The rise and rise of edible oil prices

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Go easy on the oil when rustling up your favourite curry, pasta, or pan-fried noodles as the prices of edible oils are at an all-time high and still climbing.

Concerned about retail prices of edible oils soaring to their highest levels in over a decade in May 2021, and at a time when consumers are already reeling under the economic distress induced by the Covid-19 pandemic and consequent lockdowns, Food Secretary Sudhanshu Pandey had a discussion with various stakeholders including producers of edible oil seeds, millers, stockists, wholesalers, and various industry associations to help rein in the local edible oil prices.

Following the discussion, the central government has urged the State governments and stakeholders from the industry and trade to take all possible steps to soften the prices of edible oils.

It has also asked them to consider asking commodity exchanges through market regulator SEBI to bring down circuit limit on oilseeds and oils.

Meanwhile, the government has assured that it will be looking at a “wholesome solution” to ensure that edible oils are available to consumers at reasonable rates.

According to government data, retail price of palm oil has spiked by 62.35 percent to Rs 138/kg from Rs 85/kg in May 2020; sunflower oil by 59 percent to Rs 175 from Rs 110/kg; vanaspati by 56 percent to Rs 140/kg from Rs 90/kg, soya oil price by 55 percent to Rs 155/kg from Rs 100/kg and groundnut oil prices by 35.33 per cent to Rs 180/kg from Rs 133/kg in the said period. Further, mustard oil rates have also climbed by 48 percent to Rs 170/kg from Rs 115/kg over the year.

Hike in global edible oil prices

The rise in domestic edible oil prices mostly mirror international price movement, which has nearly doubled in the last six months.

Soybean oil, the second-most consumed oil has gone up by nearly 150 percent over the last year, and sunflower oil prices from Ukraine have more than doubled since 2020.

Palm oil

Mainly produced in Indonesia and Malaysia, the world’s most consumed edible oil that makes cookies tastier, soaps bubblier, crisps crisper, lipsticks smoother and keeps ice-cream from melting has seen a meteoric rise in prices over the year.

At a surge of more than 120 percent over the past year and burst through record 4,500 ringgit a tonne, Mid-May 2021, palm oil, that is used in a wide array of products, restaurants, and half of all packaged products found in supermarkets has been swept up in the global commodity rally.

And that has been, “mostly because farm crops have soared on weather worries and China ratcheting up its buying since last summer with August-December imports up 9 percent from a year earlier, perhaps for more cooking and manufacturing,” says Dorab Mistry, head of vegetable-oil trading at Godrej International.

“This will naturally lead to global food inflation and could potentially change consumption patterns in India and globally,” suggests a senior official at Unilever.

Reasons for price hike and implications on the domestic  market

Some of the major reasons for this abnormal price hike, apart from China’s buying spree has been, “the ultra-accommodative monetary policy, la Nina weather problems in palm and soya producing areas, labour problems in Malaysia due to Covid-19, aggressive bio-diesel thrust in Indonesia and renewable fuel from soybean oil in the USA and Brazil among others” says Solvent Extractors’ Association (SEA) President, Atul Chaturvedi.

Also, India is alarmingly dependent on imports (over 60 percent), which has remained unchanged over the years as there has not been any significant breakthrough in domestic production.

It is the biggest importer after China, therefore consumption in India is especially vulnerable to price hikes and global demand and supply vagaries.

According to Chaturvedi, in April 2021 imports were high but it is likely to get moderated over the year as India is a very price-sensitive market and high prices are hurting the demand.

“Even so, palm oil is still competitively priced compared to soya and sunflower oil hence its import may not be affected as much. However, sunflower oil imports will suffer as it is very highly-priced and soya oil import is also likely to be impacted. Overall we feel that for soya oil, for the full year November 2020 to October 2021, imports would be closer to 13 million tonnes or marginally lower, while sunflower oil imports may fall to around 1.75 million tonnes compared to 2.5 million tonnes in the previous year,” says Chaturvedi.

Recommendations offered

So, what are the options before the government to mitigate the unaffordable cooking oil prices?

Analysts say that it would be tempting to slash the rate of customs duty on palm, soya, and sunflower oils. But it is unlikely that it will exert any decisive impact. Overseas suppliers will soon jack up the rates, negating any advantageous price impact.

Central Organization for Oil Industry and Trade (COOIT) is not in favour of reducing import duty or for that matter removal of agri-cess from imported edible oils.

According to Suresh Nagpal, chairman of COOIT, it will only discourage farmers from sowing oilseed crop in the ensuing Kharif season, and they will have distrust towards industry and trade.

Instead, the trade body has suggested rollback of 5 percent GST on mustard seed and mustard oil as it will immediately lower edible oil price by Rs 7-8/kg.

It has also proposed that the government create a buffer stock of edible oils similar to what it has been done for pulses, which can then be distributed through public distribution system (PDS) to poor and can also be used for future market intervention, when required.

Meanwhile, the trade body, SEA, in a letter to the government has also suggested that the government “subsidise” edible oils by Rs 30-40 per kg and distribute it through PDS. According to it, the port-based refineries have adequate spare capacity across the coastline of India for this purpose. This will give relief to the poor from rising edible oil prices.

 “Though there are signs of bulls retreating, time will only tell whether it is ‘short-lived’ or going to be a permanent one,” says Chaturvedi. Meantime, SEA has submitted that the government freeze tariffs at lower levels, reduce agri-cess on imports and revisit customs duty reduction measures after the planting of Kharif crop.

“Our back of envelope calculation says $200 per tonne reduction in tariff value would give relief of around Rs 5,000 per tonne,” notes Chaturvedi.

Further, SEA advocates the need to curb speculation in the trading of oilseeds/edible oils on commodity bourses. “When oil prices were low around Rs 80-90 per kg the volatility permitted by commodity exchange was 4 percent. But now when prices have practically doubled, we should permit volatility only to the extent of 2 percent during the day. This will curb excessive speculation,” says Chaturvedi.  

For the long term, SEA said the government should not only increase oilseeds cultivation on a mission mode but also create a buffer of edible oils to stabilise the price situation.

Shampa Bahadur has been a business journalist for more than two decades. She has written for Business India, PTI Media TransAsia and India Infrastructure Publication Ltd among others. She has also written coffee table books. She can be reached at shampa@indoasiancommodities.in

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