08/11/2007 (The Economic Times), New Delhi - India today has the world’s cheapest cooking oil. Soya oil at Indore currently beats imported palm oil, the world’s cheapest energy source. Thanks to more desi vegetable oil extracted from three million tonnes extra oilseeds this summer, Indian consumers can stay cool even after global cooking oil prices hit a 33-year high on Wednesday.

Apart from higher supply, a combination of expensive international freight and transportation costs, and customs duty of Rs 9/kg have given local vegetable oils an added price advantage over imported oil.

With the mustard seed harvest also on the anvil in a few months, the full impact of the global cooking oil price shock may be felt in Indian kitchens only after January. Malaysian crude palm oil futures broke past 3,000 ringgit resistance level to strike a new record high on Wednesday, after crude jumped to a new peak and soya oil soared to a near 33-year high. Palm oil and soya oil increasingly track movements in the crude oil market because of growing demand for both commodities as feedstock for biodiesel.

Of course, MRPs are creeping up. Officials at Adani Group, which owns India’s biggest cooking oil brand Fortune, said consumers can expect a price hike of up to Rs 2/litre in MRP after November 15 due to the continued rise in winter demand and higher oilseed prices. But without the cushion of larger domestic crop, this increase would have been even sharper. Palm oil prices have risen 50% in the world market in 2007.

India has reduced dependence on the world market, at least for now. A record soya bean and cottonseed harvest this season would allow local vegetable oil processors to produce 20% more cooking oil this summer that is much cheaper than imported crude palm oil. Since cooking oil is a price-sensitive food, consumers always buy the cheapest product available in the market.

The total volume of imported cooking oil has not risen, unlike earlier years.

High global prices have been a blessing for farmers because processors have paid Rs 5/kg above the MSP for soya and mustard this year. “Palm oil consumption overall will go down because it is more expensive. At present, it is only being used for vanaspati manufacturing.

But even there, it is getting replaced by cottonseed and rice bran oil,” said Rajesh Agarwal of industry body SOPA. Due to attractive soya meal prices, crushers are rapidly processing the local soya crop, which is keeping a lid on soya oil prices. Right now, local soya oil at Indore is available for $925/t c&f, while imported palm oil lands into India at $1,040/t. Realising that foreign oil will find few takers till this price differential remains, importers have not signed any contracts for November. Instead, they are waiting for stocks of local oil to finish fast.

“No import contracts have been signed till now because there is plenty of local oil. Plus, no one wants to take a risk in the highly volatile global market,’’ said an official from one of India’s largest edible oil refineries. The big bet is now on how soon will India have local vegetable oil.

Most companies will win or lose based on their estimates of how soon India’s prices climb up to global levels. “Import contracts will be signed only after December, when domestic oil gets over and there is greater clarity about world markets,’’ said a Mumbai-based source. There is a likelihood that the government may chop customs duties once the impact of global prices starts getting reflected in retail prices.

“Soya crushing will taper off after December. After that, depending upon the size of the mustard crop, upto 3 lakh tonnes palm oil may be contracted,’’ said Mr Agarwal. India has a soya crushing capacity of 10 lakh tonnes. “If cottonseed and ricebran oil is used for vanaspati, it will get over in 20 days in the north,’’ said a market watcher. “Stock of imported oil at ports is at the lowest level in more than three years. Once local oil is consumed, there will be a scramble for imports,’’ he added.

Companies selling branded vegetable oils say they may have to make creeping increases in price to account for more expensive local oils and scalding imported oil prices. “If we sell oil bought today at current MRP, it means booking a straight loss of Rs 5/kg. We have been able to hold down MRPs only because we still have oil bought cheaper earlier. We are able to average the two and increase prices by just Re 1 at a time. But once old stocks finish, we will have no option,’’ sources said.