Besides the hydrocarbons (crude oil and natural gas), edible oil is perhaps the most critical item for Indian households, where our country is largely dependent on imports. In 2021 we imported ~US$17.5bn worth of animal & vegetable fats and oils.
Volume wise, the annual domestic consumption of
edible oils is around 25 million tonnes; whereas we produce less than 12
million tonnes. Thus we rely on imports for over half our requirements, making
India the third largest vegetable oil importer, behind USA and China, despite a
low per capita consumption of edible oil of less than 6gms a day.
Edible oils are a critical part of the Indian
way of cooking; besides being a key raw material for fast growing personal
care, detergent & soaps, processed food and chemicals. Palm oil is the most
preferred cooking medium for Indians due to its chemical properties and cheaper
cost. Palm oil can be stored much longer, remains stable, can be reused for
frying, can be easily blended with other cooking mediums easily, and costs
relatively much cheaper as compared to traditional mediums such as mustard oil,
ghee, coconut oil and groundnut oil.
Edible oil therefore is an important food
security issue for India that needs to be tackled on a mission basis.
Recent developments
For two months Russia has been engaged in a war
with the neighboring Ukraine. This war has materially impacted trade through
the Black Sea. The sunflower oil imports from these two countries have
collapsed by over 50%, and dwindled further, in these two months. The war has
also resulted in sharply higher hydrocarbon prices in the global markets as
Russia is one of the largest exporters of crude oil and natural gas. This has
resulted in increased focus on renewable sources and biofuels.
This all occurred when the Palm Oil and
Soybeans oil, two largest sources of vegetable fats globally, production was
suffering for 2 years due to (i) poor weather in Latin America, largets
producer of soybean; and (ii) poor availability of labor due to Covid, to pick
palm fruits in South East Asia. To add to this, poor weather conditions in
Canada and Europe also damaged the crops of other sources like Canola.
The prices of edible oil were rising sharply
for almost one year. Indonesia, the largest producer of palm oil, had tried to
discourage export by increasing duties on export. To tame the high inflation
and increased focus on biofuels, Indonesia announced restrictions on export of
palm oil.
In February 2022, the Indonesian Government
imposed an export restriction on Crude Palm Oil (CPO) and its derivatives in
the form of Export Approval to tackle the domestic shortage of cooking
oil. One of the requirements to obtain a PE was the fulfillment of Domestic
Market Obligation (DMO) and Domestic Price Obligation (DPO). The DMO and DPO
requirement obliged exporters of any kind of CPO products to supply CPO or
Refined, Bleached and Deodorized (RBD) Palm Olein domestically. Exporters were
required to sell an amount equal to 30% of their planned exports to the
domestic market at a predetermined price.
Last weekend, the Indonesian government sought
to further tighten the export restrictions.
Obviously, it is a matter of serious concern
for the Indian economy. Like hydrocarbons, the inflation in edible oil also has
a second and third impact on inflation as it is a key raw material for many
consumer goods and intermediate for industrial products.
The Indian government is taking steps to
increase self-reliance in edible oils. But these efforts will take a long time
to yield desirable results. For the next decade at least we shall remain
dependent on imports. So for now, get ready to pay more for your Vada Pav and a
plate of Chola Bhatura. For the poor, it’s a hard hit on their kitchen budgets;
and for most of the middle classes it’s an opportunity to cut on their
unhealthy fat consumption. No more Jalebi for me.
