Press "Enter" to skip to content

Indonesian move to halt palm oil export raises edible oil prices in India – Moneycontrol

Representative image Source: Reuters

The top global palm oil producer Indonesia’s plan to halt the export of the commodity from April 28 is heating up edible oil prices in the country.

The prospect of a plunge in the largest imported edible oil to India is leading to a spike in prices of other edible oils as well.

The price of sunflower oil, which has already been hit by the conflict between Russia and Ukraine, the two major suppliers of the oil in the world, moved up further today. Other edible oils are also expected to become costly in the coming days.

“The price of sunflower oil increased by Rs 8 to touch Rs 195 per kg today. And we expect it to move up further,” said Anand Kedia, director of Tamil Nadu Edible Oils Ltd.

Palm oil — at around Rs 152 per kg — is the cheapest in the country when compared with other edible oils. Though coconut oil sells at Rs 148 per kg, it finds use as a cooking medium only in Kerala and parts of Karnataka.

According to the Department of Consumer Affairs data, last week, the average retail prices of groundnut oil and mustard oil, two popular forms of cooking oil, were in the range of Rs 183-184 per kg. Soybean oil traded at Rs 165 per kg.

Besides its use for cooking, palm oil finds wide use in the processed food industry. The cosmetics and paint industries use palm oil.

‘Indonesian move likely to be temporary’

The edible oil industry expects the move by Indonesia to be a temporary measure to cool local oil prices. “Perhaps it may last for the Ramadan period only. But the move will put pressure on edible oil prices, not just in India, but in other Asian countries, too. It is not like sunflower oil, the shortage of which can be managed with more supply of mustard oil if the crop is good,” said B V Mehta, executive director of Solvent Extractors Association of India.

According to oil industry consultant Devraj KK, the annual edible oil consumption in India comes to 250 lakh tonnes. The domestic production at 110 lakh tonnes is sufficient only to meet a part of it, while 140 lakh tonnes (56 percent) is imported.

Of the imports, palm oil constitutes 60 percent, followed by soybean oil and sunflower oil.

Sunflower oil import already hit

“Due to the Russia-Ukraine war, import of sunflower oil was severely affected. Now, export restrictions of palm oil by Indonesia will further create an edible oil shortage in India. Prices are bound to increase unless the government intervenes with duty modification,” he said.

Import duty of crude palm oil, soybean oil and sunflower oil are taxed 24.75 percent in total, including a 2.5 percent base import duty and other taxes, while refined grades of palm oil, soybean oil and sunflower oil are taxed 35.75 percent in total.

This is after the government reduction in basic customs duty of refined oils last year.

Palm oil is mostly imported in the refined form, while a majority of sunflower oil comes to the country in the crude format. This is then refined by companies in India, Devraj said.

After the Russia-Ukraine conflict started, India’s monthly import of sunflower oil has dropped by half from 2 lakh tonnes. Experts feel even this could fall further if the war prolongs.

Soybean oil import unaffected

However, the import of soybean oil has continued unhindered, with only shipping delays creating problems. The US and the South American countries are the main suppliers of soybean oil to India.

According to the latest report of the US Department of Agriculture, Foreign Agriculture Service, through the first five months of 2021/22, shipments from Argentina, Brazil, and the US are up nearly 30 percent versus the same period last year.

The report further says that a bumper rapeseed production will help India to produce an additional 8 lakh tonnes of rapeseed oil, which would help offset diminished imports of sunflower oil and palm oil.

Oil Palm India, a joint venture between the Kerala government and the Union government, which produces crude palm oil from its palm cultivations may benefit from the hike in prices. “Crude palm oil prices have increased to about Rs 156 per kg, which will benefit the cultivators though it may hurt consumers,” said Vincent George, senior manager of the company.

Coconut oil industry sees a boom time

The coconut oil industry is expecting the consumption of the oil to shoot up, with palm oil becoming costly. It anticipates an increased shift by restaurants in Kerala from palm oil to coconut oil for cooking. “Coconut oil has Rs 12 per kg price advantage as the landed cost of palm oil will touch Rs 160 per kg against Rs 148 per kg of coconut oil. The usage of coconut oil in soap manufacturing and other industries will go up if palm oil remains costly,” said A Devendran, former president of Cochin Oil Merchants Association.

Download your money calendar for 2022-23 here and keep your dates with your moneybox, investments, taxes