Indonesia’s palm oil crisis and its implications

[GS Paper 2 – Bilateral Relations, GS Paper 3 – Trade and Economy]

Indonesia, the World’s largest producer and exporter of palm oil is facing domestic shortages leading to price controls and export curbs.

The price controls and export curbs measures over palm oil by Indonesia owing to domestic shortages will have implications on India too.

Key Developments

• The US Department of Agriculture estimated the archipelago’s palm oil production for 2021-22 at 4.5 million tons.

• This rates almost 60% of the total global output of palm oil.

• The country has seen an increase in the domestic prices of branded cooking spirals from 14,000 Indonesian rupiahs (IDR) to 22,000 IDR / L.

Reasons behind the Crisis:

• The Indonesian government imposed a ceiling on the retail prices  in the month of February.

• The prices were fixed at 14000 IDR for premium packs and 13,500 IDR for simple packs.

• The price caps led to the product disappearing from the supermarket chains.

• The government made it compulsory for exporters to sell 20% of their planned shipments in the domestic market.

• Pam while getting increasingly diverted for biodiesel is leaving less quantity available both for the domestic cooking oil and export market.

Implications on India

• India is the world’s biggest vegetable oil importer. The most imported is the palm oil accounting upto, 8-9 metric tons.

• Indonesia has been India’s top supplier of palm oil.

• The Indonesian government lifted its retail price caps in Palm oil along with a 30% domestic market sale obligation on exporters.

• The obligation is sure to impact the Indians as India now has to get used to lower supplies from Indonesia.

India-Indonesia Relations over the Years

• Both the Nations, India and Indonesia established diplomatic relations in 1951.

• The Andaman and Nicobar Islands share a maritime border with Indonesia along the Andaman Sea.

• India and Indonesia hold economic ties through the Free Trade Agreement signed with ASEAN.

• Ramayana is a major theme in Indonesian Culture.

• Indonesia imports rice and sugar from India.

• Indonesia and India were among the founders of the Non-Aligned Movement.

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