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Indonesia’s Palm oil Export Ban

Context:

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

Relevance:

GS II- International Relations

Dimensions of the Article:

  1. How important is palm oil to global supply chains?
  2. Why are the prices of edible oils rising?
  3. How will it impact India?

How important is 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), according to the United States Department of Agriculture (USDA).
    • 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.
  • 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.
  • According to Reuters, 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.

Criticism of Oil palm industry:

  • Unsustainable production practices leading to deforestation,
  • Exploitative labour practices carried forward from the colonial era.

Advantages:

  • Palm oil is preferred by many as it is inexpensive
  • Oil palms produce more oil per hectare than other vegetable oil plants.

Why are the prices of edible oils rising?

  • 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.
  • Consumers across the globe have been bearing the brunt of these factors, with the pandemic driving up global edible oil prices to record highs.
  • After Indonesia’s unprecedented announcement to ban palm oil exports, global prices of other vegetable oils saw spikes.

How will it impact India?

  • India is the biggest importer of palm oil which makes up 40% of its vegetable oil consumption, as per the USDA.
  • India meets half of its annual need for 8.3 MT of palm oil from Indonesia.
  • The price of soybean oil, most consumed after palm oil, rose by 29% in the country this year; while sunflower oil, 90% of which India gets from Russia and Ukraine, stopped coming in almost completely.
  • Amid this situation, India had requested Indonesia in to increase palm oil shipments to make up for the short supply and expensive alternatives.

-Source: The Hindu

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