Introduction:

There is a major shift in the global palm oil market as Latin America emerges as the leading force in the production of palm oil. The situation presents itself as a challenge for Southeast Asia dominating the sector. The transition is not limited to the numbers but is an intricate interplay regarding sustainability, land availability, and trade dynamics. On the other hand, India is a major importer of palm oil and is likely to be impacted when these Latin American countries are scaling up their exports. How will this transition affect Indian chemical companies and other industrial sectors? Will this changing landscape affect the country’s economic and environmental sustainability? This quick read explores them all. Let’s begin.

Latin American Palm oil exports - What does the report say?  

There is growing competition between Indonesia and Latin America in the global palm oil market. Both Indonesia and Malaysia have reigned supreme for the longest period in the palm oil industry, now that a new contender emerges from Latin America, they are facing both challenges and opportunities. The shift impacts the agricultural businesses in Indonesia and there is a lot more to explore.

Latin America with its boundless horizons and tropical climate found its way to increase its production of palm oil. The production rate has increased by almost 60% during 2011 and 2012 thereby reaching about 4.6 million tons in 2020-2021. Reports show that further production increase is expected. Despite the growing export markets, the Latin American Region consumes 75% of its production. Food products involve 45% of palm oil consumption, energy uses about 20% and other consumer products involve about 35% of palm oil production.

Southeast Asian regions, especially Indonesia and Malaysia are major players in global palm oil production and these two countries account for about 85-90% of the world’s palm oil exports. Indonesia is considered the largest producer and exporter of palm oil as it contributes over 60% of the global production. The region’s tropical climate, large plantations and infrastructure support the massive industry.

However, now the tables are turned. Latin American countries like Colombia, Ecuador and Honduras have large tracts of underutilized lands that are considered degraded ones too that can be converted into palm oil plantations. Unlike in Southeast Asia, land availability is more limited due to previous deforestation.

How are India’s agrochemical markets, and food processing industries affected?

India is considered one of the major importers of palm oil, in 2023, India stood as the leading importer of palm oil across the globe with an import value of about 8.7 billion US dollars. Reports claimed that the import volume of palm oil to India in 2020-2021 was about 8 million metric tons and it has increased to about 10 million metric tons in this oil year 2022-2023. This increase in the import of palm oil is due to the demand across a wide range of sectors such as food products, detergents, cosmetics and other domestic products.

Agrochemical markets:

The growing production rate in Latin America has caused the demand for agrochemicals to increase. The obvious relationship between palm oil plantations and pesticides, herbicides, and fertilizers has caused their demand to increase and has created export opportunities for Indian agrochemical companies. Especially the ones that are thinking about expanding their presence globally.

Food processing industries:

The growing food processing sector in India and the country is focusing on the development and production of products such as margarine, baked goods and snacks have benefitted from the competitive price of palm oil as a leading importer.

Latin American exports grow and Indian food processing companies benefit from the competitive palm oil prices which has lowered the input costs for the food manufacturers. On the other hand, the situation has improved the supply chain resilience for India.

Stabilize raw materials supply for the chemical industries across India:

The situation has created opportunities for Indian chemical companies to look for ways to establish stronger trade with Latin American Producers. This will eventually reduce their dependence on Southeast Asian suppliers.

For instance, palm oil is a major raw material for the production of oleo chemicals that are utilized in products such as detergents, cosmetics, biodiesel etc.

The increase in the production of palm oil in Latin American regions has created opportunities for India to stabilize their palm oil supply, reduce price volatility, and ensure a consistent supply of oleochemical inputs.

Final thoughts:

Latin America’s rapid expansion of palm oil production is a mix of good news and challenges for India as a leading importer. The benefits such as diversified supply chains, competitive pricing, and reduced dependency on Southeast Asia and others are massive and they lie in strategizing or channelling the benefits toward the growth of the country. Now it's time for India to rethink of the import strategies and invest in more sustainable and innovative practices across their industrial sectors.