Market Survey

December 2011 • FAcTS FOr YOU 23

By: Dr I. Satya SunDaram

EdiblE Oils: timE tO bring dOwn impOrtswith rising demand of edible oils in india, their imports are surging. it’s high time india stepped up its edible oils production.

cent, but it’s dependent on imports to meet its edible oil requirements.

High income and price elasticity of vegetable oils have spurred the consumption of edible oils. India’s per capita consumption of edible oil

was around 14.5 kilograms in 2011, up from 11 kilograms in 2008. The edible oil industry in India valued at Rs 750,000 million including pack-aged and unbranded oils.

Oilseeds scenario

India’s oil industry comprises 50,000 expellers, 15,000 oil mills, 689 solvent extraction plants, 1000 vegetable oil refineries and 251 hy-dro-generation plants. The indus-try has high employment potential. About two-thirds of oilseeds are produced in the kharif season, with the major crops being soybean and groundnut. In the rabi season, mus-tard is the main crop. The setting up of the Technology Mission on oil-seeds in 1986 gave a fillip to the gov-ernment’s efforts to boost produc-tion of oilseeds. Oilseeds production increased from about 11.3 million tonnes in 1986-87 to 30.25 million tonnes in 2010-11.

The demand for edible oils in-creased from 11.3 million tonnes in 2004-05 to 12.9 million tonnes in 2007-08—a growth rate of 13.99 per cent. It is expected to surge to 20.8 million tonnes by 2015 from 15.6 million tonnes in 2009-10. Of this, 10 million tonnes is expected to be supplied from domestic source. The deficit will be met through imports. The import share in India’s edible oil

india is the fourth-largest oil-seeds producing country in the world, next only to the US, China and Brazil. The country’s share in world pro-

duction of oilseeds is around 10 per

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24 FAcTS FOr YOU • December 2011

demand is expected to rise from 51 per cent now to 53 per cent by 2015.

About 70 to 80 per cent of the total oilseeds output in India is crushed for oil; the balance is used for food, feed and seed. Oilseeds production in 2010-11 was expected to be a record 30.25 million tonnes mainly because of favourable mon-soon and a marginal increase in oil-seeds acreage. Edible oil output was forecast to increase by 13 per cent to 7 million tonnes in 2010-11, from previous year’s 6.2 million tonnes. Experts anticipated a dip in imports of edible oils by 500,000 tonnes in 2010-11. Higher output might also help ease inflation and bring down edible oil prices.

The production of nine oilseeds

fell from 27.72 million tonnes in 2008-09 to 24.88 million tonnes in 2009-10, but rose to 30.25 million tonnes in 2010-11. In the case of soybean, the increase in output was sharp from 9.79 million tonnes in 2009-10 to 12.59 million tonnes in 2010-11.

some problems

The acreage for oil-seeds is around 26 to 27 million hectares in In-dia, while productivity is barely 1000 kilograms—half of the world average.

During 2009-10, the price of oilseeds was dis-couraging for the farm-ers. In September 2010, the government permit-ted National Cooperative Consumer Federation (NCCF), Central Ware-housing Corporation (CWC) and other public-sector bodies to procure oil seeds. The aim was to ensure minimum sup-

port price (MSP) to farmers. Howev-er, the announcement of MSP could not improve the situation as well. Farmers decided to switch to pulses, and in some cases to cotton, as most pulses require less water than oil-seeds.

Huge carry-over stocks of vari-ous seeds also encouraged farmers to shift to other remunerative crops. Farmers held stocks in anticipation of the recovery in the prices through the season. But the situation did not improve because the zero customs duty on vegetable oil made imports cheaper.

India is the second-largest pro-ducer of rice, next only to China. However, rice bran oil industry in the country faces shortage of raw

material—paddy. Also, the tax bur-den is on the higher side. For in-stance, in Andhra Pradesh, a 10 per cent tax is imposed by the commer-cial taxes department on all the ex-traction units. The country has the potential to produce 1 million tonne of rice bran oil annually, but the actual production is only 600,000 tonnes. In 2009-10 the production was 800,000 tonnes.

prices

India’s edible oil prices are linked to international prices. Prices at the global level rose by 60 to 65 per cent in 2010, while domestic prices in-creased a marginal 10 to 12 per cent due to excess availability through high imports.

Prices of imported RBD Palm-olein at Mumbai port rose sharply by 57 per cent to $1255 per tonne on December 24, 2010 as against the av-erage of $798 per tonne in December 2009. Similarly, crude palm oil im-port price rose 63 per cent to $1225 per tonne from $753 per tonne, while sunflower oil price surged 47 per cent to $1400 per tonne from $952 per tonne.

Refined sunflower oil price rose sharply by 40 per cent to Rs 66,000 per tonne in December 2010 from Rs 46,908 per tonne average in De-cember 2009.

imports

India continues to import edible oils such as soybean oil, palm oil, sunflower oil and coconut oil. The country is the world’s third-largest importer of edible oil. Palm oil con-stitutes 80 per cent of all vegetable oil imports. India imports a large quantity of crude palm oil from In-donesia due to quantitative restric-tion imposed by the Malaysian gov-ernment.

India imports nearly 55 per cent of its annual vegetable oil re-

Table I

area, Production and yield of Oilseeds

Year Area Production Yield (million ha) (million tonnes) (kg/ha)

2005-06 27.86 27.98 10042006-07 26.51 24.29 9162007-08 26.69 29.79 11152008-09 27.56 27.72 11062009-10 26.11 24.93 9552010-11 NA 30.25 1050

Table II

Oilseeds Production(million tonnes)

Oilseed 2008-09 2009-10 2010-11*

Groundnut 7.17 5.43 7.09Castor seed 1.17 1.01 1.31Sesame 0.64 0.59 0.78Nigerseed 0.12 0.10 0.12Rapeseed and mustard 7.20 6.61 7.42Linseed 0.17 0.15 0.14Safflower 0.19 0.18 0.15Soybean 9.91 9.97 12.59Sunflower 1.16 0.85 0.67Total 27.72 24.88 30.25

*Fourth advance estimates as on April 6, 2011 (oil year is from Novem-ber to October)

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December 2011 • FAcTS FOr YOU 25

quirement of 15.7 million tonnes from Argentina, Indonesia and Malaysia. Edible oil import is ex-pected to touch 9.3 million tonnes during 2010-11, largely due to higher per capita consumption and population growth, with palm oil leading among all other edible oils imported.

During 2009-10, India imported almost 8 million tonnes of vegetable oils (which is almost 45 per cent of the country’s needs), spending al-most Rs 250,000 million. Also, ca-pacity utilisation improved from 40 to 50 per cent in 2009-10 to 65 to 70 per cent in 2010-11.

measures needed

The Solvent Extractors Associa-tion (SEA), an association for veg-etable oil industry and trade in In-dia, has sought curbs on the futures trading in oilseeds, claiming that high prices have squeezed crushing the margin of millers. As oilseeds are in short supply, SEA felt that specu-lative activity should be restricted by all means. This also reduces the foreign exchange outgo. It is further argued that the margin money re-quired for futures trading in oilseeds should be enhanced to a level that

will discourage pure speculative ac-tivity in the market.

Many farmers have switched to oil palm from traditional crops in states like Tamil Nadu, Andhra Pradesh, Karnataka, Goa, Guja-rat, Orissa and Mizoram. These are earning good profits because of en-couragement from edible oil compa-nies.

The government planned to bring 60,000 hectares under oil palm in 2011. However, the farmers face two problems—the initial investment is high and the gestation period is long as plants begin yielding oil only from the fourth year of plantation. Hence, farmers require long-term financial support, which may be subsequently recovered in instalments.

Post-harvest management is also important. The fresh fruit

bunches (FFBs) which contain palm oil, need to be crushed within 24 hours of harvesting. Hence, priority should be given to FFB pro-cessing facilities. The links between growers and mills need to be strengthened. It is esti-mated that over a mil-lion hectares of irrigated

land can be brought under oil palm plantations in several southern and eastern states.

The edible oil economy needs to be strengthened as the country heavily depends on imports. There is a need for boosting yields. India needs to adopt genetically modified seeds sooner or later to meet the ever-rising demand of oilseeds. When drought conditions are anticipated, plant population can be suitably ad-justed by thinning out excess plants. To minimise the adverse effect of high temperature, selection of short-duration and temperature-tolerant varieties is important. Also, farmers should be trained to manage biotic stresses—both insect pests and dis-eases.

The author is an economist and a writer

Table III

Indian Edible Oil Scenario(million tonnes)

Year Production Consumption Imports

2005-06 10.34 16.18 9.282006-07 9.94 15.35 8.272007-08 11.90 14.69 8.752008-09 10.16 12.97 5.922009-10 10.14 11.91 5.43

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