A surge too hard to stomach

India continues to be world’s largest importer of edible oil and one of the largest consumers. Imports of edible oils rose by 57.9 per cent to Rs.46,309 crore in last fiscal from Rs.29,319 crore in 2010-2011. However, the overwhelming rise of imports resulting an increase in the trade deficit of the country. The consumers are also unsatisfied with raising prices of edible oils over time.

Global edible oil prices have risen due to expectation of rainfall deficit in key cultivating areas. Further, Indian edible oil prices have increased due to the sharp rupee depreciation against dollar. This made the cost of imported edible oil prices to serve as a benchmark for pricing domestic oils. Delayed monsoon in the domestic markets, resulting in lower sowing of oilseeds is likely to keep domestic prices high in the near term.

Overall, international palm oil prices, international and domestic climatic conditions; import duty structure in India and Indonesia; alternative demand for biofuels are factors influencing domestic prices, said Ankur Malik, senior analyst, ICRA.

Talking about Indian consumption patterns, he said, Domestic edible oil industry is highly fragmented industry, with palm oil; Soyabean oil and mustard oil are being the three largest consumed edible oils. The past average growth rate in edible oils consumption has been around 4.5 per cent for last 10 years resulting in per capita consumption 14 kg per year in 2011-12. The factors driving per capita consumption are rising income levels and better living standards of people, which will also keep the future consumption of edible oil in India to grow at around 4.5-5 per cent per annum.

Indian edible oil consumption pattern varies depending upon preferences across regions, driven by taste and availability. For instance, Soyabean oil is mainly used in northern and central regions of India due to the local availability of soyabeans. Mustard oil is largely consumed in north-eastern, northern and eastern regions of India, as its pungency is a desired and inherent part of the local cuisine. Palm oil is increasingly used in southern India due to the warmer climate (palm oil gets a cloudy appearance in colder climates) and easy availability from South-east Asia, he said.

India continues to remain deficit in edible oils, with imports accounting for around 55 per cent of domestic consumption. High import dependence is a result of near stagnancy in domestic area under oilseeds cultivation, lower soil productivity, and competition from other crops.

Government should encourage higher cultivation of edible oil seeds and promote measures to increase soil productivity through balanced use of fertilisers (phosphatic fertilisers are more important for cultivating oil seeds). However, it is important to raise import tariff values to make domestic cultivation more profitable, although the same would result in inflation and withdraw export duty on de-oiled rice bran cake, he said.

Edible oil production is expected to decline due to poor monsoons in the current year, necessitating much higher imports. Low growth in domestic edible oil production and rising share of imports should continue till the medium term too.

Within, imported edible oils, there is trend of increasing share of refined edible, due to export duty changes by Indonesia, added Malik.

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Category: Business, Business News