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Indonesia’s Palm Oil Crisis, and its Implications for India

Context

The world’s largest producer and exporter of palm oil, Indonesia, is facing domestic shortages, leading to price controls and export curbs.

Relevance

GS-II: Effect of Policies and Politics of Developed and Developing Countries on India’s interests, Indian Diaspora.

Dimensions of the Article

  • What is the Issue?
  • What is Palm Oil?
  • Plausible Factors
  • Impact on India

What is the issue?

  • It’s rare for any country that is the largest producer and exporter of a product to experience domestic shortages of the same product.
  • Consumers are unable to access or paying through the nose for a commodity in which their country is the preeminent producer and exporter.

What is Oil Palm?

  • Palm oil is an edible vegetable oil derived from the mesocarp of the fruit of the oil palms.
  • The oil is used in food manufacturing, in beauty products, and as biofuel.
  • Its palm oil production for 2021-22 (October-September) at 45.5 million tonnes (mt).
  • That’s 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).

Plausible factors

Ongoing War

  • The possible reason has to do supply disruptions — manmade and natural — in other cooking oils, especially sunflower and soyabean.
  • 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 Bio-Fuels

  • Another factor is linked to petroleum, more specifically the use of palm oil as a bio-fuel.
  • 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 bio-diesel 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 lion’s share is of palm oil (8-9 mt), followed by soyabean (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 (see above table).
  • 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.

Source – The Indian Express


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