India’s import bill for edible oils is expected to grow by almost US$5bn this financial year as a result of the so-called El Niño factor.
Currently standing at US$9.3bn, edible oil imports will have shot up to US$14bn by the time the 2013-14 accounts close if the prediction of deficient monsoon rains plays out, according to a paper published by the Associated Chambers of Commerce and Industry of India. Furthermore, oilseed production is expected to drop this year by at least 8%.
Initial indications are that rainfall in the edible oil-growing states of Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Karnataka, Tamil Nadu, West Bengal and Andhra Pradesh will be deficient due to El Niño, hitting the output which in turn will result in higher import dependence on the edible oil.
El Niño is a band of warm ocean water temperatures that periodically develops off the Pacific coast of South America and reduces rainfall across countries including China and India.
Domestic price hike
Assocham secretary-general DS Rawat said problems from reduced production would be exacerbated by increases in demand.
“The demand of edible oil will continue to grow by 15% per annum due to increasing income levels and fast changing eating habits in rural India,” said Rawat.
“The demand for edible oil is likely to touch 2bn tonnes during 2014-15. [Its] import bill may also likely touch around US$14bn, resulting in a hike of domestic prices if adequate and timely corrective measures were not taken”.
The Assocham paper revealed that India’s import bill for edible oils went down by almost US$2bn. Despite increases in production in India, close to half of the country’s domestic requirements are being met by imports.
India faces the prospect of drought every fifth year—the last one being in 2009. According to Assocham, this indicates a possible drought this year in areas potentially receiving less than 10% rainfall.
Typically, El Nino conditions lead to either delay in the arrival of monsoons or deficient rainfall in the beginning of the June-September kharif season. India has been heavily dependent on imports for vegetable oils and pulses.
To counter shortages, Rawat called on the government to expand farm insurance cover, and to advise financial institutions to settle crop-insurance claims in drought hit areas quickly.
India produces soyabean, rapeseed, mustard and groundnut in particular among other oilseeds, but the small margin on these crops has been deterring farmers from planting them, and this will be a huge concern for policy planners.
Plagued by inefficiency
India’s oilseed processing sector has been plagued by a slew of technological and policy issues bringing low levels of efficiency and capacity. If oilseed cultivators have to be linked in an economically viable and sustainable manner to the oilseed value chain, the role of oilseed processing units cannot be underestimated, Assocham argued.
Moreover, the Indian oilseeds processing sector, the next link in the chain, is fragmented and small in scale. The way Indian companies store their grains makes operations costly and raises stockholding costs.
It also increases price risk to some extent as the industry could face volatility between the procurement grains and the sale of edible oil, thereby impacting margins. As a result, the marketing of oilseeds and their products is subject to a high degree of exploitation, and is self-degenerating.
To counter the negatives, Assocham called on the edible oil industry to take the initiative to increase oilseed production by promoting contract farming in this sector. It also urged players to co-ordinate the modernisation of oilseed production, processing, and the marketing of vegetable oils, oilseeds, and their by-products.
This, the association said, would help stabilise supplies at levels that would be fair to consumer and growers while increasing opportunities for employment in major growing areas.
Moreover, more funds should be allocated to implement an infrastructure of growers' co-operatives, which will put the functions of oilseed processing and marketing into the producer’s own hands.
Assocham also called on the industry to devise and implement a programme of investment and development that will enable growers to increase their oilseed production and returns, while also increasing the efficiency of the processing and marketing functions, through growers' own co-operatives.