Costly imports pushing up edible-oil prices

Depreciating rupee, costly imports and likely delay in arrival of the new oilseed crop are set to put on fire edible oil prices this festive season.

Edible oil industry, which was already facing squeezed margins due to costly imports, has started passing on the price hike to the consumers, in a phased manner though.

Rupee depreciation

The sharp currency depreciation from ₹68 a dollar a month ago to about ₹71.5 a dollar has disturbed the trade economics of the importers in a short span of time.

While most branded players have decided to partially pass on the burden to the consumers, the cost pressure is likely to prevail till at least the new crop arrival.

Branded players, including Adani Wilmar, have started implementing phased price hike across categories of edible oils in the range of ₹1-1.5 per kg in an interval of a week to ten days.

Costly imports

Of the approximate 22 million tonnes of annual edible oil requirement, India’s imports for the current year is likely to be around 15 million tonnes. As per the data for November to July period compiled by the Solvent Extractors’ Association of India (SEA), the overall imports of edible oils have crossed 10 million tonnes till July 2019.

According to Jyoti Goyal of Kanda Edible Oil in Rajasthan, the landed cost of the imported vegetable oils has gone up due to currency depreciation.

“The landed costs have gone up for major imported oils – soya oil and palm oil. The imports are rising every year, because the demand is constantly going up. Most of Indian consumers look for cheaper oils, which mainly happens to be palm oil. Therefore, we see most of the snacks makers using only such cheaper oils. This creates increased dependence on imported palm oils. And with rupee depreciating against dollar, the landed cost goes up,” Goyal told Businessline .

With the heavy dependence on imports, a sharp depreciation of the rupee against the dollar has pushed up the cost for edible oil players by at least ₹7-8 in past two months.

Commenting on the Indian markets entering the peak festive season next month and likely spurt in demand, Angshu Mallick, Deputy CEO, Adani Wilmar Ltd, said, “People are trying to pass on the cost burden but consumers and retailers are reluctant. Overall, the markets are currently not ready to absorb the price rise. This is not a very comfortable situation for a manufacturer. There is a pressure building on the bottomline and if the international price pressure continues, there will be further squeeze for manufacturers,” he added.

Festival demand

According to Sudhakar Desai, CEO of Emami Agrotech Ltd, domestic price of palm oil went up by about ₹6 per litre and soya oil by about ₹3 per litre in August. “Out of the rally of ₹6 per litre in palm oil, about ₹4.5 is due to commodity price rally and ₹1.5 per litre is due to weaker rupee to US dollar. Since the import cost is going up, manufacturers have no choice but to take the same into cost card. However, there is a demand resistance now and festival demand is yet to pick up,” he said.

Additionally, due to monsoon getting extended, the new oilseed crop is expected by the middle of October. But by then, two big festivals Dussehra and Diwali would set in, creating severe demand pressure.

“After the US-China trade turbulence, the situation is a little tight in the commodities markets. For edible oils, China used to buy a lot of beans from the US. But due to the trade war, they have started buying from Brazil and Argentina instead. This pushed up prices in those countries because India also bought beans and oils from them. It put additional pressure on India,” said an industry source.

Govt laxity

Goyal however, underlined the need for self-reliance in oilseed cultivation to avoid dependence on imported oils and contain the risk of price escalation from currency fluctuations.

“The government is not giving much attention to high-yielding oilseed crops. They announce a hike in the minimum support price (MSP) but don’t procure in many cases,” he said, adding that it results in higher costs for millers and, when markets don’t absorb a hike, the millers have to bear the higher cost,” he said.

With inputs from Abhishek Law in Kolkata

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