Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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Don’t be surprised if your regular grocery bill shocks you at the end of the month. Prepare to pay more for food and snacks as the cost of production may become dearer. After withstanding the brunt of black gold or oil shortages as a result of Russia’s invasion of Ukraine, the global economy will now have to brace itself for Indonesia’s ban on the export of its red gold; crude palm oil. Ferrero Rocher and Nutella Spread, both of which use palm oil to maintain their smooth texture, are just a few of the well-known brands that will be affected, broadly speaking most of the FMCG manufacturers will now have to scramble for alternatives with the ban from the world’s largest exporters.

Indonesia recently banned the export of this red gold in its attempt to curb the country’s domestic upheaval due to local shortages, inflating prices and rising social tensions. This move comes shortly after the disruption of global oil production due to the impact of the Russia-Ukraine conflict. Adding, to the woes of manufacturers and consumers alike, the drought in South America has damaged the production of soya bean crops.

Despite the fact that palm oil is very harmful to the environment, due to the deforestation around the tropics, it is also the most consumed oil in the world. Global consumption seemed to have rampantly escalated in the early 2000s and it is estimated that 65 percent of palm oil is used in foods, some in biofuels, cleaning products and cosmetics. Will this temporary ban have a greater impact on India and the rest of the world?

Palm oil is the most widely used edible oil, and products from cosmetics to cakes use this product. Indonesia and Malaysia are the topmost exporters of palm oil, a key ingredient for FMCG and the hotels, restaurants and caterers industries, which have already faced an impact in the last two years.

Indonesia contributes approximately 60% of the global volume. Around 70% of India’s edible oil demand is met through imports. The edible oil prices are India imports 3.5-4 million tonnes of palm oil annually from Indonesia, according to reports. According to Reuters, companies like Unilever, Nestle, Procter&Gamble, Mondelez International, Ferrero, and so on.

Danone and L’oreal could be the most impacted by this ban. According to BusinessToday, Atul Chaturvedi, President of the trade body, the Solvent Extractors Association of India (SEA), has anticipated that the move will certainly impact the daily consumer, globally.

Yet the situation in Indonesia is far from normal. The blanket ban on exports of both crude palm oil and its refined products, including cooking oil, has made it a wide ride for the palm oil sector. According to the Indonesian Palm Oil Association, its the fall in the production of crude palm oil sent a ripple effect on the prices of the final product. And, to bring the prices down, the government tried hard to fix the regulatory aspects including export quotas, domestic market obligations etc.  But all this did not help reduce the price of palm oil production significantly.

On its part, the Indian government raised concerns about the ‘trade barriers’ caused by the blanket ban on palm oil exports to the World Trade Organisation (WTO). Apart from India, Pakistan too faces tremendous shortage and will certainly reel against the impact of the ban, as reports flow in that the entire nation could run out of palm oil by the end of the month.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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