India’s demand for edible oils has been rising consistently at a compounded annual growth rate of 2.7 per cent in the last three years and around 5.5 per cent in the last five years. Apart from population growth, another significant factor driving edible oil demand is the increase in disposable income among the growing middle class. Usually, India imports about 60 per cent of its edible oil demand of 17-18 million tonnes. Its dependence on imported oil hit a record high this year and is expected to post fresh highs in the future.

According to Solvent Extractors’ Association data, vegetable oil imports in September increased 21 per cent to 1.05 million tonnes (mt) from the year-ago period, after hitting a record at 1.3 mt in August. Of total 1.05 mt of vegetable oils imported in September , edible oils made up 1.02 mt and non-edible oils shipments were 28,853 tonnes against 0.83 mt and 30,062 lakh tonnes in the same period a year ago. Vegetable oil imports are turning cheaper following the efforts of Indonesia and Malaysia – two of the world's top palm oil producers – to clear their inventories. To curb cheap imports and protect local oilseeds farmers, industry associations have been demanding a rise in the import duty of crude and refined edible oils from current levels. The SEA has been demanding a duty hike in crude vegetable oils to 10 per cent from 2.5 per cent and in refined vegetable oils to 25 per cent from 10 per cent. Union Minister for Food Ram Vilas Paswan is reported to be examining the industry demand to raise the import duty on edible oils as oilseeds prices have fallen in the domestic market due to high imports along with arrivals of kharif oilseeds.

However, India depends largely on the imports of edible oil. Due to insufficient production of oilseeds, it imports a significant portion. Oilseeds productivity is still low compared to other producing countries. The main reason for low productivity is drop in oilseeds acreage on account of switch over by farmers to other profitable crops and dependence on rainfall rather than irrigation. Apart from productivity, there has been a paradigm shift in edible oil consumption pattern over the last few years.

Despite the government extending various incentives, the growth in oilseeds production has not been able to bridge the gap between production and consumption. In fact, increase in direct consumption of the oilseeds leading to lower availability of raw material for crushing has also resulted in to higher dependence on imports, even with the marginal increase in oilseeds production. Soyameal, derived from soyabean is currently not competitive in the export market leading to lower crushing of beans and increasing dependence on imports. In case of palm, zero export duty from Malaysia and Indonesia is leading to fears that more imports are on cards. Hence, domestic consumption is expected to continue driving demand for imported edible oil.

The writer is Senior Research Analyst, Geojit Comtrade Ltd

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