The Hindu Business Line : Import of vegetable oils slows down

After hitting the 50-lakh tonne mark in the whole of oil year 2004-05 (November/October), vegetable oil imports into the country have slowed down in the first nine months of the current year.

Import data released by the Mumbai-based Solvent Extractors' Association of India are revealing. Arrivals during November 2005-July 2006 aggregated 30.5 lt , down from 35.8 lt of the corresponding period the previous year.

Hit hardest

Very clearly soyabean oil has gained at the cost of palm group of oils. Despite an overall 5.3-lt reduction in aggregate imports, soyabean oil arrivals into the country, at 13.0 lt so far this year are unchanged from last year. Palm, on the other hand, has been hit the hardest, period-on-period, with imports totalling 16.4 lt this season versus 22.6 lt last season. In addition to the substantial gains made by soyabean oil, other oils — notably sunflower oil and to a lesser extent coconut oil — have eaten into palm's market share here.

As a large importing country, there is absolutely no need for India to be concerned about changes in the composition of imports. After all, India must import oils in such quantities and at such prices that balance oilseed growers' and consumers' interests while contributing to revenue. But the issue is far beyond mere import numbers.

Government officials as also trade and industry representatives may like to believe that higher domestic output of oilseeds and oils this year helped curb imports by about 15 per cent so far. This explanation could at best be correct partially.

Prices firm

The truth is that there has been a considerable deceleration in demand growth; indeed, possibly some demand destruction. It is well known that demand for edible oil is both income and price elastic. Although not spiking like wheat and pulses, edible oil prices over the last several months have remained firm at relatively high levels. Demand for edible oil fully complements consumption demand for wheat and pulses.

Slump in demand

With wheat and pulses prices skyrocketing and going out of the reach of poor consumers, there has been a depression in demand for edible oil too.

This is one major reason why importers and traders have been complaining of sluggish offtake in the domestic market. Despite realisation that international market was firming up, importers have been wary of building inventory. There has been little hope for demand revival as income growth, especially in the rural areas, has been woefully low.

So, consumers in general and the rural population in particular, have suffered a double whammy of unfriendly prices and poor income growth. The policymakers did little to support the vulnerable sections. The least the Government could have been done was to restart supply of edible oil through the public distribution system.

Last several months, the Government and market participants were busy fighting rising prices of wheat, pulses and sugar; and little attention was paid to edible oils.

Defensive mode

With global prices clearly on the upswing, the Government has got into a defensive mode and reduced the basic Customs duty on palm group of oils. How long will this cat and mouse game between the policymakers and the market continue is hard to tell. But what comes out clearly is that no one in the Government is serious about addressing the structural issues of the oilseeds sector. Currently, if there is a smug feeling that higher domestic output has resulted in lower import volumes then it is imperative the Government does everything necessary to raise production. But, sadly, there is no evidence of a progressive or developmental outlook.

New season

Vegetable oil imports during the rest of the year - three months till October - may total around 15 lt taking the annual import volume to about 45 lt. However, the new season beginning November 2006 could prove to be rather tough for consumers and the Union Government if international prices were to rise further because of a combination lower output and rising biodiesel demand.

India has no choice but to raise indigenous oilseeds production. The Ministry of Agriculture and the Technology Mission on Oilseeds owe an explanation to the nation what exactly is being done for strengthening the oilseeds sector.

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