Why edible oil is cooking up a storm

Vijay C Roy

THE pandemic dealt a double blow of zero earnings for a substantial period followed by costlier cooking oil, and now comes the Ukraine-Russia conflict. For Balkaran Singh, a parantha vendor in Sector 35, Chandigarh, even a Rs5-hike for the platter that he reluctantly went in for falls short of recovering the increased input costs. “I never saw this coming. We work on thin margins, even a rupee’s fluctuation hits us,” he says. It’s a story being played out in almost every kitchen.

One of the world’s largest buyers of vegetable oils, India’s dependence on expensive imports (palm, soyabean and sunflower oils) is set to further widen the manufacturing gap. The consumption of edible oils at 230 lakh tonnes in 2021-22 was more than double the estimated domestic production of 100 lakh tonnes. The annual increase in consumption is pegged at 2.5 to 3 per cent and by 2025-26, it could touch 260-265 lakh tonnes, according to Atul Chaturvedi, who heads the Solvent Extractors’ Association (SEA).

Cost of vegetable oils, such as those extracted from rapeseed, sunflower, soyabean and palm, has on an average risen between 12 and 30 per cent. Cost has not come down despite a cut in import duties and limits on inventories since most of the commodities are linked to global prices.

The increase in prices of imported oils has impacted the domestic production too. The total availability of edible oils from all sources (primary and secondary) for 2020-21 (November to October) was estimated at 111.6 lakh tonnes as against 106.5 lakh tonnes in 2019-20. The primary sources of oil are nine principal oilseeds — groundnut, rapeseed, mustard, soyabean, sunflower, sesame, niger, castor and linseed. Edible oils obtained through secondary sources include coconut, cottonseed, palm, rice bran and oilseed cake. The gap between demand and supply is about 55 per cent and is met through imports.

The consumption of sunflower oil is 14-15 per cent of all edible oils, and over 80 per cent (25-30 lakh tonnes per annum) is imported from Russia and Ukraine. The supply chain disruption led to wholesalers and retailers jacking up the prices of all edible oils initially, and later the manufacturers increased the prices amid rising raw material costs.

“Prices of edible oils have gone up by 15-20 per cent in the past few weeks, with the maximum buoyancy in sunflower oil, followed by palm oil. Imported oils have become more expensive than domestic oils like rice bran and mustard oil. The trend does not seem to be cooling off in the near term with the pipeline of imported oils drying up,” says Sangrur-based Ricela group chairman AR Sharma.

“On a daily basis, the price of loose or locally produced oil is being changed by solvent extractors, or of branded ones,” says Ashish Kumar, an edible oil distributor.

Looking back, ahead

As India struggles to wean itself off imports, it’s worth looking back for planning ahead. The country was reasonably self-sufficient in the edible oil segment till the 1990s. Experts trace the origins of the current demand-supply mismatch to the obsession with sticking to growing wheat and paddy despite having surplus stocks in these commodities. With the opening up of economy and rising income levels, the consumption of vegetable oils kept increasing, but not the production. Low commodity prices at the time along with low import duties also lulled decision-makers into complacency. As a result, the oilseed production continued to stagnate.

For farmers, the focus on rice, wheat, cotton and sugar is based on the incentive of assured prices for these crops. Policy support and intervention are thus considered essential to fortify the compromised edible oil security. Like encouraging paddy farmers to grow sunflower during the rainy season, and wheat producers to cultivate rapeseed in the winter.

Experts advocate a multi-pronged approach to achieve atmanirbharta in edible oils. There is a need to target production of domestic edible oils at 180 lakh tonnes by 2025-26 from the current 100 lakh tonnes. This would help bring imports down to 85 to 90 lakh tonnes.

The SEA, in a presentation made to the Centre, says though the MSP is a time-tested and successful tool in increasing production, there is a need to prioritise and incentivise oilseed production.

Since productivity in the sector is considered low, they advocate permission to plant GM mustard developed by Indian scientists on a commercial basis, with similar interventions in oilseeds.

Target 2026

According to policy-makers, the current area under soya cultivation is around 120 lakh hectares, which doesn’t require expansion. Rather, the impetus, they feel, should be given on improvement in productivity as it is woefully low (below 1 tonne per hectare). The area under mustard and groundnut cultivation should be increased to 120 lakh hectares and 70 lakh hectares, respectively, from the present 90 lakh hectares and 54 lakh hectares. The need of the hour is to take up the challenge on a mission mode.

There are around 100 edible oil refineries or solvent extractors dominated by MSMEs (95 per cent) in Punjab and Haryana. The refineries include manufacturers of branded as well as unbranded edible oil. The Punjab State Cooperative Supply and Marketing Federation Ltd, popularly known as Markfed, markets mustard and other oils under the Sohna brand. In Haryana, Hafed processes and markets mustard, soyabean and cottonseed oil.

Gurvinder Singh, Director of Agriculture, Punjab, says the current area under mustard in the state is around 50,000 hectares. “We are having consultative meetings with the Central government where we have discussed that gradually, we would reduce the area under paddy by 1 to 2 lakh hectares per annum. The area freed from paddy would be brought under oilseeds (mustard and sunflower) and pulses. We would be able to finalise the exact details in a matter of time after final deliberations,” he adds.

Staggering import bills

Edible oil import bill in 2018-19 for nearly 156 lakh tonnes was around Rs65,000 crore. The estimated import bill for 134 lakh tonnes for 2020-21 is Rs1.5 lakh crore. With an increase in domestic edible oil production, there has been a drop in imports. But the import bill has skyrocketed since the exporting countries took advantage of the fragile edible oil situation and jacked up the prices.The gap between demand and supply is about 55 per cent and is met through imports. Out of the total quantity of oils imported, palm oil (crude + refined) constitutes around 62 per cent and is imported mainly from Indonesia and Malaysia, while soyabean oil constitutes around 22 per cent and is imported from Argentina and Brazil. Sunflower oil constitutes around 15 per cent and is imported mainly from Ukraine.

Palm oil dominates

The most consumed vegetable oil, it is cheaper and can be blended easily with other fats. It also lasts longer. Though low maintenance, the high-yield crop needs more than 300 litres of water per tree daily. That’s why it is grown mostly in Malaysia and Indonesia, where it rains through the year. In Kuala Lumpur, the price of palm oil went up 30 per cent last year.