Shortfall in production to Increase India’s Edible Oil Imports to $15 bn, says ASSOCHAM

07-11-2014

India, Nov 7 : India’s import bill on account of edible oils is expected to touch US $15 billion as against US$9.3 billion during 2013-14 due to 10% shortfall in oil seeds production in Khariffimpacted by El Nino effect, reveals ASSOCHAMlatest findings. Study brought out byASSOCHAMagri research wing revealed that major three Khariff oil seeds viz sunflower, groundnut and soyabean will witness a fall in production respectively by 35%, 31% and 1%.

As of now (till October mid), India has imported more than half of its domestic edible oil requirements, ASSOCHAM paper adds. Immediate impact of witnessing such a short fall in the production of groundnut and sunflower is due to volatility in their short run price movements. However, prices of edible oils since April 2014 reveal that there has been no perceivable build up in the retail prices of edible oils on the whole in India.

As against All India trend, D S Rawat, ASSOCHAM secretary general said, some regional level volatility in prices of edible oils has been noticed. First, movements in price of groundnut oil are highly volatile. Barring the southern region, they fluctuated widely in all four regions of India. Second, sunflower oil prices have declined in Southern and Western regions. Thus, there has been no significant impact of build-up of prices of these commodities despite their expected short supply from domestic sources.

The integration of domestic markets with international markets has, in fact, resulted in reducing price shocks of edible oils. However, dependence on imports have made India footing high import bill and invite volatility into the Indian market. Moreover, oilseeds and edible oil markets are not vertically integrated in India.

As a result, there exists asymmetry in transmission of prices from raw materials to final products and vice-versa. Another peculiarity of Indian edible oil market is the volume of edible oil imports is a function not only of demand, but also of speculative trading positions as well as the credit period and payment cycle.

Vulnerability of Indian edible oil market to international prices as well as supply chain imperfections can be seen from stock-to-use ratios. Industry stocking norms of the seasonal crops indicate that about 20 percent of the production should be in the form of stocks to meet the ongoing demand until arrival of the next crop in the market.

The stock-to-use ratio of edible oils in India remained at less than half the required levels indicating how much their prices are susceptible to volatility, Rawat said.

The import bill on account of edible oils into India during April-August period in the current fiscal has already jumped by 53.2% on year-over-year basis and September-October bill has been on a much higher side due to festive season, says the study.

Thus, in the current context imports have been helping the domestic market to ward off the adverse impact of short fall in the production of oil seeds in the khariff season. While, India’s deficient production of oil seeds is a well known fact, its skewed trade policy further adds to its high import dependency. There also exists a case of inverted duty structure as import of oil seeds has been subjected to higher customs duty than import of crude edible oils. There also exist restrictions on export of edible oils like groundnut oil from India.


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