Market Survey
By: Dr I. Satya SunDaram

EdiblE Oils: dOmEstic PrOducErs NEEd PrOtEctiON
While per capita consumption of edible oils is going up in india, local farmers and refiners are not benefiting from this trend. rather, importers and palm oil producers from malaysia and indonesia, who are dumping their produce in the indian market, stand to gain. this situation needs urgent government intervention to protect the interests of small farmers.

i

ndia grows a wide variety of oilseeds including groundnut, castor seed, seasum rapeseed and mustard, linseed, soyabean, sunflower, nigerseeds and safflower, contributing a significant share of the world’s production. Indonesia and Malaysia are the larg-

est palm oil producers in the world. They even have huge stocks of crude palm oil.

current status
There has been a continual rise in the per capita consumption of ed-

ible oil in India. While in 1992-93 the per capita consumption was 5.8 kg, it was estimated at 12.96 kg in 2010-11, 13.36 kg in 2011-12, and 13.92 kg in 2012-13. Of course, the rise in per capita consumption has slowed down due to the high price of vegetable oils. The industry as a whole has invested over Rs 50,000 million and employs over 500,000 people. As income levels rise, per capita consumption of edible oil also rises. However, as pointed out by the Economic Survey 2012-13, the progress in per capita availability is more on account of the rising import of oils than local production growth of oilseeds. India is advantageously placed compared to most other developing countries as it has different agroclimatic zones that enable it to grow seven major and other oilseeds including some high-value premium crops. However, low productivity is a cause of concern. The average farm size is only 1.55 hectares. There has been a surge in consumer preference for branded and packed edible oil compared to the traditional loosely sold variety. In
September 2013

•

FACtS FOr YOU

9

Market Survey
Table I

Edible Oils: Production, Consumption and Imports
Year 2008-09 2009-10 2010-11 2011-12 2012-13* Production (million tonnes) 6.7 6.3 7.2 6.8 7.1 Total consumption (million tonnes) 14.92 15.22 15.82 16.57 17.55 Per capita consumption (kg) 12.86 12.95 12.96 13.36 13.92 Imports (million tonnes) 8.18 8.82 8.37 9.98 10.5

*Estimates Note: The edible oil year is from November to October

Table II

Status of India’s Vegetable Oil Industry
(million tonnes) Year 2008-09 2009-10 2010-11 2011-12 2012-13 Production 6.68 6.26 7.15 6.8 7.1 Imports 8.64 9.24 8.67 10.2 10.9 Consumption 15.32 15.5 15.82 17 18

Source: Solvent Extractors’ Association

over 1.4 million tonnes of rice bran oil. Currently, the country produces about 900,000 tonnes, of which only 300,000 tonnes are used as edible oil; the rest is used by the vanaspati industry or blended with other oils and sold as branded products.

to 15 per cent each. Oilseeds are also grown in Andhra Pradesh, Karnataka, Tamil Nadu, Haryana, Uttar Pradesh, West Bengal, Orissa and Assam. The Technology Mission on Oilseeds, which was set up in 1986, gave a fillip to the production of oilseeds. There was a sharp increase in productivity from 670 kg per hectare in the 1980s to 835 kg per hectare after the 1990s. For kharif oilseeds, the government raised the minimum support price (MSP) in June 2012 by 21 to 37 per cent. While the MSP for groundnut was raised by 37 per cent to Rs 3700 a quintal, that of soyabean rose 30 per cent to Rs 2300 a quintal. The MSP for sunflower and safflower has been increased by 32 per cent and 29 per cent to Rs 3700 a quintal and Rs 4400 a quintal, respectively. The fact is that the actual price of oilseeds has been higher than the MSP .

Edible oil prices
Edible oil prices are set to drop on account of higher supply. Because of the rupee’s depreciation against the dollar, India’s shipment costs will be lower, and the industry can pass on these benefits to customers. Crude palm oil (CPO) prices have also come down as there is oversupply in the market. Edible oil producer-refiners are set to raise the prices of their products by around five per cent to absorb the impact of the falling rupee, which has made imported crude palm oil costlier. The price rise would cover all products, including basic edible oils and derivatives such as fats.

2012-13, sales of the former category rose by 30 per cent. Its share in India’s total consumption that year shot up to 60 per cent from 45 per cent in the previous year. Here, too, the regional brands dominate. The share of national brands continues to remain between 10 and 12 per cent. Also, the price difference between the two has narrowed down. A healthy war is going on between rice bran oil and olive oil. Rice bran oil is gaining popularity as a healthy and affordable cooking medium because of aggressive marketing. Also, the prices of olive oil and other imported options are rising. A campaign is on to pitch rice bran oil as a healthy and cheaper alternative. India imports olive oil. But, it is one of the top producers of rice bran. India has the potential to produce 10
FACtS FOr YOU

trends in oilseeds
Oilseeds production dropped almost 8.25 per cent to 29.79 million tonnes in 2011-12 because of the low kharif harvest on account of uneven rains. In 2012-13 too, oilseed production was only marginally better than in the previous year. India’s domestic oilseeds production has stagnated at around 28 to 32 million tonnes. Over the last four decades, oilseed production in India has increased notably from over 9 million tonnes in the 1970s to over 25 million tonnes in the 1990s. The top four oilseed producing states are Madhya Pradesh, Rajasthan, Gujarat and Maharashtra. Madhya Pradesh alone accounts for 31 per cent of the total oilseed production. The other three states contribute 10

Edible oil imports
India continues to remain highly dependent on oil imports from major producers like Malaysia, Indo-

•

September 2013

Market Survey nesia and Argentina. The country imports around 55 per cent of its annual edible oil consumption of 17.1 million tonnes due to low domestic output. This percentage may go up to 76 per cent in the next five years. Palm oil constitutes most of India’s edible oil imports. The increasing market share of refined oil is a threat to domestic crushing and refining units that largely depend on imported crude vegetable oil and operate on waferthin margins. Till last year, there was a duty differential between CPO and RBD (refined, bleached and deodorised oil) of 7.5 per cent. However, on January 23, 2013, an import duty of 2.5 per cent was imposed on CPO. The duty of 7.5 per cent on refined oil (RBD palmolein) was kept unchanged, so the duty differential has come down to 5 per cent. The fall in the CPO-RBD duty differential led to large-scale import of refined palmolein, resulting in further under-utilisation of the capacity of India’s refining industry. At present, domestic edible oil crushing and refining units are operating at 30 to 35 per cent capacity against about 50 per cent a year ago. The massive inventory lying in Malaysia and Indonesia is pushing up India’s import of vegetable oil. This has adversely affected the domestic seed crushing industry. The seed and oil prices are down in local markets. Vegetable oil imports have been rising consistently due to lower imTable III

Status of Oilseeds in India
1971-72 to 1981-82 to 1991-92 to 2001-02 to 1980-81 1990-91 2000-01 2010-11 Average area under oilseeds (million ha) Average oilseed production (million tonnes) Average oilseed yield (kg/ha) 17.01 9.17 538.2 20.09 13.6 670.6 25.5 21.33 835.8 25.67 25.08 971.19

Source: Directorate of Economics and Statistics, Department of Agriculture and Cooperation

port duty. A committee, headed by Ashok K. Lahiri, has recommended that the duty differential between crude and refined products be maintained at 10 per cent. Experts say the government should protect the interests of domestic refineries with the duty on CPO and refined palmolein fixed at 10 per cent and 20 per cent respectively. If the duty differential is not maintained, some industry players would prefer to import refined palmolein instead of CPO, jeopardising the domestic palmolein refining industry which competes with cheap imports.

Table IV

Prices of Edible Oils*
Edible oil Cotton seeds refined Sunflower refined Soyabean refined Rapeseed refined Coprawhite Mustard oil
*as on June 12, 2013

Price (Rs/10 kg) 660 785 670 705 705 645

measures needed
The Solvent Extractors’ Association (SEA), an industry body, has requested the government to raise the import duty on CPO by 10 per cent and refined palmolein oil from the existing 7.5 per cent to 20 per cent to protect the soyabean and mustard seed farmers who are struggling to get remunerative prices due to high oil imports. The prices of refined palmolein oil have come down drastically from Rs 58,789 a tonne in December 2011 to Rs 48,000 in December 2012. The Commission for Agricultural Costs and Prices (CACP) has recommended a 10 per cent duty on the import of oilseeds, 12.5 per cent on crude oil, and 15 per cent on refined oil. It said, “There has to be appropriate duty on edible oil imports to develop domestic markets.

the massive inventory lying in malaysia and indonesia is pushing up india’s import of vegetable oil. this has adversely affected the domestic seed crushing industry.

Cheaper imports will distort prices and farmers will not be able to recover prices.” The domestic industry should concentrate on improving sales of branded products, better realisation of oilseed extraction, effective control on costs and favourable business sentiments. There should be a winwin situation for farmers, refiners and consumers in India. The Economic Survey 2012-13 has suggested that the proceeds from the import duty on oils could be utilised for an oilseeds development programme. The government is emphasising on the overall improvement in oilseeds output with a special focus on the eastern region of India, where one-crop system continues due to lack of proper irrigation. The government has also announced a special economic package for farmers cultivating oilseeds in the east.



The author is an economist and a writer
September 2013

•

FACtS FOr YOU

11