JAKARTA (ACN Newswire) -
Global vegetable oil markets have been upended by supply chain disruptions due to COVID-19 and the Russia-Ukraine conflict. However, as commodity markets settle into a 'new normal', fundamentals are also returning to the markets. Three factors will impact market suppliers and buyers; sustainability and certification, growth in the Indian market, and government policy facilitating trade between India and Indonesia.
Sustainability has been a driving force in the Western market debate around palm oil. However, that debate has been narrow and focused almost entirely on deforestation. But properly understood, and for developing countries and emerging economies such as India and Indonesia, sustainability is broader in scope, encompassing social and economic concerns. These are encapsulated in the UN Sustainable Development Goals.
For producing and exporting countries, oil palm harvesting aligns with many of the SDGs, including providing a stable food supply, employment, poverty reduction, and improved health outcomes. At the same time, importing countries enjoy the benefit of vegetable oil that is affordable, and contributes to reducing hunger and ensuring low-cost food at a time when global prices are high.
An additional facet of sustainability is certification. Indonesian Sustainable Palm Oil (ISPO) is Indonesia's mandatory certification system, assuring buyers that palm oil has been produced according to Indonesia's laws and regulations. These include laws on forest lands and the deforestation rate, which has fallen to its lowest level since monitoring began in 1990; adherence to international norms on labour, including minimum pay and conditions, and prohibitions on child and slave labour; and support for local communities.
Unlike voluntary certification systems, ISPO is mandatory for all oil palm growers, whether smallholders or large plantation owners. It gives a greater assurance to Indian purchasers that all Indonesian palm oil is sustainable and supports sustainable development.
This is particularly significant as the Indian market for vegetable oils is growing. India imports around 60% of its vegetable oil, spread between palm oils [60%], and soybean and sunflower oils [40%]. India is already the world's largest importer of palm oil, representing nearly 20% of the global trade in palm oils.
Why are imports so high? A rising urban population, changes in consumption patterns and domestic production that has failed to keep up with demand have are all contributors to the country's increasing importation of edible oils. Simply put, India is the single largest market for palm oils.
Despite this, per capita vegetable oil consumption in India is relatively low, as in many developing countries. The Indian market for vegetable oils will increase alongside consumption more broadly. According to the OECD FAO Agricultural Outlook, India's vegetable oil consumption is projected to grow by 2.3 per cent per annum over the next decade, compared to a levelling-off in vegetable oil consumption in the US and EU.
India's projected growth continues a trajectory that has taken place over the past decade and is significant as it is the largest single projected source of growth in the global vegetable oil market today. This growth in demand is positively correlated to increasing incomes, urbanisation and an associated dietary shift towards processed foods.
The Indian palm oil market itself is qualitatively different from many other markets. India generally imports crude palm oil and refines it domestically, for sale as cooking oil. This adds to the price-sensitive nature of the Indian market, where a significant percentage of household income is spent on cooking oil. A significant change in price will have an impact on household budgets.
Unlike other large markets such as the EU, there isn't a biodiesel market in India; India's imported crude palm oil is used almost entirely for cooking. The downstream processing that takes place in India is relatively small compared to the EU, but it nonetheless provides significant economic benefits in terms of value added.
One of the key issues facing India in the global political environment is supply reliability. Indonesia's exports were subject to significant disruptions earlier in the year, as price spikes caused chaos in Indonesia's domestic markets, eventually resulting in an export ban of some products from Indonesia. However, Indonesia has undertaken policy changes to ensure exports are predictable and easily facilitated.
The effect of policies that were present earlier in the year has eased off; this was exacerbated by changing domestic policies as the Indonesian government sought to balance the need for exports with maintaining low domestic prices for everyday consumers. The export ban, in place earlier this year, assisted in stabilising domestic prices but created a negative perception in export markets.
Now, the export levy that previously existed on palm oil has been reduced to zero and will remain that way into the short term at least. The country's domestic market obligation (DMO), which requires traders to put 30 per cent of their production into the domestic market, will be in place for the time being. It is, however, predictable. Any changes that will be made in the near future will likely benefit Indian importers.
-- Written by BPDPKS, (c) ANTARA 2022
Sustainability has been a driving force in the Western market debate around palm oil. However, that debate has been narrow and focused almost entirely on deforestation. But properly understood, and for developing countries and emerging economies such as India and Indonesia, sustainability is broader in scope, encompassing social and economic concerns. These are encapsulated in the UN Sustainable Development Goals.
For producing and exporting countries, oil palm harvesting aligns with many of the SDGs, including providing a stable food supply, employment, poverty reduction, and improved health outcomes. At the same time, importing countries enjoy the benefit of vegetable oil that is affordable, and contributes to reducing hunger and ensuring low-cost food at a time when global prices are high.
An additional facet of sustainability is certification. Indonesian Sustainable Palm Oil (ISPO) is Indonesia's mandatory certification system, assuring buyers that palm oil has been produced according to Indonesia's laws and regulations. These include laws on forest lands and the deforestation rate, which has fallen to its lowest level since monitoring began in 1990; adherence to international norms on labour, including minimum pay and conditions, and prohibitions on child and slave labour; and support for local communities.
Unlike voluntary certification systems, ISPO is mandatory for all oil palm growers, whether smallholders or large plantation owners. It gives a greater assurance to Indian purchasers that all Indonesian palm oil is sustainable and supports sustainable development.
This is particularly significant as the Indian market for vegetable oils is growing. India imports around 60% of its vegetable oil, spread between palm oils [60%], and soybean and sunflower oils [40%]. India is already the world's largest importer of palm oil, representing nearly 20% of the global trade in palm oils.
Why are imports so high? A rising urban population, changes in consumption patterns and domestic production that has failed to keep up with demand have are all contributors to the country's increasing importation of edible oils. Simply put, India is the single largest market for palm oils.
Despite this, per capita vegetable oil consumption in India is relatively low, as in many developing countries. The Indian market for vegetable oils will increase alongside consumption more broadly. According to the OECD FAO Agricultural Outlook, India's vegetable oil consumption is projected to grow by 2.3 per cent per annum over the next decade, compared to a levelling-off in vegetable oil consumption in the US and EU.
India's projected growth continues a trajectory that has taken place over the past decade and is significant as it is the largest single projected source of growth in the global vegetable oil market today. This growth in demand is positively correlated to increasing incomes, urbanisation and an associated dietary shift towards processed foods.
The Indian palm oil market itself is qualitatively different from many other markets. India generally imports crude palm oil and refines it domestically, for sale as cooking oil. This adds to the price-sensitive nature of the Indian market, where a significant percentage of household income is spent on cooking oil. A significant change in price will have an impact on household budgets.
Unlike other large markets such as the EU, there isn't a biodiesel market in India; India's imported crude palm oil is used almost entirely for cooking. The downstream processing that takes place in India is relatively small compared to the EU, but it nonetheless provides significant economic benefits in terms of value added.
One of the key issues facing India in the global political environment is supply reliability. Indonesia's exports were subject to significant disruptions earlier in the year, as price spikes caused chaos in Indonesia's domestic markets, eventually resulting in an export ban of some products from Indonesia. However, Indonesia has undertaken policy changes to ensure exports are predictable and easily facilitated.
The effect of policies that were present earlier in the year has eased off; this was exacerbated by changing domestic policies as the Indonesian government sought to balance the need for exports with maintaining low domestic prices for everyday consumers. The export ban, in place earlier this year, assisted in stabilising domestic prices but created a negative perception in export markets.
Now, the export levy that previously existed on palm oil has been reduced to zero and will remain that way into the short term at least. The country's domestic market obligation (DMO), which requires traders to put 30 per cent of their production into the domestic market, will be in place for the time being. It is, however, predictable. Any changes that will be made in the near future will likely benefit Indian importers.
-- Written by BPDPKS, (c) ANTARA 2022
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