 3.25 crore) as well as its ambitious biofuel program.
  • To that extent, the world – more so, the bigger importer India – will have to get used to lower supplies from Indonesia.

Exam Track

Prelims Take Away

  • Major Palm oil producers and consumers
  • Palm Oil