Until a few years ago, Nepal imported no palm oil. Today, imports of this edible vegetable oil are valued in the billions, reaching Rs32 billion in the third quarter of this fiscal year.

But very little of these massive shipments are consumed in Nepal. The oil is processed and promptly re-exported to India, with Nepali traders pocketing a handsome profit.

Tariff exemptions on Nepali exports to India under the SAFTA agreement give domestic traders an advantage. Countries outside of South Asia are slapped with tariffs of 54 percent on palm oil.

Consequently, edible oil today is among Nepal’s top export commodities. According to a government report, Nepal started importing palm oil only in fiscal 2019-20.

The good times may end for Nepali traders, however. Indonesia, the largest supplier of palm oil, has banned exports which has made Nepali traders worried.

Nepali manufacturers of snacks and other food products are also concerned as they have become increasingly dependent on palm oil for their production.

Indonesia announced the export ban on April 22 in a move to control rising domestic prices.

Tikendra Siwakoti, country sales manager of Asian Biscuit and Confectionery, says a shortage of palm oil has hit production.

Nepal’s largest biscuit and confectionery maker, Asian Biscuit and Confectionery, produces Digestive and Goodlife biscuits; 2pm, Rum Pum and Preeti noodles; Imli Bomb and Choco Luv.

“For making products ranging from biscuits to noodles to chocolates, palm oil has become an essential ingredient. After the export ban, we have reduced output,” Siwakoti said.

More and more Nepali manufacturers are using palm oil because of its multiple benefits. Palm oil can handle frying without spoiling, and blends well with other oils, according to reports.

Its combination of different types of fats and its consistency after refining makes it a popular ingredient in packaged baked goods. Its low production costs makes it cheaper than frying oils such as cottonseed or sunflower.

It provides the foaming agent in virtually every shampoo, liquid soap or detergent. Manufacturers of cosmetics prefer it to animal tallow for its ease of application and low price. It functions as a natural preservative in processed foods, and actually does raise the melting point of ice-cream, according to reports.

The price of edible oils such as soy oil, sunflower oil and rapeseed oil is expected to rise after Indonesia announced a surprise export palm oil ban.

Major edible oils are already in short supply due to adverse weather and Russia’s invasion of Ukraine.

The move by Indonesia to pause exports will place extra strain on cost-sensitive consumers in Asia and Africa hit by higher fuel and food prices, according to The Guardian. Indonesia’s decision affects not only palm oil availability, but vegetable oils worldwide.

Palm oil—used in everything from cakes and frying fats to cosmetics and cleaning products—accounts for nearly 60 percent of global vegetable oil shipments, and top producer Indonesia accounts for around a third of all vegetable oil exports.

“The price of every raw material has skyrocketed. We are studying the situation before reaching a decision to jack up prices. We will wait for a month for the situation to improve. If it does not, prices will go up massively,” said Siwakoti.

Indonesia typically supplies nearly half of India’s total palm oil imports. The export of palm oil from Nepal to India is also massive.

Former commerce secretary Purushottam Ojha says the ban will bring down the import volume in Nepal and push up the price of edible oil in the domestic market.

“We are totally dependent on imported edible oil. Palm oil accounts for a huge share of Nepal's exports, and the ban will lead to a drop in shipments. And with India planning to reduce import duty on crude palm oil, it will impact Nepal’s exports as traders have been benefiting because of the duty difference," he said.

The embargo will also hurt traders who import raw palm oil and re-export it to India after processing.

“The ban on palm oil by Indonesia has made things difficult. It is difficult to import it from other countries too,” said Subodh Kumar Gupta, president of the Association of Nepalese Rice, Oil and Pulses Industry.

“There is no palm oil in other markets,” Gupta said. “The shortage will start impacting imports gradually,” he said.

According to Gupta, 97 percent of the imported palm oil is re-exported to India.

According to the Department of Customs, Nepal imported 238,249 tonnes of crude palm oil worth Rs32 billion in the first nine months of the current fiscal ended mid-April.

Indonesia sent 188,730 tonnes of palm oil worth Rs25.89 billion while 48,758 tonnes worth Rs6 billion came from Malaysia and 760 tonnes worth Rs114 million came from the Philippines.

Nepal exported 177,578 tonnes of processed palm oil valued at Rs36.38 billion to India in the first nine months of the current fiscal year.

Aided by palm oil imports, Nepal’s edible oil imports hit the Rs100 billion mark in the third quarter of the current fiscal year.

In October last year, the Indian government slashed the import duty on crude palm oil to 2.5 from 10 percent, and on crude soybean oil and crude sunflower oil to 2.5 from 7.5 percent to enable its refineries to do the business themselves.

But Nepal's exports of refined edible oil have been increasing despite the reduced duties.

Indonesia is the world’s biggest palm oil producer making up an estimated 40-50 percent of exports while Malaysia accounts for 31 percent of the global palm oil supply.

According to Nepal Rastra Bank, the prices of ghee and oil increased by 26.34 percent in the first eight months of the current fiscal year ended mid-March compared to the same period of the last fiscal year.

The price of sunflower oil has reached Rs320 per litre while mustard oil costs Rs425 per litre and soybean oil costs Rs262 per litre.

As per Indian media reports, India is planning to cut taxes on some edible oils to cool the domestic market after the war in Ukraine and Indonesia’s ban on palm oil exports sent prices skyrocketing.