- Indonesia has decided that it will be banning the exports of palm oil to give relief to domestic shortage in wake of rising oil prices.
- Indonesia, which is the world’s largest producer and exporter of palm oil, has decided to ban its exports and the associated raw materials.
- The step has been taken to ease the shortages back home and to bring down the rising domestic price levels.
- The ban along with other factors has started showing upward pressure on the global price level of edible oil.
Reasons for price rise of edible oils
- Russia-Ukraine conflict: Both the nations are major exporters of sunflower oil (around 50 percent of the total exports). The war has halted the oil’s shipments, impacting the importing countries and rise in price levels of edible oil.
- Covid-19 effect: Production of palm oil plantations was severely affected by the pandemic and is yet to turn to normalcy.
- Weather condition: Soybean production is estimated to be lower this year as per the U.S Department of Agriculture due to dry weather conditions in South American nations such as Brazil and Argentina.
- Increase in global commodity price level: Due to conflict in Europe, the price level in general and food inflation has elevated significantly. The exporting nations have arrested the exports of its commodities to stabilise the price levels in their respective countries.
Impacts on India
- India meets around 50 percent of its import demands of palm oil from Indonesia alone. Hence the export ban can have severe effects on food prices and current account deficit.
- India is the biggest importer of palm oil, which makes up 40% of its vegetable oil consumption.
- India meets half of its annual need for 8.3 MT of palm oil from Indonesia.
- This would lead to a rise in those already grappling with record-high wholesale inflation.
- It is important that to increase the self production, the Centre also unveiled National Mission on Edible Oil-Oil Palm.
About Palm Oil
- It is high-quality oil obtained from the oil palm tree in tropical regions of the world.
- It is used primarily for cooking food and also in processed food, detergents, cosmetics.
- Crude form of palm oil is also used in the production of biodiesel.
- Indonesia is the largest producer of palm oil in the world followed by Malaysia.
- It gives far greater yield at a lower cost of production than other vegetable oils hence its plantations have seen rapid expansion.
- However, the expansion has come at the expense of tropical forests which constitute critical habitats for many endangered species and a lifeline for some human communities.
- Therefore, WWF has come up with the idea of a global marketplace based on socially acceptable and environment-friendly production and sourcing of palm oil.
National Mission on Edible Oil-Oil Palm (NMEO-OP)
- NMEO-OP is a Centrally Sponsored Scheme aimed at increasing area and productivity under Oilseeds and Oil Palm.
- It subsumed the erstwhile National Food Security Mission-Oil Palm Scheme of the Central government.
- It aims to increase the area under oil palm cultivation to 10 lakh hectares by 2025-26 and 16.7 lakh hectares by 2029-30.
- Under the scheme, farmers will be provided financial assistance and will get remuneration under the viability formula.
- The Viability Formula is an MSP like mechanism and the government will decide the price level.
- Focus areas:
- The special emphasis of the scheme will be in India’s north-eastern states and the Andaman and Nicobar Islands due to the conducive weather conditions in the regions.
- Enhanced Domestic Production: Incentivising Indian farmers to produce more edible oils to decrease the dependency on the imports in the medium to long run.
- National Mission on Edible Oil-Oil Palm (NMEO-OP): Making the policy framework under the scheme more robust so that it can have overarching effects in increasing the area and productivity under oilseeds and palm oil.
- Diversification of importing countries: India should diversify its import basket, not relying majorly on one nation. It can increase the purchases from Southern American countries.
- Diversification of alternatives: Under NMEO-OP, alternative edible oil sources such as olive, apricot, walnut can be explored as an alternative.