Context: Palm oil has recently become scarce in the world’s largest crude palm oil (CPO) producer, Indonesia. In this article we are going to know about this situation, and its implications for India.
Issue

• Indonesia has witnessed the domestic prices of branded cooking oil spiral, between March 2021 and March 2022.
• On February 1, the Indonesian government imposed a ceiling on retail prices. The price caps, however, led to the product disappearing from supermarket shelves, amid reports of hoarding and consumers standing in long queues for hours.
• Besides domestic price controls, the government also made it compulsory for exporters to sell 20% of their planned shipments in the domestic market, at predetermined prices.

Reasons for Palm Oil Crisis in Indonesia

• Increased use of palm oil for biodiesel has led to decreased availability of oil for domestic purpose and export market.
• The Government provided incentives to oil producers to sell to the biofuel program instead of to cooking oil refiners.
• The biofuel program blends fossil diesel with palm-based biofuel.
• In an attempt to control domestic prices, Indonesia restricted exports and put in place a set of maximum retail prices for cooking oil, which led to scarcity in the market.

Cartel practices amid high retail prices

• Cartel practices means producers collude to fix prices and limit competition.

Supply disruptions in other cooking oils, especially sunflower and soyabean.

• Sanctions against Russia have curtailed trade in sunflower oil, the world’s third most exported vegetable oil.
• Dry weather in South America has resulted in low harvest of soya bean.

Implication for India

• India is the world’s biggest vegetable oils importer.
• India fulfils more than two-thirds of its edible oil demand through imports, of which palm oil accounts for more than 60%.
• Indonesia has been India’s top supplier of palm oil, though it was overtaken by Malaysia in 2021-22.
• In India, the landed cost of imported crude palm oil has risen 38% since Indonesia announced export curbs.
• However, recently the import prices of edible oils have eased, providing relief to both for households and industrial consumers in India.
• India's own supplies of rapeseed oil from the new season crop could help ease supplies.