Edible oil industry readies for tough time over Indonesian ban on exports

Earlier this week, the Indonesian government put a blanket ban on exports including CPO and RBP palm oil also. According to agency reports, this was done mainly to ensure Indonesian consumers get the cooking fat at a reasonable price.

Indonesia is the world’s largest producer and exporter of palm oil in the world producing around 470 lakh tonnes of oil. Around 220 lakh tonnes of which is exported with India alone accounting for 39.61 lakh tonnes of import. Malaysia is another major exporter with India procuring 38.59 lakh tonnes from the country. Of the 120-130 lakh tonnes of edible oil imports in the country, palm oil constitutes 60 per cent of the basket.

Given the heavy dependence that India has on imports, any supply disruption is bound to affect the domestic prices. Palm oil is used mainly in the industrial savoury units, which have been already reeling under the price rise of wheat. Many in the industry did not rule out a price hike in biscuits and other savoury items due to the present scenario.

Atul Chaturvedi, President of Solvent and Extractors Association (SEA) — the apex body of edible oil manufacturers — said this decision is bound to have an effect in India. “It is bound to have serious repercussions as Indonesia supplies around 3-3.5 million tonnes of oil per month. Malaysia cannot compensate. How long they can hold is a million-dollar question,” he said.

Inflation in the country has been a cause of concern with food inflation rising by 8 per cent. Prices of edible oils have been a cause of concern with all prices trading near the Rs 160-170per litre in the retail markets. With Indonesia banning palm oil, the chances of palm oil prices closing the gap between sunflower and other soya oil prices is now a reality.

Pushan Sharma, director of Crisil Research talked about the export ban being lifted after the Indonesian domestic price falls below a certain level.

Indonesia’s decision to ban exports, industry sources say is mainly to control the oil inflation felt by its citizens. This would be the third effort taken by the Indonesian government to control domestic oil inflation. Earlier, it had mandated that 30 per cent of the export quota should be sold domestically. Increased fuel prices have led to rising demand for palm oil for the manufacturing of biodiesel.

Sougata Niyogi, CEO – Oil Palm, Godrej Agrovet Limited, also said that this ban would not be long lasting.

“But May looks very bullish. The premium of soya and sunflower refined oil over palm oil will narrow down. The overall price outlook is strong till August-September; that is, till the next crop arrives in the market. The current conditions are going to keep farmers’ morale high on oil crops, and fuel rapid area expansion across major oil-producing states. Consequently, we estimate that productivity is going be better over the last couple of years, which subsequently will reflect in higher income for farmers, who have matured plantations,” he said.