Following Indonesia’s ban on palm oil export, the prices of edible oil and packaged goods in India are likely to see a jump amid its lower availability in the country. The disruption in supplies can raise the input costs for companies that are using the oil in their products. This can further stoke the inflation that is already running high at a 17-month high level.
Last week, Indonesia banned the export of palm oil with effect from April 28, in the wake of a severe shortage and skyrocketing prices of edible oil in the Southeast Asian nation. The country is the biggest palm oil producer in the world.
Palm oil and its derivatives are used in food products, detergents, cosmetics and biofuels. These are used to manufacture several daily consumption goods such as soaps, margarine, shampoos, noodles, biscuits and chocolates. So, any rise in palm oil prices will push up the input costs across these industries.
India imports around eight million tonnes of palm oil every year, accounting for about 40 per cent of the share in total edible oil consumption.
Effect On Various Industries In India
Swastika Investmart Head (Research) Santosh Meena said that due to the Russia-Ukraine war, the world cooking oil supply was already in a huge supply deficit, driving prices of palm and soy oils to record highs. This export ban and increase in Malaysian taxes will further exacerbate the problem.
“Palm oil and its derivatives are used in producing several goods for daily consumption such as soaps, shampoos, biscuits, and noodles. This will negatively affect FMCG companies like HUL, Nestle, Britannia, Godrej Consumer Products Ltd, Marico Ltd., etc. The high prices will leave packaged food products manufacturers, soap manufacturers, and other personal care manufacturers with no other option than to raise prices and thus affecting their volumes,” Meena.
After Indonesia’s ban, domestic edible oil prices are likely to jump 10-15 per cent in the short term, according to an FE report quoting industry officials. It said the Ukraine-Russia war has already affected sunflower oil supplies in India, adding pressure to household budgets.
A livemint report quoted Parle Products’ official saying, the move poses a big challenge for firms across the packaged consumer goods industry. “That’s not just for the food companies but for FMCG companies at large because there are many other players beyond food firms. including those who manufacture soaps and other things. So, it’s going to be very challenging.”
Mayank Shah, senior category head at Parle Products, was quoted in the report as saying that second-biggest palm oil exporter Malaysia is facing a production shortfall due to a pandemic-induced labour shortage, and is unlikely to be able to plug the gap. “So, the expectation was that Indonesian supplies would take care of it, but this is going to be very difficult. There are already issues with sunflower oil, because of the Ukraine-Russia situation. This is going to add to the challenges.”
Analysts at brokerage firm Jefferies in a report said that this development will exacerbate pressures and become a key worry for HUL, GCPL, Britannia and Nestle.
The move by the world’s biggest palm oil producer Indonesia to ban exports from Thursday will lift prices of all major edible oils including palm oil, soyoil, sunflower oil and rapeseed oil, according to a report by Reuters.
“Indonesia’s decision affects not only palm oil availability but vegetable oils worldwide,” according to the report quoting James Fry, chairman of commodities consultancy LMC International.
Retail inflation in India during March jumped to a 17-month high of 6.95 per cent, mainly on account of costlier food items. High petrol and diesel prices in the country have already lifted the food and other commodity prices.
Read all the Latest Business News here
Comments
0 comment