Palm Oil

Indonesia, the world’s biggest producer, exporter, and consumer of palm oil, announced that it will ban all exports of the commodity and its raw materials to reduce domestic shortages of cooking oil and bring down its skyrocketing prices.

The announcement came amid surging global food prices as a consequence of the ongoing Russia-Ukraine conflict.

Importance of palm oil to global supply chains

  • Palm oil is the world’s most widely used vegetable oil with its global production in crop year 2020 exceeding 73 million tonnes (MT). Output is estimated to be 77 MT for the current year.
  • Made from the African oil palm, it is used as cooking oil, and in everything from cosmetics to processed food to cleaning products.
  • The oil palm industry has come under criticism for what are reportedly unsustainable production practices leading to deforestation, and exploitative labour practices carried forward from the colonial era.
  • However, palm oil is preferred by many as it is inexpensive; oil palms produce more oil per hectare than other vegetable oil plants. Indonesia and Malaysia together account for almost 90% of the global palm oil production, with Indonesia producing the largest quantity at over 43 MT in the 2021 crop year.
  • Palm oil makes up 40% of the global supply of the four most widely used edible oils: palm, soybean, rapeseed (canola), and sunflower oil. Indonesia is responsible for 60% of the global supply of palm oil.

Reasons for rising prices of edible oils

The prices of palm oil rose this year as demand increased because of the short supply of alternative vegetable oils. The production of soybean oil, the second most-produced oil, is expected to take a hit this year due to a poor end soybean season in major producer Argentina. The production of canola oil was hit in Canada last year due to drought; and supplies of sunflower oil, 80-90% of which is produced by Russia and Ukraine, has been badly hit due to the ongoing conflict.

Impact on India

  • India is the biggest importer of palm oil which makes up 40% of its vegetable oil consumption. India meets half of its annual need for 8.3 MT of palm oil from Indonesia. Last year, the Centre also unveiled its plan to boost India’s domestic palm oil production.
  • Despite the rising prices of the commodity, India’s palm oil imports jumped 21% in March from the previous month as traders moved to secure alternatives to sunflower oil that could no longer be bought from Ukraine.