For example, when we talk about sustainability, we see that there is a lot of debate on palm oil in western countries. However, this debate has remained narrow. And it is completely focused on deforestation. For developing countries and emerging economies such as India and Indonesia, the social and economic concern is important. Including these, the scope of stability becomes wider. These are mentioned in the United Nations Sustainable Development Goals (SDGs). Many palm oil producing countries are providing sustainable food supplies, jobs, poverty reduction, and improved health outcomes by adhering to the SDGs. Along with this, countries importing it take advantage of cheap vegetable oil. This helps in providing food to the people in those countries at a low cost. That too in such a situation when the prices of edible oils have increased all over the world.
There is an additional aspect of sustainability: sustainability certification
Indonesian Sustainable Palm Oil (ISPO) is Indonesia’s mandatory certification system. It is an assurance to the buyers that this palm oil has been produced in accordance with the laws and regulations of Indonesia. This includes following Indonesian laws on forests and deforestation. Because of this, these days the rate of deforestation there has become the lowest on record. Not only this, international standards on labor are followed there. These include minimum wages for workers and restrictions on child and slave labor. This also provides support to the local community. Unlike the voluntary certification system, ISPO is mandatory for all palm oil producers, whether small plantation owners or large plantation owners. This assures Indian buyers that all Indonesian palm oil is sustainable and supports sustainable development.
This is especially important as India is currently a growing market for vegetable and palm oil. India imports about 60% of its total vegetable oil consumption. Palm accounts for 60% of imported vegetable oils, and soybean oil and sunflower oil account for 40%. India is already the world’s largest importer of palm oil. It represents 8% of the global trade of palm oil.
Why are imports so high?
As the population has increased, the country has not been able to keep up with the population’s agricultural production, especially as crops such as palms are proving to be incredibly productive. Simply put, India is the largest market for Palm.
Despite this, India’s per capita consumption of vegetable oil is relatively low in comparison to many developing countries. Therefore, the consumption as well as the market size in India is going to increase in vegetable oil in a big way. According to the OECD FAO Agriculture Outlook, vegetable oil consumption in India will grow by 2.3 per cent annually during the next decade. In contrast, its consumption in the US and the European Union is almost flat.
The projected growth of India is significant as it is the largest projected source of growth for the global vegetable market. The pattern of development it has seen during the last few decades will continue in a way. There are some other reasons behind the increase in demand, which include increasing income of people, increasing urbanization and increasing appetite of people towards processed food.
Indian oil market is different
The Indian market for palm oil is qualitatively different from many other markets in the world. India generally imports crude palm oil. It is then processed or refined and sold as cooking oil. Unlike other large markets such as the European Union, there is no large market for biodiesel in India. Here palm oil is used solely for cooking. Palm oil is used for manufactured food products in markets such as the European Union. The Indian market is also very sensitive to the price of vegetable oil. Here a significant portion of household income is spent on cooking oil. If there is any change in its prices, it affects the household budget. In contrast, palm oil is used in packaged food in the European Union. The income of the people there is such that even if there is an increase in the price of packaged food due to expensive palm oil, then the customers are not affected.
Downstream processing in India is very less when compared to countries in the European Union. But still it provides significant economic benefits in terms of value addition. One of the major issues facing India in the global political environment is reliability of supply. In the beginning of the year 2022, the export of palm oil from Indonesia was interrupted. Because the price hike created chaos in Indonesia’s domestic markets. As a result of which the export of some products from Indonesia was banned.
However, Indonesia has made some policy changes to ensure exports. The policies that were there earlier in the year 2022 have now reduced their effect. Changes in domestic policies have resulted in the Indonesian government trying to balance the need for exports with maintaining low domestic prices for everyday customers. The policy, which was in place until mid-2022, helped stabilize prices in the domestic market, but created a negative sentiment in the export markets.
Now, the existing export levy on palm oil has been reduced to zero. It is believed that this will remain so in the short term. The country’s domestic market obligation (DMO), under which traders are bound to send 30 per cent of their production to the domestic market, will remain in force for the time being. However, this is an estimate. Any change in the near future is likely to benefit Indian importers.
This article was contributed by Palm Oil Fund Management Agency
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