Indonesian Palm Oil Export Ban Worrying, Impact Will Be Transient: FMCG Industry

Indian FMCG players, especially food and snack makers, have expressed concern over Indonesia’s decision to ban exports of crude palm oil, although some of them expect the decision to have only short-term transitory effects.

Several industry leaders hint that they will gradually reduce their dependence on palm oil and switch to alternatives such as rice bran oil and cottonseed oil for food products.

Indonesia, the world’s largest palm oil producer, last week banned crude palm oil (CPO) shipments, adding to previous sanctions on refined oil, to drive down prices in its domestic market.

However, Indian industry and experts expect the impact to be transitory in nature, as Indonesia consumes only about a third of its palm oil production.

India Ratings and Research (Ind-Ra) “believes that the ban is unlikely to last long, given that Indonesia consumes less than 40% of its total palm oil production, which means that the impact is transitory”.

India is the world’s largest importer and second largest consumer of palm oil, which accounts for about 30 percent of the country’s edible oil consumption, Ind-Ra said.

Expressing similar views, Mayank Shah, Senior Category Manager at Parle Product, said palm oil is perishable and they (Indonesian exporters) should open up eventually. Their production is much higher than local needs.

“Hopefully there could be a reversal in the next 10 days as it is not possible for them to continue the ban any longer,” Shah told PTI.

According to him, the ban should remain in place for a short time and there should be no impact on prices because companies have enough stocks.

“However, if the ban continues for a long time, there will be challenges. The question is how long they can continue with the ban,” Shah said.

Indonesia has imposed a ban on palm oil exports to increase domestic availability and control rising prices of the commodity in that country. Some reports said the ban did not apply to CPO but to refined deodorized bleached palmolein, but the government expanded the scope a few days later to include CPO as well.

Palm oil is preferred in India by the food industry as it is relatively cheaper, lasts longer and is more stable at high temperatures than other oils.

CPO is used by most food companies, while soap makers in India use a derivative of Palm Fatty Acid Distillate (PFAD), a key input for making soaps, soap noodles, etc.

COO of snack company Bikano, Pankaj Agarwal, said it was a concern for all snack majors in India as palm oil is one of the ingredients important to our products.

However, he also suggested looking at alternatives like rice bran oil and cottonseed oil.

“Palm oil is one of the important ingredients in our products… In the current situation, we will have to consider alternative options like rice bran oil and cottonseed oil,” Agarwal said.

Last week, the largest consumer goods group HUL said it saw no problem in sourcing in terms of volumes, which it needs to produce materials, whether PFAD or other palm derivatives used for its activity.

On a post-results call with the media, HUL Chief Financial Officer Ritesh Tiwari said India needs to do a lot of work to boost palm production in the country. This requires government support.

“We also continue to research alternative materials to manufacture our product and reduce our dependence on palm oil,” he added.

India imports more than 90% of its 22 demand NTMs, mainly in the form of CPO. Indonesia constitutes about 50% of imports, while 45% of imports come from Malaysia and the rest from Thailand, according to the Ind-Ra report.

Read also: Indonesia: the ban on palm oil exports should not last more than a month

About Francis Harris

Check Also

Pune finds a solution to the problem of food delivery platforms charging high commissions

Two years ago, when Aniruddha Patil started his business – the first food delivery …