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Why is your tadka getting more & more expensive? Blame India’s reliance on edible oil imports

Indians spending 14% more on edible oil compared to last year. Experts expect a cooldown if no shocks prevail, government says ‘situation under control’.

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New Delhi: A bottle of cooking oil is a constant in every Indian kitchen, but its price is not.

According to data sourced from the Department of Consumer Affairs, by 16 May, consumers in the country were spending an average of 14 per cent more, or an extra Rs 22 per kilogram, on edible oil than what they were paying a year ago.

The average is based on the prices of six varieties of edible oils monitored by the department — groundnut, mustard, palm, vanaspati (vegetable oil), soya and sunflower oil.

Latest data on retail inflation — which is based on the Consumer Price Index (CPI) — released by the Ministry of Statistics and Programme Implementation (MoSPI) shows that inflation in edible oil prices has been disproportionate to the overall inflation rate in the country.

In April this year, retail inflation grew by 7.79 per cent (which means that general prices across the country are 7.79 per cent higher than what they were in the same month last year). However, the price rise in edible oils was reported to be 17 per cent for the same period, according to MoSPI data, more than double the rise in general prices. 

Rising prices of cooking oil were not a major concern until the Covid-19 pandemic disrupted global economies. Until 2019, edible oil price hikes were almost always lower than the rise in general prices.

Around February 2020, edible oil inflation was almost equal to the general inflation rate, according to MoSPI statistics, and since then, it has remained in double digit figures.

Credit: Ramandeep Kaur | ThePrint
Credit: Ramandeep Kaur | ThePrint

The main reason why India has not been able to control the rising prices of edible oils is because of its high import dependency.

The three oils that the country imports are palm oil, which forms 36 per cent of India’s edible oil consumption, followed by soybean and sunflower oil, which constitute 22 per cent and 12 per cent of the demand (according to 2019-20 data from Solvent Extractors’ Association of India (SEA), agency monitoring edible oils), respectively.

Of late, these supplies have been hit by the April-end ban on export of palm oil by Indonesia, one of the countries on whom India majorly relies for palm oil, a March ban on export of soymeal by Argentina, and the impact of the Russia-Ukraine war on supply of sunflower oil from Ukraine.

The situation was further aggravated as things started returning to normal after the Covid lockdowns, and the food and beverage industry witnessed a surge in demand for palm oil. This created a huge gap between demand and supply.

While retail prices continue to burn the consumers’ pocket, the Union government has said that the situation is still pretty much under control.

“The present stock of all edible oils in the country is approximately 21 LMT (lakh metric tonnes), and approximately 12 LMT is in transit arriving in May 2022. Therefore, the country has sufficient to cover the lean period due to the ban on export by Indonesia,” the Ministry of Consumer Affairs, Food and Public Distribution stated in a press release issued 1 May.

“A close watch is being kept on day-to-day basis on prices of edible oils so that appropriate measures can be taken to keep a check on the prices of edible oil for ensuring that the prices remain stable and interest of consumers are protected,” it further said.

B.V. Mehta, executive director of SEA, told ThePrint that a cooldown in edible oil prices is expected by the second half of this year. 

The main factor this expectation is hinging on is Indonesian President Joko Widodo’s announcement Thursday that his country will lift its palm oil export ban from 23 May. 

“We are expecting a cooldown by the second half of 2022, mostly near July or August. The prices may not come back to normal, but a 15-20 per cent cut may be expected, provided no other shocks prevail,” said Mehta.

However, he cautioned that India needs to have a long-term vision for edible oil supply, as its demand is only going to grow.


Also Read: Inflation raised monthly expenses of 92% Indian families in last 3 months, finds online survey


Which oils are rising steep

In India, cheaper alternatives, which fulfil most cooking oil needs — vanaspati and palm oil — are the ones under the most pressure.

Data sourced from the Department of Consumer Affairs shows that, as of 18 May, vanaspati cost about Rs 165/kg, while the same cost Rs 129 a year ago — a rise of 27 per cent.

Similarly, palm oil now costs 16.31 per cent more, while soya oil has become 16 per cent dearer than last year. The prices of sunflower, mustard and groundnut oil have also risen by around 13.2, 8.6 and 6.91 per cent, respectively, according to consumer affairs department data.

Credit: Ramandeep Kaur | ThePrint
Credit: Ramandeep Kaur | ThePrint

The geopolitics of cooking oil

According to the statistics shared by the SEA, more than 63 per cent of the country’s edible oil demand is met through imports, most of which is palm oil. 

A November 2021 press release issued by the Ministry of Agriculture and Farmers’ Welfare, stated that India imported 133 lakh tonnes of edible oil in 2020-21, of which 56 per cent was palm oil. 

The cheaper and more flavourless option compared to other alternatives available in the market, is preferred by the country’s food and beverage industry. Domestic users account only for 18 per cent of palm oil consumption, while the rest goes to the hotel, restaurant and cafe industry (33 per cent), bakery and vanaspati (18 per cent), and biscuits and frying (18 per cent). About 13 per cent of palm oil is used by the non-food industry in India, according to SEA data.

As a semblance of normalcy returns after Covid, and the food and beverage industry witnesses a surge in demand, palm oil becomes a crucial input for this industry to grow.

For palm oil, India majorly relies on two countries — Indonesia and Malaysia, where the tropical weather allows them to produce palm in bulk. These two countries alone account for about 84 per cent of the global palm supply.

Therefore, any policy decision taken by these two countries impacts the global supply. Indonesia, which forms about 57 per cent of the global palm supply, has put brakes on export of palm. In order to cut down their imports of crude oil, both Indonesia and Malaysia blend palm. In April-end this year, Indonesia imposed a ban on export of palm oil. 

Malaysia, in order to protect its own processing industries, levies an 8 per cent tax on its export of crude palm oil. However, looking at the loss in global supply caused by Indonesia’s ban, Malaysia is mulling cutting it to 4-6 per cent.

After palm, India also depends on import of soybean oil. Here too, two countries dominate India’s supply — Argentina and Brazil.

According to the SEA, on average, India imports about 2.4 million metric tonnes (MMT) of soybean oil every year, of which half is met by Argentina. The country had in March announced a ban on export of soymeal, a key ingredient used to make the oil, in order to control domestic food prices. 

As a result, India switched to Brazil, the top producer of soybean in the world. However, according to a Hindu BusinessLine report, the country has cautioned that its supplies are limited.

The supply of sunflower oil has meanwhile been affected by the ongoing Russia-Ukraine war. India used to get about 2 MMT of sunflower oil from Ukraine, which is about 85-90 per cent of India’s total sunflower oil imports. Now, it has to look for substitutes.

Mustard oil, which comprises about 12 per cent of India’s consumption, is grown domestically and, compared to other edible oils, its prices haven’t shot up as dramatically.


Also Read: As inflation breaks records, Modi govt plans to counter criticism ahead of anniversary & polls


This too shall pass?

Since Indonesia supplies a larger chunk of India’s edible oil imports, much of the relief in terms of lowered prices depends on it doing away with its ban on palm oil export.

SEA executive director Mehta said India needs long-term planning to optimally source its edible oils as its demand is only going to grow, and it also needs to explore growing of substitute oilseeds.

“We have a consumption of 200 lakh tonnes and we have to import 130 lakh tonnes. There are avenues where India can grow substitute oilseeds, we need to tap those opportunities,” he told ThePrint.

Last year, the Centre launched the the National Mission on Edible Oils — Oil Palm, with an outlay of Rs 11,040 crore in order to augment the crude palm oil production, for which about Rs 11 crore was approved for 2021-22. 

In September 2021, the central government also offered a high increase in the Minimum Support Price (MSP) of oilseeds — compared to that for wheat. 

The SEA had last December also requested the government to incentivise oilseed farming in Punjab and Haryana to channelise the land used for excess wheat and rice production to oilseeds, through which, it said, India can get 25 lakh tonnes more of edible oil.

(Edited by Gitanjali Das)


Also Read: As cooking oil prices rise, Indian households spend more, look for cheaper alternatives, survey shows


 

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