Thought leadership:Indonesia bans palm oil exports: Mayank Shah of Parle Products expresses his views on the same

Indonesia bans palm oil exports: Mayank Shah of Parle Products expresses his views on the same

by 5paisa Research Team Last Updated: Apr 26, 2022, 11:25 AM IST

The price rise can hurt the economy as inflation further rises.

World’s largest palm oil producer Indonesia banned palm oil exports last Thursday and has raised concerns for FMCG and consumer goods companies. Palm oil is an essential input for food companies as well as non-food-based companies engaged in cosmetics and skincare and almost half of India’s palm oil supplies come from Indonesia. Thus, a ban on exports from Indonesia has disrupted the palm oil market for at least the short term if not long term. Palm oil prices were already elevated due to global shortage and are now even higher by 5%. Mayank Shah, senior category head at Parle Products, has expressed his views on the palm oil crisis.

Mayank Shah feels that the ban will certainly affect the cost as palm oil is a critical input. Many experts believe that the ban may not last longer than several weeks. Shah agrees with the experts since palm oil is a key export for Indonesia. The local unrest with the rising oil prices in the nation might have compelled the government to ban exports to curb rising prices, he added. The locals were protesting against the government for rising edible oil prices and hence to pacify the general public the ban was imposed. However, Shah feels that the ban won’t sustain for long.

Talking about the palm oil inventory the company had, Mayank Shah said that they don’t maintain inventory for more than a few days. After refining the crude palm oil (CPO), the shelf life of the oil is limited. Due to the high perishability rate, companies don’t usually stack up the inventory. Instead, they use forward contracts to hedge the price risk.

When asked about the probable counter-measures, Shah said that the second largest producer - Malaysia might appear as an alternative but the post-covid labour problems and local protests against deforestation along with other challenges don’t make Malaysia an attractive option.

To put it in a nutshell, an increase in palm oil prices is going to have a negative impact in short term and it will also push other oil prices upwards. This also means bad news on the inflation front for high palm oil importer like India.

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