MARKET DEVELOPMENT
Domestic Demand to Drive Growth in Edible Oil Industry
Domestic Demand to Drive Growth in Edible Oil Industry
26/02/2016 (Mint Market Info) - Indian edible oil industry is the world’s fourth-largest industry after 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. In India, oilseeds are grown in nearly 26-27 million hectares. The productivity is however very low in comparison with the world average. The consumption growth is rising by nearly 5.5 to 6.0% per annum. Palm Oil is consumed the most by lower income category of Indian society. Consumption of Palm oil in India is now nearly 45% of the total oil consumption followed by Soybean oil and Rapeseed oil. Also the Indian edible oil demand is quiet elastic and does reduce or increase to an extent with change in prices. Import of edible oil has increased nearly 2.5 times in last 8 years. The central government allowed 100% FDI in oil palm plantations which is one of the important steps in helping fill the gap of edible oil deficit in India. The alarming declines of Indian oilseeds production and crushing are going along with booming import demand for vegetable oils, have brought oilmeal exports from India almost to a standstill.
Export of Oil meals
The export of oilmeals during January, 2016 is lowest ever reported export of 17,243 tons, down by 91%, compared to 185,654 tons in January, 2015. The overall export of oilmeals during April, 2015 to January, 2016 reduced to half (51%) compared to last year at 1,005,085 tons against 2,047,937 tons during the same period of last year and 3,646,095 tons in 2013-14.
Soybean crushing declined due to continuous disparity and high price of domestic market affecting overall domestic availability of both oils and meals. The capacity utilization is at the lowest. Industry is passing through very tough time and many plants are close down or operating at very low capacity due to disparity in crushing and export. Rapeseed meal export is also reduced to 1/3rd of last year. The export of soybean meal is at a historical low during current year and reported just 69,263 tons during the first ten months of the financial year 2015-16 compared to 549,162 tons in the previous year 2014-15 and 2,375,231 tons during the same period of 2013-14.
Import of Vegetable Oil
The import of vegetable oils during January, 2016 stood at 1,258,054 tons compared to 1,095,466 tons in January, 2015, consisting of 1,255,054 tons of edible oils and 3,000 tons of non-edible oils i.e. up by 15%. The overall import of vegetable oils during first quarter of the current oil year 2015-16, November ’15 - January ’16 is reported at 4,014,101 tons compared to 3,427,276 tons i.e. up by 17%. During November ’15 - January ’16, import of refined oil (RBD Palmolein) jumped to 611,256 tons from 173,113 tons in the same period of last year, while Import of crude oil marginally increased to 3,383,879 tons from 3,182,568 tons during the same period of last year. During November’ 15 - January’16, Palm Oil import has marginally increased to 2,350,063 tons from 2,293,994 tons during the same period of last year, however, Soft Oils import increased to 1,645,072 tons from 1,061,687 tons last year. The share of soft oils import increased to 41% from 32% last year, while share of palm oil products down to 59% from 68%. The import of Non-edible oils during November ’15 - January ’16 is reported at 18,966 tons only compared to 71,595 tons during the same period last year. i.e. down by 74%.
Major Importers of Oil meals
South Korea is a major importer from India. During April ’15 - January ’16, oilmeal export to South Korea is reported at 616,691 tons compared to 730,571 tons; consisting 264,180 tons of rapeseed meal , 351,606 tons of castor meal and 905 tons of soybean meal. Vietnam imported 218,728 tons compared to 269,935 tons last year; consisting of 2,587 tons of rapeseed meal, 480 tons of soybean meal and 215,661 tons of Deoiled rice bran extraction. Thailand imported 27,631 tons compared to 189,026 tons; consisting 11,646 tons of rapeseed meal, 10,581 tons of soybean meal and 5,404 tons of Deoiled rice bran extractions. Taiwan imported 34,804 tons compared to 61,978 tons last year; consisting of 18,469 tons of rapeseed meal, 15,098 tons of castor meal, 400 tons of groundnut meal and 837 tons of soybean meal. Oman imported 24,947 tons compared to 19,239 tons last year consisting of 12,463 tons of soybean meal, 11,984 tons of Deoiled Rice Bran and small quantity of 500 tons of castor meal.
Budget Expectations
•The industry body Solvent Extractors’ Association of India has asked for increasing customs duty on edible oil imports in order to safeguard farmers’ interest. To fulfill the domestic requirements of raw material, the association suggested that imports of oilseeds, oilcakes and rice bran should be encouraged by reducing the import duty to a reasonable level. It suggested some measures, such as importing oilseeds at lower duty, importing oilcakes and rice bran at nil duty, increasing overall availability of raw material and exporting all edible oils in bulk without MEP (Minimum Export Price).
•The association suggested that in order to encourage FDI in oil palm plantation, the government should declare oil palm as a plantation crop and exempt the 2 million hectares identified as suitable for oil palm plantation from the Land Ceiling Act.
•The Oil Palm Developers and Processors Association (OPDPA) has recommended a separate import policy for the palm oil industry. It wants the import duty on palm oil to be increased substantially from 12.5 percent now to boost domestic production.
•The association wants the government to allocate Rs 10,000 crore for the development of the palm oil industry to promote domestic cultivation. The association has also demanded efficient implementation of Market Intervention Scheme (MIS) to bail out the farmers when faced with crop losses incurred due to market fluctuations.
•The association is also advocating that in order to help increase the area of palm cultivation, the government should increase the input subsidy to Rs 40,000 for four years and raise the aid towards the planting material to Rs 20,000. If these incentives are extended, the crop acreage may increase by 20,000-40,000 hectares.
Outlook
India has been an importer of edible oil for last many years because of a mismatch between demand and domestic production. The palm cultivation has not taken off in the country on expected lines. Though, the per-capita consumption of edible oils is still a lot below threshold level of consumption. High growth in income levels, increasing trend in spending & better living standards may push the growth. Of late, consumption of edible oil in the country has started growing at around five percent a year. It, coupled with the limited availability of oil seeds and shifting of acreage to other crops, has resulted in the widening of supply-demand gap in the domestic market. The domestic production of oilseeds has been declining in the last two years as farmers are no longer interested in growing the crop which has become un-remunerative. The shortage of raw material and capacity utilization have further devoid the industry of gaining production and productivity, thus making the industry less competitive in the global market. Provided the positive macro and demographic fundamentals, the edible oil market has a favorable demand growth outlook over the medium-to-long term. A lot will however depend upon the long-term actions of the government for the growth and development of the sector. The increase of import duty on edible oil and provisions for extra incentives in the coming budget will further provide impetus to the industry.
Export of Oil meals
The export of oilmeals during January, 2016 is lowest ever reported export of 17,243 tons, down by 91%, compared to 185,654 tons in January, 2015. The overall export of oilmeals during April, 2015 to January, 2016 reduced to half (51%) compared to last year at 1,005,085 tons against 2,047,937 tons during the same period of last year and 3,646,095 tons in 2013-14.
Soybean crushing declined due to continuous disparity and high price of domestic market affecting overall domestic availability of both oils and meals. The capacity utilization is at the lowest. Industry is passing through very tough time and many plants are close down or operating at very low capacity due to disparity in crushing and export. Rapeseed meal export is also reduced to 1/3rd of last year. The export of soybean meal is at a historical low during current year and reported just 69,263 tons during the first ten months of the financial year 2015-16 compared to 549,162 tons in the previous year 2014-15 and 2,375,231 tons during the same period of 2013-14.
Import of Vegetable Oil
The import of vegetable oils during January, 2016 stood at 1,258,054 tons compared to 1,095,466 tons in January, 2015, consisting of 1,255,054 tons of edible oils and 3,000 tons of non-edible oils i.e. up by 15%. The overall import of vegetable oils during first quarter of the current oil year 2015-16, November ’15 - January ’16 is reported at 4,014,101 tons compared to 3,427,276 tons i.e. up by 17%. During November ’15 - January ’16, import of refined oil (RBD Palmolein) jumped to 611,256 tons from 173,113 tons in the same period of last year, while Import of crude oil marginally increased to 3,383,879 tons from 3,182,568 tons during the same period of last year. During November’ 15 - January’16, Palm Oil import has marginally increased to 2,350,063 tons from 2,293,994 tons during the same period of last year, however, Soft Oils import increased to 1,645,072 tons from 1,061,687 tons last year. The share of soft oils import increased to 41% from 32% last year, while share of palm oil products down to 59% from 68%. The import of Non-edible oils during November ’15 - January ’16 is reported at 18,966 tons only compared to 71,595 tons during the same period last year. i.e. down by 74%.
Major Importers of Oil meals
South Korea is a major importer from India. During April ’15 - January ’16, oilmeal export to South Korea is reported at 616,691 tons compared to 730,571 tons; consisting 264,180 tons of rapeseed meal , 351,606 tons of castor meal and 905 tons of soybean meal. Vietnam imported 218,728 tons compared to 269,935 tons last year; consisting of 2,587 tons of rapeseed meal, 480 tons of soybean meal and 215,661 tons of Deoiled rice bran extraction. Thailand imported 27,631 tons compared to 189,026 tons; consisting 11,646 tons of rapeseed meal, 10,581 tons of soybean meal and 5,404 tons of Deoiled rice bran extractions. Taiwan imported 34,804 tons compared to 61,978 tons last year; consisting of 18,469 tons of rapeseed meal, 15,098 tons of castor meal, 400 tons of groundnut meal and 837 tons of soybean meal. Oman imported 24,947 tons compared to 19,239 tons last year consisting of 12,463 tons of soybean meal, 11,984 tons of Deoiled Rice Bran and small quantity of 500 tons of castor meal.
Budget Expectations
•The industry body Solvent Extractors’ Association of India has asked for increasing customs duty on edible oil imports in order to safeguard farmers’ interest. To fulfill the domestic requirements of raw material, the association suggested that imports of oilseeds, oilcakes and rice bran should be encouraged by reducing the import duty to a reasonable level. It suggested some measures, such as importing oilseeds at lower duty, importing oilcakes and rice bran at nil duty, increasing overall availability of raw material and exporting all edible oils in bulk without MEP (Minimum Export Price).
•The association suggested that in order to encourage FDI in oil palm plantation, the government should declare oil palm as a plantation crop and exempt the 2 million hectares identified as suitable for oil palm plantation from the Land Ceiling Act.
•The Oil Palm Developers and Processors Association (OPDPA) has recommended a separate import policy for the palm oil industry. It wants the import duty on palm oil to be increased substantially from 12.5 percent now to boost domestic production.
•The association wants the government to allocate Rs 10,000 crore for the development of the palm oil industry to promote domestic cultivation. The association has also demanded efficient implementation of Market Intervention Scheme (MIS) to bail out the farmers when faced with crop losses incurred due to market fluctuations.
•The association is also advocating that in order to help increase the area of palm cultivation, the government should increase the input subsidy to Rs 40,000 for four years and raise the aid towards the planting material to Rs 20,000. If these incentives are extended, the crop acreage may increase by 20,000-40,000 hectares.
Outlook
India has been an importer of edible oil for last many years because of a mismatch between demand and domestic production. The palm cultivation has not taken off in the country on expected lines. Though, the per-capita consumption of edible oils is still a lot below threshold level of consumption. High growth in income levels, increasing trend in spending & better living standards may push the growth. Of late, consumption of edible oil in the country has started growing at around five percent a year. It, coupled with the limited availability of oil seeds and shifting of acreage to other crops, has resulted in the widening of supply-demand gap in the domestic market. The domestic production of oilseeds has been declining in the last two years as farmers are no longer interested in growing the crop which has become un-remunerative. The shortage of raw material and capacity utilization have further devoid the industry of gaining production and productivity, thus making the industry less competitive in the global market. Provided the positive macro and demographic fundamentals, the edible oil market has a favorable demand growth outlook over the medium-to-long term. A lot will however depend upon the long-term actions of the government for the growth and development of the sector. The increase of import duty on edible oil and provisions for extra incentives in the coming budget will further provide impetus to the industry.