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SEPTEMBER 2013 FACTS FOR YOU 9

BY: DR I. SATYA SUNDARAM

EDIBLE OILS:DOMESTIC PRODUCERSNEED PROTECTION While per capita consumption of edible oils is going up in India, local farmers and refiners arenot benefiting from this trend. Rather, importers and palm oil producers from Malaysia and

Indonesia, who are dumping their produce in the Indian market, stand to gain. This situationneeds urgent government intervention to protect the interests of small farmers.

India grows a wide variety ofoilseeds including groundnut,castor seed, seasum rapeseedand mustard, linseed, soya-bean, sunflower, nigerseeds

and safflower, contributing a signifi-cant share of the worlds production.Indonesia and Malaysia are the larg-

est palm oil producers in the world.They even have huge stocks of crudepalm oil.

Current status

There has been a continual risein the per capita consumption of ed-

ible oil in India. While in 1992-93the per capita consumption was 5.8kg, it was estimated at 12.96 kg in2010-11, 13.36 kg in 2011-12, and13.92 kg in 2012-13. Of course, therise in per capita consumption hasslowed down due to the high price ofvegetable oils.

The industry as a whole has in-vested over Rs 50,000 million andemploys over 500,000 people. Asincome levels rise, per capita con-sumption of edible oil also rises.However, as pointed out by the Eco-nomic Survey 2012-13, the progressin per capita availability is more onaccount of the rising import of oilsthan local production growth of oil-seeds.

India is advantageously placedcompared to most other developingcountries as it has different agro-climatic zones that enable it to growseven major and other oilseeds in-cluding some high-value premiumcrops. However, low productivity is acause of concern. The average farmsize is only 1.55 hectares.

There has been a surge in con-sumer preference for branded andpacked edible oil compared to thetraditional loosely sold variety. In

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2012-13, sales of the former cat-egory rose by 30 per cent. Its sharein Indias total consumption that

year shot up to 60 per cent from 45per cent in the previous year. Here,too, the regional brands dominate.The share of national brands con-tinues to remain between 10 and12 per cent. Also, the price differ-ence between the two has narroweddown.

A healthy war is going on be-tween rice bran oil and olive oil.Rice bran oil is gaining popularityas a healthy and affordable cookingmedium because of aggressive mar-keting. Also, the prices of olive oiland other imported options are ris-ing. A campaign is on to pitch ricebran oil as a healthy and cheaperalternative.

India imports olive oil. But, it isone of the top producers of rice bran.India has the potential to produce

over 1.4 milliontonnes of rice branoil. Currently, thecountry producesabout 900,000tonnes, of whichonly 300,000 tonnesare used as edibleoil; the rest is usedby the vanaspatiindustry or blendedwith other oils andsold as brandedproducts.

Trends in oilseeds

Oilseeds production dropped al-most 8.25 per cent to 29.79 milliontonnes in 2011-12 because of thelow kharif harvest on account of un-even rains. In 2012-13 too, oilseedproduction was only marginallybetter than in the previous year. In-dias domestic oilseeds productionhas stagnated at around 28 to 32million tonnes.

Over the last four decades, oil-seed production in India has in-creased notably from over 9 milliontonnes in the 1970s to over 25 mil-lion tonnes in the 1990s. The topfour oilseed producing states areMadhya Pradesh, Rajasthan, Gu-

jarat and Maharashtra. MadhyaPradesh alone accounts for 31 percent of the total oilseed production.The other three states contribute 10

to 15 per cent each. Oilseeds are alsogrown in Andhra Pradesh, Karna-taka, Tamil Nadu, Haryana, UttarPradesh, West Bengal, Orissa and

Assam.The Technology Mission on Oil-

seeds, which was set up in 1986, gavea fillip to the production of oilseeds.There was a sharp increase in pro-ductivity from 670 kg per hectare inthe 1980s to 835 kg per hectare afterthe 1990s.

For kharif oilseeds, the govern-ment raised the minimum supportprice (MSP) in June 2012 by 21to 37 per cent. While the MSP forgroundnut was raised by 37 per centto Rs 3700 a quintal, that of soya-bean rose 30 per cent to Rs 2300 aquintal. The MSP for sunflower andsafflower has been increased by 32per cent and 29 per cent to Rs 3700a quintal and Rs 4400 a quintal, re-spectively. The fact is that the actu-al price of oilseeds has been higherthan the MSP.

Edible oil pricesEdible oil prices are set to drop

on account of higher supply. Becauseof the rupees depreciation againstthe dollar, Indias shipment costswill be lower, and the industry canpass on these benefits to customers.Crude palm oil (CPO) prices havealso come down as there is oversup-ply in the market.

Edible oil producer-refinersare set to raise the prices of theirproducts by around five per centto absorb the impact of the fallingrupee, which has made importedcrude palm oil costlier. The price risewould cover all products, includingbasic edible oils and derivatives suchas fats.

Edible oil imports

India continues to remain highlydependent on oil imports from ma-

jor producers like Malaysia, Indo-

Table I

Edible Oils: Production, Consumption and Imports

Year Production(million tonnes)

Total consumption(million tonnes)

Per capitaconsumption (kg)

Imports(million tonnes)

2008-09 6.7 14.92 12.86 8.18

2009-10 6.3 15.22 12.95 8.82

2010-11 7.2 15.82 12.96 8.37

2011-12 6.8 16.57 13.36 9.98

2012-13* 7.1 17.55 13.92 10.5

*Estimates Note: The edible oil year is from November to October

Table II

Status of Indias Vegetable Oil Industry(million tonnes)

Year Production Imports Consumption

2008-09 6.68 8.64 15.32

2009-10 6.26 9.24 15.5

2010-11 7.15 8.67 15.82

2011-12 6.8 10.2 17

2012-13 7.1 10.9 18

Source: Solvent Extractors Association

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nesia and Argentina. The countryimports around 55 per cent of its an-nual edible oil consumption of 17.1million tonnes due to low domesticoutput. This percentage may go upto 76 per cent in the next five years.Palm oil constitutes most of Indiasedible oil imports.

The increasing market shareof refined oil is a threat to domes-tic crushing and refining units thatlargely depend on imported crudevegetable oil and operate on wafer-thin margins. Till last year, therewas a duty differential between CPOand RBD (refined, bleached and deo-dorised oil) of 7.5 per cent. However,on January 23, 2013, an import dutyof 2.5 per cent was imposed on CPO.The duty of 7.5 per cent on refinedoil (RBD palmolein) was kept un-changed, so the duty differential hascome down to 5 per cent.

The fall in the CPO-RBD dutydifferential led to large-scale importof refined palmolein, resulting infurther under-utilisation of the ca-pacity of Indias refining industry.

At present, domestic edible oil crush-ing and refining units are operatingat 30 to 35 per cent capacity againstabout 50 per cent a year ago.

The massive inventory lying inMalaysia and Indonesia is pushingup Indias import of vegetable oil.This has adversely affected the do-mestic seed crushing industry. Theseed and oil prices are down in localmarkets.

Vegetable oil imports have beenrising consistently due to lower im-

port duty. A committee, headed by Ashok K. Lahiri, has recommendedthat the duty differential betweencrude and refined products be main-tained at 10 per cent. Experts saythe government should protect theinterests of domestic refineries withthe duty on CPO and refined pal-molein fixed at 10 per cent and 20per cent respectively. If the duty dif-ferential is not maintained, someindustry players would prefer toimport refined palmolein instead ofCPO, jeopardising the domestic pal-molein refining industry which com-petes with cheap imports.

Measures needed

The Solvent Extractors As-sociation (SEA), an industry body,has requested the government toraise the import duty on CPO by10 per cent and refined palmoleinoil from the existing 7.5 per centto 20 per cent to protect the soya-bean and mustard seed farmers whoare struggling to get remunerativeprices due to high oil imports. Theprices of refined palmolein oil havecome down drastically from Rs58,789 a tonne in December 2011 toRs 48,000 in December 2012.

The Commission for Agricul-tural Costs and Prices (CACP) hasrecommended a 10 per cent dutyon the import of oilseeds, 12.5 percent on crude oil, and 15 per centon refined oil. It said, There has tobe appropriate duty on edible oil im-ports to develop domestic markets.

Cheaper imports will distort pricesand farmers will not be able to re-cover prices.

The domestic industry shouldconcentrate on improving sales ofbranded products, better realisationof oilseed extraction, effective con-trol on costs and favourable businesssentiments. There should be a win-win situation for farmers, refinersand consumers in India. The Eco-nomic Survey 2012-13 has suggestedthat the proceeds from the importduty on oils could be utilised for anoilseeds development programme.

The government is emphasisingon the overall improvement in oil-seeds output with a special focus onthe eastern region of India, whereone-crop system continues due tolack of proper irrigation. The gov-ernment has also announced a spe-cial economic package for farmerscultivating oilseeds in the east.

The author is an economist and a writer

Table IV

Prices of Edible Oils*Edible oil Price (Rs/10 kg)

Cotton seeds refined 660

Sunflower refined 785

Soyabean refined 670

Rapeseed refined 705

Coprawhite 705

Mustard oil 645

*as on June 12, 2013

Table III

Status of Oilseeds in India

1971-72 to

1980-81

1981-82 to

1990-91

1991-92 to

2000-01

2001-02 to

2010-11

Average area under oilseeds (million ha) 17.01 20.09 25.5 25.67

Average oilseed production (mill ion tonnes) 9.17 13.6 21.33 25.08

Average oilseed yield (kg/ha) 538.2 670.6 835.8 971.19

Source: Directorate of Economics and Statistics, Department of Agriculture and Cooperation

The massive inventorylying in Malaysia andIndonesia is pushing upIndias import of vegetableoil. This has adverselyaffected the domestic seedcrushing industry.