Indonesia palm oil export ban: Why HUL, Godrej Consumer unlikely to have larger impact – Edelweiss decodes

The palm oil export ban by Indonesia is unlikely to have a larger impact on fast-moving consumer goods (FMCG) companies like Hindustan Unilever Limited (HUL) and Godrej Consumer Products Limited  (GCPL), Edelweiss Research mentioned in its monthly report.

Among other things, both companies also manufacture soaps that use palm oil as a key ingredient.  

“In India, the larger soap companies like HUL & GCPL will not be impacted by this ban as they use PFAD (Palm Fatty Acid Distillate), a by-product while making edible oil from Crude Palm Oil, for making soaps and that has not been banned,” Edelweiss Research said. 

Hence impact on them will be subject to their inventory levels, the report said, adding further that the price increases that comes through in PFAD which they may then pass on with price hikes or manage with cost controls. 

On the contrary, biscuit manufacturing companies like Britannia will feel the impact as it’s a key raw material for them. Even if they are able to manage their supplies by importing from other countries, inflationary pressures will still be there, Edelweiss Research also said. 

Indonesia is the largest producer of Palm Oil globally, contributing around 30 per cent global export. The second-largest producer is their neighbouring country Malaysia, which produces about half of Indonesia. 

The Indonesian economy is struggling to manage the food inflation in their country and the government is seeking to protect their own food supply against the backdrop of agri prices surging since the Ukraine war.  

This ban is a step taken to control the spike in domestic cooking oil prices ahead of the festive season. 

Last week, Indonesia announced an export ban on palm oil from April 28, 2022, amid severe shortages and rising prices. Indonesia typically supplies nearly half of India's total palm oil imports, according to a Reuters report.  

It further added, “In India, the world's biggest vegetable oil importer, palm oil prices rose by nearly 5 per cent over the weekend as industry prices in shortages in the coming months.”