POINTERS: India - Major Market for Palm Products and Long Term Outlook

By: Dr. B. V. Mehta

Dr. B.V. Mehta is the Executive Director of The Solvent Extractors' Association of India (SEA), the largest and premier association in the vegetable oil industry and trade in India. Dr. Mehta obtained his graduation in Science (B.Sc.) and Master Degree in Law (L.L.M.) from Bombay University and also has Diploma in Marketing Management (D.M.M.). He was awarded Doctorate (Ph.D) for his thesis on “Impact of WTO on Indian (Edible) Oilseeds Sector and Safeguard Measures” in 2008. Dr. Mehta is representing Indian vegetable oil industry on number of Committees set up by the Government of India. He is also Member of National Oilseed Development Board (NOVOD), the highest policy making body of Ministry of Agriculture, Government of India. Dr. Mehta is connected with Indian vegetable oil industry since 4 decades and has in-depth knowledge of Indian oilseed sector and vegetable oil industry. He is on the panels of CNBC, ZEE NEWS & ET Now for commodity analysis and regularly contributing his neutral views which are very well appreciated by the trade and industry.

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Indian oilseed sector in the country has undergone a paradigm shift with import dependence almost doubling from 5.61 million tonnes in 2007-08 to 11.60 million tonnes in 2013-14 (from US$ 5 billion to US$ 10 billion (estimated) during this period. Demand supply mismatch arising from stagnant production of oilseeds at around 28-30 million tonnes, low productivity (about 50% to 70% of global yield average) with increasing demand of edible oils (at 18.3 million tonnes in 2013-14), together with lack of policy incentives are the key drivers of this shift.

Unless domestic production of oilseeds and manufacturing of edible oil do not go up significantly, India’s import dependence is likely to escalate over the next few years. The demand for edible oil is likely to increase from the current level of 19.3 million tonnes to 25.7 million tonnes in 2020-21 resulting increase in imports from 11.6 million tonnes to 16.3 million tonnes.

In 1999, Government of India created duty difference between crude oils and refined oils to encourage the value addition within the country. This led to setting up of new refineries in coastal areas viz. at Kakinada, Kandla, Haldia, JNPT and latest in Krishnapatinam. The current refining capacity is over 20 million tones whereas the utilized capacity is less than 50%.

Inverted duty structure by Indonesia and Malaysia changed import pattern in India in last 3 years. Since Oct. ’14, nil export duty has pushed the export from Indonesia and Malaysia to India. Import of edible oils by India is at record level. Nov’13 to Oct’14 import is up by 11.7% compared to previous year and reported at 11.62 million tonnes compared to 10.4 million tonnes. Due to high growth in income levels, increasing trend in spending and better living standards; India promises to continue high growth in consumption of edible oils. India has a promising demand growth due to per capita income of Indian particularly middle class who constitutes nearly 50% of the population, rising by 10-12% per annum. Change of food habits is also increasing the demand for food items including edible oils.

India needs at least 800,000-900,000 tonnes of additional edible oil every year to meet the growing requirements. India’s Import dependence will further increase in 2014-15 due to lower oilseed crop and rising demand and may be importing over 12.5 MnT. Domestic production is not catching up with the growth in consumption and hence Indian imports may increase faster in coming years and may reach over 16.0 MnT by 2020-21 in normal scenario.

Conclusion
India has been an importer of edible oil for long years because of a mismatch between demand and domestic production. In recent years, the supply shortfall has widened rapidly, driven by rising incomes and population pressure.

Every increase in income translates to a rise in demand for food products including cooking oil. Consumption-driven demand growth has outstripped domestic supply growth, increasing the country’s import dependence.

How much of this incremental import demand of vegetable oils, particularly palm oil or soft oils, will be able to garner, would of course, depend on relative prices of various oils, tariff structure, landed cost, domestic supply and likely change in policy for import of oilseeds. It would be in the vegetable oil producers’ interest to look at India as a large market that is going to be available for a very long-term – for long years – and do all that is required to sustain and service it.

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Questions & Answers (3) :

Bhavna Shah

8 years ago

Dear Dr. Mehta, Thank you for the very insightful presentation. Can you share your thoughts on what is in store for oils & fats industry in the upcoming Indian Union Budget on 28th February 2015?

POINTERS SECRETARIAT:
To safeguard the interest of farmer and encourage them to expand area under oilseed cultivation and counter the export duty by exporting country, Indian government may raise the import duty in the ensuring budget or later. ( Reply posted on behalf of Dr. Mehta )
8 years ago

Borhan

8 years ago

Dear Dr. Metha. Thank you for your impressive presetation. In your presentation, you say that India refinery is operating at 50% capacity. This has been reported every year. At this capacity utilisation, a lot of refineries will be losing money. Yet, they can still operate year to year. They must have an invisible hand in the market to help them to exist. Appreciate if you can explain the situation. Thank you.

POINTERS SECRETARIAT:
The price gap between RBD Palmolein and CPO used to be US$ 60-90 per ton, till Indonesia introduce of differential duty in October 2011 – higher duty on CPO (raw material) and lower duty on RBD Palmolein (finished product). Earlier, the capacity utilization was nearly 60%which has now gone down to nearly 40%-45%. Of course, since November, with zero export duty by exporting country, capacity utilization has increased. I am not sure how long zero export duty will continue? I may add many refineries switched over to refining of soft oil from Palm oil for capacity utilization, resulted into import of soft oil during 2013-14 jumped to 3.6 million tons from 2.1 million tons in 2012-13. Also, closing of refinery, overhead goes up and therefore, many times in spite of disparity, they continue operation at lower capacity to reduce overhead. ( Reply posted on behalf of Dr. Mehta )
8 years ago

Hazlan

8 years ago

Thank you for your informative paper. With the new Indonesian CPO export tax structure, Indonesia exported less CPO. Malaysia does not have much CPO to export as most CPO are refined. How does India oils and fats sector especially refiners respond to the reduced availability of CPO globally. Appreciate your view.

POINTERS SECRETARIAT:
In 2013-14, India imported nearly 6.25 million tons of CPO. Even in the 3 months of the current oil year (Nov.14 to Jan.15), the import of CPO has increased to 2.07 million tons compared to 1.57 million tons during the same period of the last year (2012-13), thanks to zero export duty by exporting countries. I am expecting the higher import of palm products by India during the oil year 2014-15 due to attractive price of palm products. I may add, considering the low biodiesel production prospects, availability of vegetable oil including palm oil for food baskets will increase and shall put the downward pressure on prices in coming months. India will continue to import CPO to utilize the domestic refining capacity. ( Posted on behalf of Dr. Metha)
8 years ago