MARKET DEVELOPMENT
Challenges Persist For Edible Oil Industry to Reduce Imports
Challenges Persist For Edible Oil Industry to Reduce Imports
17/12/2015 (Mint Market Info) - Indian edible oil industry is the world’s fourth-largest industry after the USA, China and Brazil and accounts for around 9% of the world’s oil seed production. It is highly fragmented with extreme variation in the consumption pattern of Indian consumers of edible oil. The Indian edible oil industry continues to be underpenetrated and thereby holds immense business opportunities. Vegetable oil consumption has increased due to rise in overall household income, surging retail sector, increasing health awareness, growing population and increasing demand. This increasing demand has however not matched with the level of production thereby facilitating the imports of edible oil in the country. India’s annual edible oil demand of 18-19 million tonnes is currently met through import, mostly from Malaysia and Indonesia. Apart from cooking, edible oils can be used for a number of other uses and have applications in different industries.
The major edible oilseeds that India cultivates are groundnut, mustard or rapeseed, niger seed, safflower, sesame seed, soybean and sunflower. The country also consumes edible oils like cottonseed oil, coconut oil and rice bran oil, which comes from processing of cotton, copra and rice bran respectively. Palm oil is consumed but it is not cultivated in the country, rather it is imported. Out of these edible oils, major consumption is of palm, soya and mustard. The Indian per capita consumption for edible oil is expected to grow from the current consumption levels of 16 kg to 24 kg by 2020 with a conservative CAGR of 6% for Total edible oil consumption. This growth would translate into an edible oil consumption market of approximately 32 million tons by 2020.
Export of Oil meals
The export of oilmeals during November, 2015 stood at 112,081 tons, down by 41%, compared to 189,032 tons in November, 2014. The overall export of oilmeals during April-November, 2015 was lower by 38% at 895,646 tons compared to 1,452,105 tons during the same period of last year.
Soybean crushing has declined considerably due to continuous disparity and high price of domestic market affecting overall domestic availability of both oils and meals. The export of soybean meal was at a historical low at 55,889 tons during the first eight months of the financial year 2015-16 compared to 250,904 tons in the previous year. Similarly rapeseed meal export was also lower to around 1/3rd of last year. The capacity utilization is at the lowest and industry is passing through very tough time with many plants closing down or operating at very low capacity due to disparity in crushing and export.
(Data source- The Solvent Extractors’ Association of India)
Import of Vegetable Oil
The import of vegetable oils (i.e. edible oil and non-edible oil) during Oil Year 2014-15 (November ’14 to October ’15 period) set a new record level of 146.1 lakh tons (14.61 MnT) compared to 118.2 lakh tons (11.82 MnT) for the same period of last year, up by 23.64%. In 2014-15, import of palm oil increased by 15.7 lakh tons and stood at 95.4 lakh tons compared to 79.6 lakh tons in 2013-14. Soft oil import jumped to 48.8 lakh tons from 36.6 lakh tons in 2013-14. India has imported highest quantity of soybean, sunflower and rapeseed oils this year due to its attractive price. Local consumption of edible oil further increased due to increase in per capita consumption (4.5%) and population growth (1.76%). The production of oilseed reduced due to deficit rain in last two years resulting in to lesser availability of oils in the country. The excess supply of vegetable oils in international market coupled with low price also boosted import. The import of refined oil further increased to 16.59 lakh tons compared to 15.76 lakh tons during the same period of last year. Import of crude oil is up by 27% at 127.62 lakh tons compared to 100.42 lakh tons during corresponding period of previous year. During oil year 2014-15 (Nov-Oct) palm oil import increased to 95.37 lakh tons compared to 79.58 lakh tons during the last year and the same time soft oil import also increased to 48.84 lakh tons, consisting of 29.86 lakh tons of soybean oil, 15.42 lakh tons of sunflower oil, 3.56 lakh tons of rape oil compared to 36.60 lakh tons during the same period of last year. The import of non-edible oils during November 2014 to October 2015 is reported at 191,231 tons compared to 200,575 tons during the same period last year.
Excessive import has put tremendous pressure on the local prices, which are at a level where Indian oilseeds growing farmers are in distress and losing interest in oilseed crop. Country’s dependence on imported oil has further increased to nearly 70 percent, an alarming situation for the country’s food security.
Major Importers of Oil meals
South Korea was a major importer from India during April-November, 2015 period. The oilmeal export to South Korea was reported at 576,582 tons; consisting 253,176 tons of rapeseed meal, 322,501 tons of castor meal and 905 tons of soybean meal. Vietnam imported 180,294 tons compared to 89,361 tons last year; consisting of 392 tons of rapeseed meal, 480 tons of soybean meal and 179,422 tons of Deoiled rice bran extraction. Thailand imported 21,333 tons compared to 144,575 tons; consisting 11,646 tons of rapeseed meal, 4,283 tons of soybean meal and 5,404 tons of Deoiled rice bran extractions. Taiwan imported 25,712 tons compared to 54,977 tons last year; consisting of 16,423 tons of rapeseed meal, 8,364 tons of castor meal, 400 tons of groundnut meal and 525 tons of soybean meal. Oman imported 24,415 tons compared to 13,360 tons last year consisting of 12,463 tons of soybean meal, 11,452 tons of Deoiled Rice Bran and small quantity of 500 tons of castor meal.
Recent developments
The Ministry of Agriculture has proposed further hike in import duty of edible oils by 5% in order to protect interest of farmers who have been affected due to rise in import of edible oils. It has proposed increase in import duty on crude edible oils to 17.5% and on refined edible oils to 25% from the existing level. The government had earlier in month of September raised import duty on crude edible oils to 12.5% from 7.5%, while the duty on refined edible oils was increased to 20% from 15%. This new proposal by ministry has been moved following several demands from state governments, especially Andhra Pradesh, as well as from the industry body SEA.
The industry body has appealed to the government to reinstate the benefits that were introduced under the new Foreign Trade Policy granting rewards to the exporters of certain oils & oilmeals in order to provide a little support for export which is dwindling. The government of India, through the Ministry of Commerce earlier in April 2015 had introduced Merchandise from India Scheme under the new Foreign Trade Policy granting rewards ranging from 3% to 5% to the exporters of certain oils & oilmeals. The government however surprisingly withdrew this benefit in July 2015 granted to groundnut meal, rice bran oil and minor oils of tree & forest origin for the reasons not known.
Outlook
The edible oil industry has a favorable demand growth outlook over the medium-to-long term provided the positive macro and demographic fundamentals. The Indian edible oil industry is expected to witness robust expansion in the near future. India’s edible oil output in the past 20 years has risen only about a third whereas imports have surged twelve times to 14.4 million tonnes to keep pace with growing consumption, making it the world’s top buyer of cooking oils. The Central government, allowed 100% FDI in oil palm plantations, this is one of the important steps in helping fill the gap of edible oil deficit in India. The county has more than two lakh hectare under oil palm, with an additional potential of around two million hectare. With this positive step from the Government of India, this massive potential can be cashed into and India’s palm oil import burden of $10 billion can be reduced. However, rising edible oil prices and low yield per hectare are expected to be the challenges for this sector.
The major edible oilseeds that India cultivates are groundnut, mustard or rapeseed, niger seed, safflower, sesame seed, soybean and sunflower. The country also consumes edible oils like cottonseed oil, coconut oil and rice bran oil, which comes from processing of cotton, copra and rice bran respectively. Palm oil is consumed but it is not cultivated in the country, rather it is imported. Out of these edible oils, major consumption is of palm, soya and mustard. The Indian per capita consumption for edible oil is expected to grow from the current consumption levels of 16 kg to 24 kg by 2020 with a conservative CAGR of 6% for Total edible oil consumption. This growth would translate into an edible oil consumption market of approximately 32 million tons by 2020.
Export of Oil meals
The export of oilmeals during November, 2015 stood at 112,081 tons, down by 41%, compared to 189,032 tons in November, 2014. The overall export of oilmeals during April-November, 2015 was lower by 38% at 895,646 tons compared to 1,452,105 tons during the same period of last year.
Soybean crushing has declined considerably due to continuous disparity and high price of domestic market affecting overall domestic availability of both oils and meals. The export of soybean meal was at a historical low at 55,889 tons during the first eight months of the financial year 2015-16 compared to 250,904 tons in the previous year. Similarly rapeseed meal export was also lower to around 1/3rd of last year. The capacity utilization is at the lowest and industry is passing through very tough time with many plants closing down or operating at very low capacity due to disparity in crushing and export.
(Data source- The Solvent Extractors’ Association of India)
Import of Vegetable Oil
The import of vegetable oils (i.e. edible oil and non-edible oil) during Oil Year 2014-15 (November ’14 to October ’15 period) set a new record level of 146.1 lakh tons (14.61 MnT) compared to 118.2 lakh tons (11.82 MnT) for the same period of last year, up by 23.64%. In 2014-15, import of palm oil increased by 15.7 lakh tons and stood at 95.4 lakh tons compared to 79.6 lakh tons in 2013-14. Soft oil import jumped to 48.8 lakh tons from 36.6 lakh tons in 2013-14. India has imported highest quantity of soybean, sunflower and rapeseed oils this year due to its attractive price. Local consumption of edible oil further increased due to increase in per capita consumption (4.5%) and population growth (1.76%). The production of oilseed reduced due to deficit rain in last two years resulting in to lesser availability of oils in the country. The excess supply of vegetable oils in international market coupled with low price also boosted import. The import of refined oil further increased to 16.59 lakh tons compared to 15.76 lakh tons during the same period of last year. Import of crude oil is up by 27% at 127.62 lakh tons compared to 100.42 lakh tons during corresponding period of previous year. During oil year 2014-15 (Nov-Oct) palm oil import increased to 95.37 lakh tons compared to 79.58 lakh tons during the last year and the same time soft oil import also increased to 48.84 lakh tons, consisting of 29.86 lakh tons of soybean oil, 15.42 lakh tons of sunflower oil, 3.56 lakh tons of rape oil compared to 36.60 lakh tons during the same period of last year. The import of non-edible oils during November 2014 to October 2015 is reported at 191,231 tons compared to 200,575 tons during the same period last year.
Excessive import has put tremendous pressure on the local prices, which are at a level where Indian oilseeds growing farmers are in distress and losing interest in oilseed crop. Country’s dependence on imported oil has further increased to nearly 70 percent, an alarming situation for the country’s food security.
Major Importers of Oil meals
South Korea was a major importer from India during April-November, 2015 period. The oilmeal export to South Korea was reported at 576,582 tons; consisting 253,176 tons of rapeseed meal, 322,501 tons of castor meal and 905 tons of soybean meal. Vietnam imported 180,294 tons compared to 89,361 tons last year; consisting of 392 tons of rapeseed meal, 480 tons of soybean meal and 179,422 tons of Deoiled rice bran extraction. Thailand imported 21,333 tons compared to 144,575 tons; consisting 11,646 tons of rapeseed meal, 4,283 tons of soybean meal and 5,404 tons of Deoiled rice bran extractions. Taiwan imported 25,712 tons compared to 54,977 tons last year; consisting of 16,423 tons of rapeseed meal, 8,364 tons of castor meal, 400 tons of groundnut meal and 525 tons of soybean meal. Oman imported 24,415 tons compared to 13,360 tons last year consisting of 12,463 tons of soybean meal, 11,452 tons of Deoiled Rice Bran and small quantity of 500 tons of castor meal.
Recent developments
The Ministry of Agriculture has proposed further hike in import duty of edible oils by 5% in order to protect interest of farmers who have been affected due to rise in import of edible oils. It has proposed increase in import duty on crude edible oils to 17.5% and on refined edible oils to 25% from the existing level. The government had earlier in month of September raised import duty on crude edible oils to 12.5% from 7.5%, while the duty on refined edible oils was increased to 20% from 15%. This new proposal by ministry has been moved following several demands from state governments, especially Andhra Pradesh, as well as from the industry body SEA.
The industry body has appealed to the government to reinstate the benefits that were introduced under the new Foreign Trade Policy granting rewards to the exporters of certain oils & oilmeals in order to provide a little support for export which is dwindling. The government of India, through the Ministry of Commerce earlier in April 2015 had introduced Merchandise from India Scheme under the new Foreign Trade Policy granting rewards ranging from 3% to 5% to the exporters of certain oils & oilmeals. The government however surprisingly withdrew this benefit in July 2015 granted to groundnut meal, rice bran oil and minor oils of tree & forest origin for the reasons not known.
Outlook
The edible oil industry has a favorable demand growth outlook over the medium-to-long term provided the positive macro and demographic fundamentals. The Indian edible oil industry is expected to witness robust expansion in the near future. India’s edible oil output in the past 20 years has risen only about a third whereas imports have surged twelve times to 14.4 million tonnes to keep pace with growing consumption, making it the world’s top buyer of cooking oils. The Central government, allowed 100% FDI in oil palm plantations, this is one of the important steps in helping fill the gap of edible oil deficit in India. The county has more than two lakh hectare under oil palm, with an additional potential of around two million hectare. With this positive step from the Government of India, this massive potential can be cashed into and India’s palm oil import burden of $10 billion can be reduced. However, rising edible oil prices and low yield per hectare are expected to be the challenges for this sector.