Cooking Oil, Food Prices Set To Spike On Indonesia's Palm Oil Export Ban

The new ban, however, is likely to be short-lived.

Workers package cooking oil in the warehouse area of the PT Sinar Mas Agro Resources and Technology (SMART) Tbk palm oil refinery in Marunda, Indonesia. (Photographer: Dadang Tri/Bloomberg)
Workers package cooking oil in the warehouse area of the PT Sinar Mas Agro Resources and Technology (SMART) Tbk palm oil refinery in Marunda, Indonesia. (Photographer: Dadang Tri/Bloomberg)

Indian consumers are already paying more for everything from cooking oil and packaged food to soaps. These items are set to pinch even more.

Indonesia, the world's biggest producer of palm oil, decided to halt exports of the commodity. It is used in nearly half the items on a supermarket shelf including pizza dough, bread, biscuit, chocolates, Nutella, face cream, lipstick, soaps, detergents, and more. Palm oil is even a biofuel input.

The world's supply of cooking oil was already squeezed amid Russia's war in Ukraine—the two top producers and exporters of sunflower oil. That drove prices of palm to soybean oil to a record. Indonesia's export ban will leave manufacturers with no other alternative but to pass on higher prices.

“We are not prepared to deal with the impending crisis in case the ban persists for a long duration,” Ram Bharat, director at Patanjali Ayurved Ltd., the parent of Ruchi Soya Industries Ltd., told BloombergQuint. “Amid disruptions in sunflower oil trade due to the war, we turned to palm oil and soybean oil as alternatives. Now, we are not only left with limited options but the world can’t replace Indonesia’s supply."

Indonesian President Joko Widodo announced suspension of cooking oil and raw material exports from April 28 until further orders following a severe shortage and surging edible oil prices in the Southeast Asian nation.

India is the world’s largest palm oil importer and depends on Indonesia and Malaysia to meet domestic demand. Every year, according to Solvent Extractors’ Association of India, the country imports about 13-14 million tonnes of edible oils, of which palm oil accounts for 8.5-9 million tonnes.

Between November and March, Malaysia was the top supplier of crude palm oil, while Indonesia was a top supplier of RBD Palmolein used by the ready-to-eat food industry.

Higher demand for palm oil, even as Russia's war reduced the supply of sunflower oil, drove prices higher. As per Bloomberg data, crude palm oil rose 57.9% in the last one year, hurting profit margins of biscuit to soap makers.

“There will be tremendous pressure on Malaysia and Thailand if Indonesia sticks to its stance,” Krishnarao Buddha, senior category head at Parle Products Pvt. Ltd., told BloombergQuint. “Prices of all packaged goods will therefore rise significantly if the ban lasts long.”

The maker of biscuits and snacks increased prices by 10-15% in the year through March as it faced raw material cost inflation of 40-50%.

According to Atul Chaturvedi, president of Solvent Extractors’ Association of India, the latest action by Indonesia is "unprecedented" and can cause "serious problems". The new palm oil ban is definite to result in sharp price increases as industries grapple with palm oil shortage and as this pressure gets diverted to other oils, he said.

Chaturvedi, however, is doubtful that Indonesia can sustain the ban for long. The Southeast Asian nation produced 46.2 million tonnes of palm oil in 2021, showed Statista data. Of this, Chaturvedi said just 20 million tonnes is used for domestic consumption, leaving the rest for exports.

“Simply turning off the export tap isn’t the solution for a country which is dependent on it. The ban is likely to be short-lived as Indonesia may find it difficult to handle the huge quantities of palm oil it produces," he said. "The situation could start improving in 15-30 days as storage constraints begin to ring a bell in the peak production months starting May."