Indonesia's Cooking Oil Export Ban Could Further Raise Costs For Likes of Nestle, Mondelez, Unilever

Indonesia's move to ban cooking oil export will resonate worldwide, threatening to drive up costs for Nestle SA NSRGY, Mondelez International MDLZ, and Unilever PLC UL and food inflation, Bloomberg reports.

Indonesia accounts for a third of global edible oil exports and plans to halt cooking oil exports from April 28 after a domestic shortage led to protests over high food costs. 

The move will likely ease the inflation expectations but would be offset by surging soybean prices, a substitute for palm, a research firm observed according to Bloomberg.

Emerging markets from Sri Lanka to Egypt and Tunisia to the developed countries could see sharp rises in supermarket prices. The crisis could force governments to choose between using vegetable oils for food or biofuels. 

Indonesia's domestic oil shortage would tighten the supplies of vegetable oils and exacerbate the impact of Russia's invasion of Ukraine. The crisis had already wreaked havoc on the sunflower oil trade, boosting demand for alternatives like palm and soybean oil and sending prices to record highs. 

The ubiquitous use of edible oils in everything from candy to frying and fuel amid the record surging food prices will further impact global food inflation.

An Indian brokerage saw Indonesia's move affect the costs and margins of several consumer companies in India as leading palm, soybean, and sunflower oil importer faces a further spike in inflation. 

The ban positively impacted the plantation players standing to gain from a surge in sales and windfall profits from the price spike. However, the higher costs of oilseeds will have a rippling effect across the economy, with Malaysia's food inflation already at five-year highs leading to the curtailing of palm oil imports.

The export ban by Indonesia also adds to headwinds for the Chinese government looking to keep inflation under control.

Palm Oil photo via Wikimedia Commons