As alternative vegetable oils tend to be higher in price, Indonesia’s palm oil export ban will add further obstacles for global manufacturers such as Mondelez and Unilever to keep product prices low.
Consumers continue to be sensitive towards prices, as economic uncertainty proves to be a key influence on their decision making. According to GlobalData’s survey, the majority (*60%) of people globally claim to be extremely or quite concerned about their personal finances. Manufacturers will need to focus on price promotion strategies to keep prices down and maintain a good relationship with customers.
As manufacturers such as Mondelez have established a long-term relationship with the Indonesian government to source palm oil responsibly, this ban puts them back to square one. There will be a need to find suitable alternatives, however, these each come with their own challenges--rapeseed oil, for instance, has limited supply which has led prices to skyrocket.
Going forward, fast-moving consumer goods (FMCG) companies need to be careful in choosing suitable alternatives. Due to a shortage of sunflower oil as a result of the Russia-Ukraine conflict, a lot of companies were returning to palm oil, so Indonesia’s ban is another setback. When choosing the next potential ingredient supplier, transparency will be very important. Using innovative methods such as blockchain to track the supply of raw materials in real-time will help consumers understand where the vegetable oil is sourced and whether it is sustainable.
Ultimately, the ban will severely impact affordability and sustainability for FMCGs manufacturers, and they will have to adapt supply chain strategies quickly to avert risk from declining sales.
*GlobalData’s 2022 Q1 Global Consumer Survey, March 2022, 22,727 respondents
The above is the view of Ramsey Bagdadi, a GlobalData consumer analyst.