What’s Happening?
Inflation is rampant everywhere, but the ban may significantly impact FMCG companies as palm oil price rises. It is an essential ingredient and is mainly used in all our daily products – biscuits, soaps, wafers, cosmetics, chocolates and even Nutella. Palm oil is preferred as it is relatively cheaper, lasts longer, and is more stable at high temperatures than other oils. It makes up to 15% of the costs for FMCG behemoths like Britannia, Hindustan Unilever etc. About 70% of India’s palm oil comes from Indonesia. India will be most affected by the ban as it’s the world’s largest importer of palm oil.
According to retail research platform Bizom, average monthly sales per kirana store declined 10% in March (compared to the same figures in February). This means consumers are cutting their consumption of soaps, biscuits, soaps and other products. FMCG companies will be negatively affected as their sales may go down.
Should This Concern You?
Many FMCG companies have not raised the prices of any of their products. They are looking at alternative options like rice bran oil or cottonseed oil. Some of them expect the decision by Indonesia on the ban is likely to have transitory impacts on a short-term basis. Mayank Shah, senior category head at Parle Product, said palm oil is perishable, and eventually, they (Indonesian exporters) would have to open up. Their production is much higher than the local requirement, reported media.
What Lies Ahead?
Indonesia has said it will revoke the ban once the domestic prices come down by around 30%. The country consumes less than 40% of its annual palm oil production. The rest is exported. There’s a silver lining that things will go back to normal, but there’s no timeline.
