Market Survey
CMYK
BY: DR I. SATYA SUNDARAM
EDIBLE OILS: PRODUCTIVITYHOLDS THE KEY
India definitely has a favourable climate for growing a variety
of oilseeds. However, its yields are about half of the world
average, making it one of the leading importers of edible oils
to cater to its vast thriving domestic market.
The edible oil economy of
India is beset by a
number of problems
that have hindered its
ability to meet rising
demand, as apparent from poor yields
and declining production. The pro-
ductivity of oilseeds is just 900 kg
per hectare, putting India's oilseeds
yields among the world's lowest at
about half of the world average. The
total area under oilseeds production
in the country is around 26 million
hectares and less than 25 per cent of
the oilseeds area is irrigated. While
the demand projections of the coun-
try by 2010 have been estimated
around 15.6 million tonnes of edible
oils, stagnating domestic oilseeds
production have ensured that India
will remain an important global im-
porter of edible oils in the foresee-
able future.
Current scenario
Currently, India accounts for 7.4
per cent of world oilseeds output,
6.1 per cent of world oil meal pro-
duction, 3.9 per cent of world oil
meal exports; 5.8 per cent of world
veg oil production; 11.2 per cent of
world veg oil imports and 9.3 per
cent of the world edible oil con-
sumption.
Rapeseed oil (1.9 million tonnes),
groundnut oil (0.9 million tonnes),
and soybean oil (0.9 million tonnes)
are the major edible oils produced in
the country. The country also pro-
duces cottonseed oil, sunflower seed
oil, rice bran oil, coconut oil, sesame
oil and castor oil.
A growing population with var-
ied dietary habits and steady eco-
nomic growth have led to rising
standards of living, pushing con-
sumption and as a corollary there
is a thriving domestic market for
edible oils. But oilseeds production
has remained stagnant at around
25 million tonnes which amounts
to eight million tonnes of edible oils.
Edible oils consumption increased
from around six million tonnes in
the early 1990s to around 11 mil-
lion tonnes in recent years. The
Market Survey
CMYK
strong demand coupled with our in-
ability to meet it, has ensured In-
dia’s dependence on import to ca-
ter to the domestic consumption,
which is over 40 per cent, making
it a leading importer of edible oils
in the world.
Total edible oil consumption in
the country was expected to increase
by two per cent to 12.5 million tonnes
in 2006-07 compared with 12.3 mil-
lion tonnes in the previous year. The
per capita consumption, however, is
likely to remain unchanged at 11.16
kg.
India has the potential to pro-
duce over 12 lakh tonnes of rice bran
oil per year. The current production
is around seven lakh tonnes out of
which refined rice bran oil is just 1.5
to 2.0 lakh tonnes.
There are about 15,000 oil mills,
over 700 solvent extraction plants,
625 refineries and nearly 250
vanaspati (hydrogenated oil) units
spread across the country. They con-
tribute to the supply pool of around
12 million tonnes of various oils and
about 20 million tonnes of various
oil cakes/extractions that are used
as animal feed.
According to the fourth advance
estimates released by the agriculture
ministry in July 2007, oilseeds out-
put in 2006-07 may be at around
23.88 million tonnes, down 14.65 per
cent from final production estimates
of 27.98 million tonnes in 2005-06.
The world oilseeds production
stood at 387 million tonnes in 2005-
06, and 371 million tonnes in 2004-
05. Similarly, world vegetable oils
production was 113.7 million tonnes
in 2005 against a forecast of 113.7
million tonnes in 2010.
Edible oils imports
Edible oils imports declined by
14 per cent in 2005-06 (November
to October) to 4.42 million tonnes
from 5.0 million in 2004-05. It is
attributed to a high level of oilseeds
output at 27.7 million tonnes in
2005-06.
In the total imports basket for
2005-06, imports of refined oil were
reduced to 0.13 million tonnes from
0.45 million tonnes in 2004-05. With
the government raising the cap on
carotenoid content at 500 particle
per milligram (ppm) on crude
palmolein, importers refrained from
buying it from international mar-
kets. As a result, its imports in 2005-
06 were reduced to just 55,804 tonnes
from the 2004-05 level of 1,86,000
tonnes.
Total imports of pal-based oils
were reduced to 0.25 million tonnes
in 2005-06 from 0.30 million tonnes
in 2004-05. Of course, crude palm oil
imports maintained at around 0.23
million tonnes in 2005-06.
Importers purchased 0.1 million
tonnes of crude sunflower oil in 2005-
06 out of the tariff related quota of
0.15 million tonnes for which they
had to pay 45 per cent import duty
against the normal duty of 78.2 per
cent. In 2005-06, the country im-
ported 0.17 million tonnes of crude
soy oil as against 0.2 million tonnes
in 2004-05.
Vanaspati imports into the coun-
try were placed at 0.3 million tonnes
in 2005-06, up from 0.2 million
tonnes in 2004-05. With this, the
overall imports of vegetable oils into
the country dipped by 0.22 million
tonnes in 2005-06.
In 2005-06, oil year (November
to October), the country imported
2.4 million tonnes of crude palm oil
(CPO). In November-March 2006-07,
about one million tonnes of CPO
were imported.
Given the decline in oilseed pro-
duction, edible oil imports in 2006-
07 (November-October) may touch a
level of about 55 lakh tonnes. The
year witnessed a shortfall in edible
oil supply from domestic sources to
the tune of 8 lakh tonnes.
The import bill on account of ed-
ible oil is estimated to touch Rs
180,000 million in 2006-07 against
Rs 150,000 million in the previous
year, and Rs 100,000 million the year
before that.
In the first nine months of the oil
year, November 2006 to July 2007,
India’s imports increased eight per
cent to about 33 lakh tonnes, against
30.5 lakh tonnes in the correspond-
ing period of the previous year. Im-
ports increased anticipating higher
demand.
Price trends
At the international level, palm
oil price may rise as high as $1000
a tonne in 2008 because of increas-
ing demand and a shortfall in sup-
plies of vegetable oils. Vegetable oils
are increasingly being used to make
biodiesel as crude oil prices more
Table I
Domestic Production of Various Edible Oils(in thousand tonnes)
2002-03 2003-04 2004-05 2005-06 2006-07*
Soybean oil 580 1,000 900 1,140 1,200
Cotton oil 390 520 660 755 900
Groundnut oil 740 1,200 970 950 700
Sun oil 475 450 470 620 600
Rape oil 1,185 1,800 1,570 2,250 1,950
Sesame oil 150 200 200 125 120
Coconut oil 350 400 400 400 380
Rice bran oil 550 600 610 660 700
Others 180 200 200 200 225
Total 4,600 6,370 5,980 7,100 6,775
*Estimated
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CMYK
than tripled to a record in five
years. In fact, US farmers have
switched to corn to meet demand
for ethanol.
The government has not been
able to control edible oil prices in
spite of import duty reduction. On
13th April 2007, the government an-
nounced a 10 per cent cut in customs
duty on palm oil. The landed price of
CPO (crude palm oil) rose by Rs 2000
to Rs 43,000 per tonne and that of
refined, bleached deodorised (RBD)
palmolein by Rs 700 to Rs 46,300 per
tonne.
Anticipating higher off take by
India in the wake of the import duty
cut, FOB (free on board) Malaysia
price of RBD palmolein moved up
$25 to $680 per tonne while FOB
Indonesia price of CPO increased to
$630 per tonne in April 2007. The
prices of palm oil and soy oil in-
creased by 40 to 50 per cent during
the eight month period—November
2006 to July 2007.
Areas of concern
One of the main factors behind
insufficient production of oilseeds in
India is its domestic price support
programme that generally favours
production of other crops like wheat
and rice. The oilseeds crops are thus
not as remunerative as their com-
peting alternatives. Hence, they are
cultivated on marginal lands. Most
improved varieties of oilseed crops
are inherently not widely adoptable
and are also susceptible to stress fac-
tors such as drought, excess mois-
ture, salinity, disease and pest at-
tack. Consequently, the high risk fac-
tor dissuades farmers from using fer-
tilisers and plant protection chemi-
cals.
The farmers too are generally re-
luctant to invest in fresh seeds un-
like more lucrative crops like wheat
and rice.
In addition to low yields at the
farm level, India's oilseeds sector
is also hampered by the fact that a
large number of processing units—
oil mills, solvent extraction or re-
fining—have relatively small in-
stalled capacities and hence
suffer dis-economies of scale. Moreo-
ver, crushing of two major
oilseeds—groundnut and soybean—
is reserved for the small-scale sec-
tor, that are not capable of process-
ing this large share of edible oils’
production. Investments in mod-
ernisation of plants are also inad-
equate.
In 2006, the government reduced
the duty on imported crude palm oil
to 70 per cent from 80 per cent, and
on refined palm oil to 80 per cent
from 90 per cent to check price rise.
The concessions were valid up to 31st
December 2006, but the government
extended the duty concession indefi-
nitely. This again, may not ensure
reasonable returns to farmers.
The domestic vanaspati oil indus-
try is in the doldrums. There is ram-
pant smuggling of vanaspati from
Nepal, over and above the permitted
quantity of duty-free imports under
the bilateral free trade agreement
between the two countries. At least
1.5 lakh tonnes of vanaspati is smug-
gled into the country. The duty-free
import quota under the agreement
is only 1 lakh tonnes. Many vanaspati
units, especially in the eastern re-
gion, are closed. No wonder, the
vanaspati industry is operating at
20 per cent capacity.
There is also an inverted duty
structure on vanaspati and imported
crude palm oil—the main material
for vanaspati production—created as
a result of trade agreements. While
the domestic industry has to pay an
import duty of 46.35 per cent on
crude palm oil, its key raw material
Table II
World Major Oilseeds Yields During 2006-07
Country Soybean Rapeseed Groundnut Cotton Sunflower seed(tonnes/he) (tonnes/he) (tonnes/he) (kg/he) (tonnes/he)
USA 2.89 1.36 3.12 894 1.27
Germany 3.71 — — — —
Brazil 2.67 — 2.17 1,197 —
Argentina 2.68 — 2.50 — 1.74
Paraguay 2.35 — — — —
France — 3.02 — — 2.25
Russia — — — — 1.19
UK — 3.30 — — —
Pakistan — — — 636 —
China 1.74 1.74 3.04 1,241 1.73
India 0.95 0.92 0.98 494 0.60
Canada 2.86 1.72 — — —
World 2.43 1.75 1.53 727 1.23
Most improved varieties of oilseed crops are inherently not
widely adoptable and are also susceptible to stress factors
such as drought, excess moisture, salinity, disease and pest
attack. Consequently, the high risk factor dissuades farmers
from using fertilisers and plant protection chemicals.
Market Survey
CMYK
for vanaspati manufacture, the im-
port of the finished production from
neighbouring countries carries no
duty. As a result, 15 kg indigenous
vanaspati costs Rs 832, while the
same quantity if imported costs only
Rs 730.
Measures needed
The government has identified
nearly one million hectares of land
suitable for palm cultivation. But
for a number of reasons, and par-
ticularly because the states con-
cerned are yet to recognise palm
tree growing as ‘plantation’ exer-
cise, investments in the sector are
shy. The area under the crop re-
mains at around 80,000 hectares.
Though around 1995, the govern-
ment had identified eight lakh hec-
tares of land for oil palm cultiva-
tion, till date only around 80,000
hectares have been brought under
cultivation. This is sad, because rise
in palm cultivation can halve our
edible oils imports. In fact, we have
favourable conditions for plantation
too. For instance, in Andhra
Pradesh, specially the Godavari dis-
tricts, the yield is high at 4 to 4.5
tonnes a hectare.
A policy measure that can boost
cultivation of oil palm is its declara-
tion as a plantation crop in India.
Once this is done, around 1000 hec-
tares can be put under cultivation in
a contiguous manner which is not
currently possible as most of the land
is owned by marginal farmers. These
plantations could have a cooperative
structure with around 1000-1500
farmers forming one unit. This would
lead to better utilisation of irriga-
tion, fertilisers, nutrients and adop-
tion of scientific methodologies.
We also have to fully utilise the
potential of rice bran oil industry.
There is an urgent need to exempt
all by-products of this industry from
the levy of excise to encourage and
support production of refined rice
bran oil.
Solvent Extractors’ Association
of India (SEA) has appealed to the
centre to focus on increasing pro-
ductivity in the oilseeds sector. It
has suggested that the price of veg-
etable oils be maintained through
appropriate duty structure and fo-
cus on increasing productivity rather
than expanding area under oilseeds
cultivation. It has also suggested a
larger allocation of funds for raising
farm productivity for the develop-
ment of high yielding varieties of
seeds, better post harvest technol-
ogy and irrigation facilities along
with encouragement to private seed
companies to produce better seed
varieties.
Oilseeds processors now realise
the importance of genetically modi-
fied (GM) seeds that have proved
their worth in the cotton sector. They
want to utilise locally developed seeds
to increase yield without any signifi-
cant enhancement in area under oil-
seeds cultivation.
The government is also keen on
implementing mandatory labelling of
edible oil packages. The industry is
willing to label all packaged edible
oils including small pouches, pro-
vided the government lays down
proper guidelines. As of now, if the
Sunflower seeds: Need to improve yield
value addition is roughly 100 per
cent, the entire lot of packaged oils
have to be labelled under one specifi-
cation. But, if the value addition
range differs, say between 110-120
per cent, there is no labelling guid-
ance according to existing guidelines.
The SEA has also urged the gov-
ernment to discourage the use of ed-
ible oils, including rapeseed oil, palm
oil and soybean oil, for biofuel as it
would lead to price rise of edible oils.
In order to keep edible oils prices
under control, the government is
mulling duty cuts of upto 15 to 20
per cent. It may also take other
measures like limiting futures trad-
ing to control prices. The govern-
ment has already cut import duty
on edible oils five times during
2006-07, to check domestic prices
and inflation. The latest cut has
brought down the levy on palm oils
to 40 per cent from 50 per cent and
on soy oils to 40 per cent from 45
per cent. However, the solution lies
not in reducing duties, but in in-
creasing the yield to 1.7 tonnes a
hectare from the current level of
900 kg a hectare.
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