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Edible oil prices in India with regards to current Russia - Ukraine situation
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Thursday, 30 June, 2022, 14 : 00 PM [IST]
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Laltu Sinha
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Edible oil is an essential constituent of Indian food items as well as an important ingredient in Indian kitchens. However, many people may be surprised to learn that India imports a majority of the edible oil it consumes, in contrast to most other agricultural products, which are produced locally. Additionally, domestic edible oil consumption is around 25 million metric tons, while domestic production is only 11.2 million metric tons. The gap between the country’s overall demand and supply of edible oils is approximately 56%, which is filled through imports.
According to the Solvent Extractors' Association of India (SEA), the import of vegetable oils is reported at 911,846 metric tons in April 2022, compared to 1,053,347 metric tons in April 2021. Over the last five years, per capita consumption of edible oil has been around 19-19.80 kg per person per year.
Domestic edible oil production has not kept pace with rising consumption, and the country is incurring significant costs as a result of its reliance on imports. Over the last few decades, imports of edible oils have witnessed a consistent uptrend and have increased significantly on an overall basis. The ongoing Russia-Ukraine conflict has further impacted the supply scenario causing spike in prices, there by highlighting the requirement for India to be self-sufficient in edible oils.
Over the last two years, India imported approximately 55% of its edible oil requirement. Palm oil accounted for approximately 50-60 percent of total edible oil imports, while soy oil and sunflower oil accounted for 20 and 25 percent, respectively. The proportion of soya oil and sunflower oil in the import basket has increased significantly. The largest producers of sunflower oil are Ukraine and Russia. As a result, palm oil is likely to meet some of the demand for sunflower oil. Palm oil is primarily sourced from Indonesia and Malaysia, and soy oil from Argentina and Brazil. Furthermore, palm oil imports are becoming more expensive due to internal trade restrictions in Indonesia, the world's largest producer of palm oil.
Palm oil prices have risen by 38% in the last year. Soya bean oil, on the other hand, is under pressure due to a lower-than-expected crop of soybean in South America. However, due to the increase in cultivation area in Haryana, Madhya Pradesh, and Rajasthan, India will harvest a record mustard crop this year (2022).
Government stock limits may prevent farmers from realising higher prices as a result of the global surge in edible oil prices, but we can expect them to remain above the MSP of RS 5,050 per quintal (100 kg). Consumer price inflation was 6.01 percent in January 2022.
Here, we look at a major emerging food security issue: the impact of the war on vegetable oils. India continues to be a major exporter of sunflower oil. Every year, India consumes nearly 1.7 MMT of sunflower oil, nearly 90% of which is imported. The value of India's sunflower oil imports in 2019-20 (April-March) was $1.89 billion and $1.96 billion, respectively. The country imported 1.93 million metric tons (worth $1.47 billion) from Ukraine in 2019-20 and 1.74 million metric tons ($1.6 billion) from Russia in 2020-21, respectively. The Ukraine crisis has driven up vegetable oil prices significantly. The crisis has also triggered trade policy responses around the world, further restricting supplies and raising prices. The price increase is being highly attributed to Russia-Ukraine war, which is causing a shortage of sunflower and safflower oils.
The food supply is especially vulnerable because the war has disrupted critical grain shipments from Ukraine and Russia, exacerbating a global fertiliser shortage that will result in more expensive, less abundant food. Moreover, the disappearance of affordable wheat, barley, and other grains raises the prospect of food shortages and political instability in Middle Eastern, African, and Asian countries where millions rely on subsidised bread and cheap noodles.
According to the United Nations Food and Agriculture Organisation, vegetable oil prices reached a new high in February before rising another 23% in March. According to the World Bank, soybean oil, which sold for $765 per metric metric ton in 2019, was averaging $1,957 per metric ton in March, 2022. Palm oil prices have risen by 200 percent and are expected to rise further after Indonesia, the world's largest producer, bans cooking oil exports to protect domestic supply.
Just within the last few weeks of the Ukraine war (Feb 2022), Soybean, sunflower, and palm oil prices have increased by 8 percent, 12.5 percent, and 14.4 percent, respectively.
However, according to government data, the average retail price of packaged edible oils in the country have fallen slightly since the beginning of this month (June 2022), except for groundnut oil, and now ranges between RS 150 and Rs 190 per kg. Last week (June 2022), Adani Wilmar and Mother Dairy reduced the MRP (maximum retail price) for various varieties of edible oils by RS 10-15 per liter. Both companies stated that the stock with new MRPs will be available in the market soon.
Edible oil price trends may continue to exhibit an upward trend, however, as a result of the government's timely intervention, the edible oil prices have gained some stability. According to a senior food ministry official, major edible oil brands have reduced MRP in stages, most recently by around RS 10-15 per liter.
According to data compiled by the Department of Consumer Affairs, the average retail price of groundnut oil (packaged) on June 21, 2022 was Rs 188.14 per kg, up from Rs 186.43 per kg on June 1, 2022. Mustard oil prices have fallen slightly to Rs 180.85 per kg on June 21, 2022, down from Rs 183.68 per kg on June 1, 2022. The price of vanaspati is fixed at Rs 165 per kg. The price of soy oil has fallen slightly to Rs 167.67 from Rs 169.65 per kg, while the price of sunflower oil has fallen slightly to Rs 189.99 from Rs 193 per kg. The price of palm oil dropped to Rs 152.52 per kg on June 21, 2022, from Rs 156.4 kg on June 1, 2022.
The price is expected to gain more stability in the coming months as stakeholders withing the public as well as private enterprises seem more prepared this time around. However, in case of an unforeseen event which may have a direct impact on the supply chain, a sudden spike of 10-20 percent can’t be ruled out from here.
(The author is research director at BlueWeave Consulting)
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