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The Future of the Edible Oil Industry in India post COVID-19


Overview

  • The edible oil market in India is forecasted to increase from nearly $21.5 billion in 2019 to $35.2 billion by 2025 due to increasing disposable income and growing consumer awareness about healthy lifestyle & wellness. In 2019, West India dominated the country's edible oil market and the region is anticipated to secure its dominance during the projection period. East and West regions also hold a significant market share, with the South region grasping the smallest market.

  • India is the world’s leading vegetable oil buyer had shipped 13.47 lakh tonnes of edible oils in July 2019.



Source: Grandviewresearch

  • Due to the coronavirus outbreak, the market demand was affected for edible oils in India which in turn impacted the importation of edible oils. Crude palm oil saw a sharp contraction in demand from bulk consumers. As the household segment gained importance during the lockdown period, the demand for soft oils struck up.

  • On the other hand, Covid-19 induced lockdown led to the decline of employment for several migrant workers in the cities which required them to return to their homes. Uncertainty due to the pandemic and loss of earnings prompted them to refine farmlands and earn a living.

  • In 2019, Soya oil estimated for more than one-third of the market share in India’s edible oil market. The other principal oil types combine Mustard oil, Palm oil, and Sunflower oil. In 2019, the olive oil segment share in India stood at approximately 1%.

  • With the changing preference of the consumers, increase in population, and modified marketing strategies, leading edible oil brands in India are witnessing rising consumption of edible oils. Also, the growing penetration of processed foods is supposed to push the consumption of edible oils in the country.

  • Some of the significant edible oil companies in India edible oil market comprise Adani Wilmar Limited (Fortune), Mother Dairy Fruit & Vegetable Pvt Ltd (Dhara), Cargill India (Nature Fresh, Gemini), Patanjali Ayurved Limited (Patanjali), Emami Agrotech Ltd. (Emami Healthy & Tasty and Himani Best Choice) and others.

Domestic oilseeds production

  • According to a Global Agricultural Information Network report from the US Department of Agriculture (USDA), India’s oilseed production is estimated to increase in 2020-21 taking account of favorable weather and expanding plantation fields.

  • Due to the recovery of soybean, peanut, rapeseed, and mustard seed supply, the USDA forecasts food to utilize for oilseeds to increase by 10.3% to about 3 million tonnes. Strong consumption demand is expected to put stress on India’s oil meal trade surplus. The USDA also estimates India will ship 2.5 million tonnes of oil meal in 2020-21. An increase in the production of oilseed will leave an impact on the oil meal production by 5.2% to a total of 17 million tonnes.

  • In the year 2020-21, India’s oilseed production, which comprises soybean, rapeseed, mustard, peanut sunflower seed, cottonseed, and copra is forecasted to surge 2% to 38.4 million tonnes. From October 2019 to February 2020, India has imported 114,000 tonnes of soybean. In India, these oils are essentially used for edible purposes.



Source: Businesstandard

  • As in the last week of August 2020, groundnut oilseeds saw the most eminent growth in the acreage of around 35%, from 37.07 lakh hectares to 50.36 lakh hectares, supported by Soybean oilseeds, from 112.7 lakh hectares to 120.5 lakh hectares, an increase of nearly 28%.



Source: TheIndianExpress

  • As per the Solvent Extractors' Association of India (SEA), the country exported 80,765 tonnes of diverse edible oils priced at ₹955.51 crores during 2019-20, against 52,490 tonnes priced at ₹627.11 crores during the preceding year 2018-19.

  • SEA announced India's average per hectare yield of primary oilseeds is above 50% lower than average world yields in various crops. Due to the lack o supply of raw materials, edible oil refineries across the country have reduced their operating capacity to 40-50%. The decreased operation led to the price volatility in the future markets for oilseeds and oils.

  • Three principal oilseeds specifically, groundnut, soybean, and rapeseed-mustard estimated for above 88% of total oilseeds production. Soybean is the most valuable crop grown largely in Madhya Pradesh, Maharashtra, and Rajasthan estimating for more than 95% of total oilseed production.

Importation of edible oil by India

  • India is profoundly dependent on imports to satisfy its edible oil requirements and the largest importer of vegetable oils in the world followed by the USA and China. Indian edible oil import has grown at 8.4% CAGR over the last decade. India contributes approximately $10 billion each year on edible oil imports as the country's dependence on overseas purchases have increased. India’s yearly imports are nearly 15 million tonnes of edible oils, comprising over 9 million tonnes of palm oil and around 2.5 million tonnes each of soy oil and sunflower oil.

  • The Solvent Extractors Association (SEA), which symbolizes the entire edible oil industry, has rejected the proposal of the Soyabean Processors' Association (SOPA) to set quantitative limitations on the import of soybean and sunflower oil. SEA has declared that putting quantitative restrictions will commence the importation of palm oil into the country.

  • Edible oil imports diminished by 11% to 9.5 million tonnes from 10.8 million tonnes during the period from November 2019 to July 2020. This was due to the decline in the import of RBD Palmolein by 82%, from 2.1 million tonnes to 0.4 million tonnes as it recorded zero imports in the month of July 2020, which is the lowest import of refined palm oil considering India allowed its import in 1994.



Source: ChinaDialogue

  • On the other hand, crude palm oil imports suffered a marginal downfall of 3% to 4.7 million tonnes from earlier 4.8 million tonnes. Along with soft oils encountering a decrease in demand from the household segment which was evidenced by the rise in imports of soybean oil and sunflower oil by 19% (from earlier 2.0 million tonnes to 2.4 million tonnes) and 15% (from 1.8 million tonnes to 2.1 million tonnes) respectively.

  • However, in the month of July 2020, imports of edible oils witnessed a rise by 13% year on year basis from 1.3 million tonnes in July 2019 to 1.5 million tonnes in July 2020.


Source: FNBnews

  • The portions of crude oil imports rose from 8.7 million tonnes to 9.2 million tonnes. The increase in the import of crude edible oils is stimulating the domestic oil refineries in capacity utilization.



Source: Thesolventextractors

  • India’s entire consumption of edible oils is approximately 23 million tonnes. The domestic production holds nearly 7.5 million tonnes and the deficit of nearly 15 million tonnes is acquired by imports. A considerable amount of imported crude edible oil has been stocked at Kandla and Mundra ports for clearance.

  • India imports palm oil essentially from Indonesia and Malaysia, and a small quantity of crude soft oil, including soybean oil from Argentina. Sunflower oil is shipped from Ukraine and Russia.

The Shift in the International and Domestic Edible Oil Prices

  • From the month of November 2019 to January 2020, the upward inclination in the international price of palm oil witnessed an explicit fall of 28.5% as it plunged from RM 2,967 per tonne in January to RM 2,121 per tonne in May. It recovered by 17% on a sequential basis from RM 2,419 per tonne in June 2020 to RM 2,824 in August 2020.



Source: CNBC

  • Trade constraints imposed on the import of refined palm oil by India in January 2020 and the weak global market largely owing to Covid-19 unfavorably influenced the price. However, over time the easing of the pandemic lockdown worldwide and reducing supply chain disruptions have encouraged the growth in prices.

  • The domestic crude palm oil value moved proportionally with the international prices and fell by 21% from Rs. 80 per kg in January to Rs. 63 per kg in May. Furthermore, from June 2020 to August 2020 a rise in domestic crude palm oil price was observed along with the shift in international palm oil prices. In January 2020, the international price for crude soybean oil rose to USD 876 per tonne. The domestic prices for refined soybean oil for the period June to August 2020 persisted at Rs. 84 per kg.



Source: BiodieselMagazine

  • From the period November 2019 to March 2020, the domestic prices for RBD palm oil and refined soybean oil equalized at Rs. 75 per kg and Rs. 84 per kg, respectively.

  • The import of edible oils in India at the same time was at 9.5 million tonnes as corresponded to 10.8 million tonnes in the same period the previous year, a deterioration of 11%.

Summary

The Government of India has proposed a National Mission on Edible Oils (NMEO) for the next five years to increase the domestic availability of edible oil and reduce import dependency.

This mission focuses on oilseeds and edible oil production to increase from 30.88 to 47.80 million tonnes of oilseeds that will produce 7.00 to 11.00 million tonnes of edible oils from primary sources by 2025. It is assumed that edible oils will be multiplied from 3.5 to 7 million tonnes. At present, crude palm oil is freely importable while refined palm oil and palm olein have been put under the ‘Restricted’ category for imports since January 2020. The restriction is applicable to imports from all countries.

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