India Ratings and Research (Ind-Ra) believes that edible oil inflation will remain in double digits in the near term, even with the recent steep cuts in the import duty by the government. This is due to India’s high import dependence on edible oils. In 2019-20 (November-October), 56% (2010-11 (November-October): 42.5%) of the domestic demand [1] was met by imported edible oils. However, a surge in global edible oil prices since 2QFY21 has put pressure on domestic prices, leading to higher retail inflation. Besides impacting domestic inflation, it has increased India’s edible oil import bill, thereby affecting the current account deficit. Vegetable oil is among the top 10 principal commodities in the country’s import basket since FY15.

The persistent gap in the demand and supply of edible oil has been on the radar of the union government for quite some time and several measures have also been announced in the past to address it. Most recent measure in this regard is National Mission on Palm Oil announced in August 2021 totalling INR110.40 billion to be used both for price assurance and production of crude palm oil to 2.5 million tonnes by 2030. Ind-Ra opines this along with the higher price support to other oilseeds are indeed welcome steps, but will play out only in the medium to long term. To provide near-term relief to consumers, the government announced a reduction in the import duties on crude edible oil firstly in September 2021 and thereafter in October 2021. As a result, the basic customs duty on crude edible oil has been reduced to zero till March 2022. However, Ind-Ra believes it is unlikely to provide much comfort to consumers as the reduction in import duty by India has been offset by a rise in global prices of crude edible oil. Malaysian palm oil market went up by about 150-170 ringgits (INR2,700-3,075) a tonne immediately after the duty cut announcement by the government of India. Against this backdrop, Ind-Ra believes the imports of edible oils to touch 13.15 million tonnes for the period November 2020 – October 2021 and edible oil inflation will remain elevated in the near term. 

According to Food and Agriculture Organisation (FAO) of the United Nations, world prices for vegetable oils have risen 59.3% till July 2021 compared to pre COVID-19 (February 2020) level. A combination of demand- and supply-side factors has pushed the global edible oil prices high lately. The demand-side pressures have been high because China has imported a large quantity of edible oils in anticipation of a return of the demand once the pandemic subsides. On the supply side, major exporting nations of palm oil namely Malaysia and Indonesia have faced labour shortages during the ramp-up of production. Production of soybean and sunflower oils has faced pressures due to higher biodiesel use and adverse weather conditions in the US, Brazil, Argentina, Ukraine and Russia. 

Ind-Ra opines the spurt in global prices, despite the lower imports volumes, has translated into higher domestic prices of edible oil. India’s imports volumes of vegetable oils fell by a fifth in 1QFY21 (compared to 1QFY19)[2]. However, with the lifting of lockdown and the festive season, there was a rise of 7.5% in 3QFY21. In 2019-20 (November-October), the import demand by India had fallen to 13.53 million tonnes from the record high of 15.57 million tonnes in 2018-19. The second wave in 1QFY22 also pushed the imports down by 6.3% relative to 1QFY20. The imports volume has been 9.86 million tonnes from November 2020 - July 2021 almost akin to the import demand last year during the same period. 

The imports bill for vegetable oil has been firming up since 2QFY21 due to the surge in global prices. This has stretched the imports bill to a record high of USD4,148 million in 1QFY22, pushing domestic retail as well as wholesale inflation of edible oil to the record levels in the 2011-12 series. At the wholesale level, edible oil prices increased by 46.9%, whereas retail level prices jumped by 30.5% in 1QFY22. In fact, acceleration in inflation both at the retail and wholesale levels for edible oil had begun in 4QFY20. At the wholesale level, it entered into double digits in the month of December 2019 and at the retail level, it entered into double digits with a lag of four months in April 2020. Edible oil inflation both at the wholesale and retail levels has remained in double digits since then. At the wholesale levels it remained in the range of 11.0% to 27.0% during December 2019 and February 2021 and at the retail levels it remained in the range of 10.0% and 26.0% during April 2020 and April 2021. Subsequently, edible oil inflation both at the wholesale and retail levels crossed 30.0% and have been there even in September 2021.


Edible oils have a share of 3.6% in the retail basket and 7.8% in the retail food basket. However, due to persistently high inflation, edible oil has been contributing higher than its weight to the retail inflation since 1QFY21. Edible oil contributed 17.5% to retail inflation in 1QFY22, which is highest among all the major commodity items in the retail basket. Its contribution to the retail food inflation was 46.9% in 1QFY22.  


The demand-supply gap for edible oils has been so large that the domestic-supply simply has not been able to catch up with the pace at which edible oil demand has grown. The net availability of edible oils from domestic sources stood at 10.66 million tonnes in 2019-2020 which grew at a CAGR of 0.9% from 9.78 million tonnes in 2010-2011. However, during the same period, the domestic edible oil demand grew fourfold. Consequently, the rising gap between domestic demand and supply had to be met through higher imports which increased at a CAGR of 6.5% during 2010-2011 and 2019-2020. As per the fourth advance estimates of oilseeds production, the domestic supply is expected to reach 11.17 million tonnes in 2020-21 but the domestic demand would touch 24.46 million tonnes. 

The acreage in the current Kharif season for oilseeds has been satisfactory with sown area at 19.61 million hectares as on 1 October 2021. This is more than the five-year average[3] (normal area) of 18.00 million hectares, but 0.27 million hectares less than 2020. Soybean has witnessed record sowing, but sowing of groundnut lags by 0.18 million hectares than the previous year. Key groundnut producing states such as Gujarat, Andhra Pradesh, Karnataka have seen lower acreage due to the uneven monsoon rainfall this year. Also, water reservoir levels[5] in the western region have been lower than the normal (81% as of 30 September 2021). This implies that overall production of groundnut (in Kharif and Rabi season) in 2021-22 is likely to be less than last year. This may keep upward pressure in the groundnut oil prices. In fact, the first advance estimates project the oilseeds production to be slightly lower than the 2021-22 production of 36.10 million tonnes[5].

Figure 4
Edible Oils Domestic Production and Imports

(million tonnes)

(%)

Oil year
(Nov-Oct.)

Production of oilseeds

Net availability of edible oils from all domestic sources

Imports

Total availability of edible oils

Oil extraction from seeds

Share of domestic supply

Share of imports

2010-11

32.48

9.78

7.24

17.02

30.12

57.46

42.54

2011-12

29.80

8.96

9.94

18.90

30.06

47.39

52.61

2012-13

30.94

9.22

10.61

19.82

29.79

46.50

53.50

2013-14

32.88

10.08

10.98

21.06

30.66

47.87

52.13

2014-15

26.68

8.98

12.73

21.71

33.66

41.36

58.64

2015-16

25.25

8.63

14.85

23.48

34.18

36.75

63.25

2016-17

31.28

10.10

15.32

25.42

32.29

39.73

60.27

2017-18

31.46

10.38

14.59

24.97

33.00

41.57

58.43

2018-19

31.52

10.35

15.57

25.92

32.84

39.94

60.06

2019-20

33.22

10.66

13.54

24.19

32.08

44.04

55.96

2020-21a

36.10

11.17

13.15/13.46b

24.46/24.77b

30.92

46.22/45.64b

53.77/54.35b

Notes: a Based on Fourth Advance estimates from Ministry of Agriculture & Farmers’ Welfare
b Two projections are made, one is based on current trends of vegetable oil imports from November 20-July 21 and the other based on trends from
August 20-October 20
Source: Oil Division, Ministry of Consumer Affairs, Food & Public Distribution, Ministry of Agriculture & Farmers’ Welfare, DGCI&S, Ind-Ra



[1] From Table 1.

[2] Due to aberration in FY21, comparisons are drawn over two-year ago levels.[1] from 2015-16 to 2019-20.

[3] Storage as percentage of live capacity at full reservoir level

[4] As per the fourth advance estimates from the Ministry of Agriculture & Farmers Welfare

[5] Due to aberration in FY21, comparisons are drawn over two-year ago levels.

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  • Paras Jasrai

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