Indian economy began on an optimistic note at the start of 2021. To boost the agricultural infrastructure, the government imposed Agriculture Infrastructure and Development Cess (AIDC) on imported goods in the Union budget 2021-22. However, to reduce the impact of the AIDC the basic custom duty on crude palm oil, crude soybean oil & crude sunflower oil was changed to 15% and the effective import duty for Crude Palm Oil has increased from 30.25% to 35.75%, whereas for Crude Sunflower Oil and Crude Soyabean Oil, it has remained the same at 38.50%. This increase in the import duty of palm oil had an impact on the imports which saw a fall from 0.8 million MT in January 2021 to 0.43 million MT in February 2021.
In March 2021, the second wave of the COVID-19 pandemic hit India badly making it an epicentre of the pandemic. To protect the economy, no strict lockdown was announced but many states imposed lockdown like restrictions based on the severity of the COVID cases. There were restrictions on movement, social gatherings and the HoReCa sector was only partially active in some areas which hit the Palm oil demand. The vaccination drive which was a ray of hope has also deflated due to shortage of vaccines. Following which many countries had imposed stricter surveillance and quarantine rules for shipments from India which created supply chain bottlenecks and also added to the rising inflation. The monthly average retail prices of all six edible oils, groundnut oil, mustard oil, vanaspati, soyabean oil, sunflower oil and palm oil soared to an 11-year high in May 2021.
As per the data released by the Ministry of Statistics & Programme Implementation (MoSPI), Consumer Price Index (CPI), eased marginally to 6.26% in June, 2021 compared to 6.30% in May, 2021. The Consumer Food Price Index (CFPI) or the inflation in the food basket, however, inched slightly higher during the month of June to 5.15%, from 5.01% in May, mainly due to a sharp rise in prices of oils and fats which surged 34.78% on year in June, 2021.
Table No. 1: Vegetable Oil Production
| Oil Year (Nov 2020 -Oct 2021) | Qty (million MT) |
|---|---|
| Production of Oilseeds* | 36.5 |
| Net Availability of edible oil from domestic sources* | 11.3 |
| Total Imports (Jan- June 2021) | 6.21 |
* Based on 3rd Advance Estimates (declared by Ministry of Agriculture on 25.05.2021
The erratic monsoon has led to a reduction in the sowing area of kharif crops adding concerns to already high levels of inflation. As per Indian Meteorological Department, there has been only 1.4% less than normal rainfall. However, it has been distributed unevenly, as per the Agriculture Ministry’s data the uneven distribution has led to over 3% decrease in the area under Kharif sowing as of 23rd July, 2021 over the normal sowing during the same period.
Table No. 2: Imports of Veg Oil and Fats (2021)
| OILS/FATS | JAN | FEB | MARCH | APRIL | MAY | JUNE | TOTAL |
|---|---|---|---|---|---|---|---|
| SFO | 205.23 | 116.1 | 146.97 | 184.1 | 175.76 | 175.7 | 1003.86 |
| SBO | 88.67 | 285.97 | 284.2 | 144.02 | 267.78 | 206.26 | 1276.9 |
| RAPE/CANOLA OIL | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| COTTON | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| SAFFLOWER/KARDI | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| CPL | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| CPO | 767.84 | 384 | 506.53 | 689.73 | 755.63 | 576.89 | 3680.62 |
| CPKO | 10.7 | 4.5 | 17.43 | 12.06 | 11.89 | 7.38 | 63.96 |
| RBDPL | 2.7 | 6 | 2.5 | 0 | 2.08 | 3.2 | 16.48 |
| SPKFA | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| PKFAD | 0.18 | 0 | 0 | 0 | 0 | 0 | 0.18 |
| PFAD | 20.6 | 34.04 | 22.61 | 23.44 | 33.27 | 25.08 | 159.04 |
| CPS/RBDPS | 0.75 | 8 | 0 | 0 | 2.49 | 1 | 12.24 |
| CCN OIL | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Others | 0 | 0 | 0 | 0 | 0.75 | 0.5 | 1.25 |
| TOTAL | 1096.67 | 838.61 | 980.24 | 1053.35 | 1249.65 | 996.01 | 6214.53 |
Source: SEA of India
As seen from Table 2, in May, there has been a 35% rise in the imports of soft oils compared to previous month while POP rose only 10% during the same period. This shift can be directly attributed to reimposition of lockdown like restrictions in most parts of the country in wake on second wave of COVID 19 Pandemic where there is a consequent shift from HoReCa to households consumption who always favour softs oils. There has been a drop in Sunflower oil imports due to high premium over Soyabean oil. The demand for sunflower oil is likely to be affected in coming months.
Table No. 3: Palm Oil Stocks and Imports
| Month (2021) |
Palm Oil Stocks (000’MT) | Palm Oil Import (000’MT) | ||
|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |
| January | 401.7 | 657.5 | 802.8 | 633.5 |
| February | 317.9 | 672.6 | 436.5 | 563.3 |
| March | 213.2 | 533.1 | 549.1 | 350.0 |
| April | 244.6 | 497.4 | 725.2 | 388.7 |
| May | 314.8 | 315.1 | 806.1 | 423.4 |
| June | 316.8 | 330.2 | 614.1 | 597.7 |
Source: MPOC Intelligence
Higher imports in May and fall in local consumption due to inflated prices led to a soaring domestic stock availability of vegetable oil at ports subsiding June Palm oil imports. Ever since the pandemic the prices of vegetable oil have been on a boil. High inflation amidst the pandemic hit lockdowns and economic woes has placed consumers under reeling pressure. To curb the rising inflation, the Government of India on 29th June, 2021 reduced the basic customs duty by 5% on Palm oil and on 30th June, 2021 the import policy for RBD Palm oil and RBD Palmolein was changed from restricted list to free list. Also, to protect the farmers and domestic industry the duty change is effective till 30th September, 2021 and import policy change till 31st December, 2021.
Table No. 3: Forecast for Palm Oil
| Month (2021) | Palm Oil Import Forecast (000’MT) |
|---|---|
| July | 750 |
| August | 800 |
| September | 825 |
| October | 825 |
| November | 800 |
| December | 800 |
Source: MPOC Intelligence
Consumer sentiment was also hit, but as the second wave of the pandemic has eased, the destructive impact on the economy has also started to witness a downward fall with restrictions easing and increase in the vaccination pace. High volatility in prices and local demand had kept vegetable oil traders on the brink. The demand for sunflower oil might see a downward trend, soyabean also will be slightly on the lower side. Despite these challenges, the demand for vegetable oils will gradually pick up specially Palm oil with festive season ahead. The opening up of HoReca sector will also add up to demand for Palm oil. Normal monsoons are also crucial to lower the destruction caused by the second wave. As kharif sowing is nearing its end there is very little scope for improvement. IMD has forecasted normal monsoon for August and September which might help higher sowing in Rabi season. Also, the time bound changes in import duty and policy might keep the imports on higher side. Steps have been taken by Government to boost Oil Palm and oilseed cultivation in India. The Government of India has an ambitious objective to augment the availability of edible oils and reduce the import of edible oils by increasing the production and productivity of oilseeds and oil palm.
Prepared by: Bhavna Shah
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