The New Year began with hope, as India was slowly getting back on its feet from the economic havoc caused by COVID-19 last year. The initial months of 2021 witnessed economic growth and development but a rapid surge in COVID-19 cases in the second quarter led to a second wave. No strict lockdowns were implemented but several states imposed lockdown-like restrictions to curb the spike in cases and contain the spread. These restrictions had a microscopic impact on the economy compared to the first wave; but, many countries imposed stricter surveillance and quarantine rules for shipments from India, which created supply chain bottlenecks and, paradoxically, added fuel to the rising inflation.
India began its vaccination drive from 16th January, 2021. It had a slow start due to logistical issue, people’s hesitancy in taking vaccines and the emergence of a strong second wave. From a sluggish start, India has ramped up its vaccination drive and has crossed the 1.4 billion mark. More than 85% of the adult population is atleast partially vaccinated. According to the Health Ministry, more than 50% eligible population is fully vaccinated. Himachal Pradesh was the first state to achieve a 100% fully vaccinated status for its adult population. India managed to bring the second wave under control although its severity was unprecedented. As the country was well on the way to economic recovery, the new variant, Omicron, hit the world in November 2021 and India was not spared. Though it was too early to assert anything, Omicron cases have been spreading and several states are reinstating curbs as a precautionary measure.
The Union budget 2021-22 was presented by the Finance Minister, Nirmala Sitharaman, on 01st February, 2021. It is expected to design a roadmap for economic recovery despite the global economic crisis and the Covid-19 pandemic. The theme of this year’s budget focused on making India a self-reliant country, that is, “Atmanirbhar Bharat”. The budget sought to increase the domestic manufacturing sector across various fields. Due to the threat of the Covid-19 pandemic, the healthcare sector has been given more importance than ever before. Health sector budget allocation jumped 137% to USD 29.54 billion (Rs. 223,846 Crores) against USD 12.46 billion (Rs.94,452 Crores) in the previous year. The Government of India has imposed an Agriculture Infrastructure and Development Cess (AIDC) on certain items, including petrol, diesel, gold, edible oils and some imported agricultural products in an attempt to boost domestic agriculture infrastructure.
The first wave of the pandemic saw a rally in the prices of oilseeds and edible oils amid lockdown, supply fears and unusually high demand. The second wave of the pandemic experienced a further accelerated inflation. According to the State Civil Supplies Department and Union Ministry of Consumer Affairs, Food and Public Distribution, in May 2021, monthly average retail prices of six edible oils, Palm, Soyabean, Sunflower, Mustard, Groundnut and Vanaspati, reached their highest levels since January 2010. Changes in international prices have a direct impact on domestic prices of vegetable oils as India is highly dependent on imports. Global supply of vegetable oils had initially decreased due to supply chain issues in view of COVID 19 restrictions worldwide. Palm oil supply dived because of weather and labour shortage in Malaysia. Biofuel mandates have boosted local usage, especially in Indonesia, leaving a lower exportable surplus. Soyabean oil prices were spiralling because of dry weather in Argentina and increase in bio-diesel production, followed by high demand from China. Sunflower oil prices are high due to lower crop in Ukraine and Russia. High level of inflation during the struggle of adapting to the new normal has added to the woes of consumers. The import bill has witnessed a leap largely due to high international prices but the import volume has been at levels similar to last year.
Table 1: Import of Vegetable Oil in 2021
| OILS/FATS | JAN | FEB | MARCH | APRIL | MAY | JUNE | JULY | AUG | SEPT | OCT | NOV |
|---|---|---|---|---|---|---|---|---|---|---|---|
| SFO | 205227 | 116100 | 146970 | 184097 | 175759 | 175702 | 71838 | 71340 | 180608 | 116900 | 125024 |
| SBO | 88667 | 285973 | 284200 | 144020 | 267781 | 206262 | 379892 | 182459 | 235852 | 216920 | 474160 |
| RAPE/CANOLA OIL | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 12437 | 20215 | 19125 | 0 |
| COTTON | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| SAFFLOWER/KARDI | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| CPL | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| CPO | 767836 | 383995 | 506533 | 689731 | 755633 | 576890 | 451461 | 550760 | 844773 | 626307 | 477160 |
| CPKO | 10704 | 4500 | 17430 | 12064 | 11894 | 7377 | 250 | 11903 | 20894 | 8800 | 4212 |
| RBDPL | 2701 | 6000 | 2500 | 0 | 2075 | 3200 | 13895 | 187471 | 397386 | 58212 | 58267 |
| SPKFA | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| PKFAD | 180 | 0 | 0 | 0 | 0 | 0 | 452 | 5616 | 1500 | 4280 | |
| PFAD | 20604 | 34039 | 22610 | 23435 | 33271 | 25083 | 62836 | 32440 | 47844 | 12785 | 12461 |
| CPS/RBDPS | 750 | 8000 | 0 | 0 | 2485 | 1000 | 0 | 5000 | 8250 | 0 | 17183 |
| CCN OIL | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Source: SEA of India
Table 2: Import of Vegetable Oil in 2021 & 2020 (Jan- Nov)
| Oils/Fats | Jan-Nov 2021 | Jan-Nov 2020 |
Change (Vol.) |
Change (%) |
|---|---|---|---|---|
| SFO | 15,69,565 | 22,71,923 | -7,02,358 | -31 |
| SBO | 27,66,186 | 33,02,040 | -5,35,854 | -16 |
| RAPE/CANOLA OIL | 51,777 | 55,036 | -3,259 | -6 |
| COTTON | 0 | 0 | 0 | 0 |
| SAFFLOWER/KARDI | 0 | 0 | 0 | 0 |
| CPL | 0 | 0 | 0 | 0 |
| CPO | 66,31,079 | 60,83,354 | 5,47,725 | 9 |
| CPKO | 1,10,028 | 1,24,503 | -14,475 | -12 |
| RBDPL | 7,31,707 | 2,14,115 | 5,17,592 | 242 |
| SPKFA | 0 | 0 | 0 | 0 |
| PKFAD | 12,028 | 254 | 11,774 | 4,635 |
| PFAD | 3,27,408 | 2,50,915 | 76,493 | 30 |
| CPS/RBDPS | 42,668 | 61,876 | -19,208 | -31 |
| CCN OIL | 0 | 0 | 0 | 0 |
| OTHERS | 3,150 | 8,000 | -4,850 | -61 |
| TOTAL | 1,22,45,596 | 1,23,72,016 | -1,26,420 | -1 |
Source: SEA of India
The import of vegetable oils has remained at the similar levels as last year, but it has been the lowest for the second time in last six years. As seen from Table 1, during the month of September, 2021, import of edible oils set a record for shipments in single month. Also, Palm oil import in September 2021 has been highest since India started importing palm oil in 1996.
Table 3: Palm Oil vs. Soft Oils Market (Jan -Nov)
| Oils/ Fats |
Jan-Nov 2021 |
Jan-Nov 2020 |
|---|---|---|
| % | % | |
| Palm oil | 64.17 | 54.50 |
| Soft oils | 35.83 | 45.50 |
| Oil /W.E.F | 19th Dec, 2021 | 14th Oct, 2021 | 11th Sept, 2021 | 20th Aug, 2021 | 30th June, 2021 | 02nd Feb, 2021 | 27th Nov, 2020 | 01st Jan, 2020 | 01st Jan, 2019 | 14th June 2018 | 01st Mar 2018 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| % | % | % | % | % | % | % | % | % | % | ||
| Crude Palm Oil | 8.25 | 8.25 | 24.75 | 30.25 | 30.25 | 35.75 | 30.25 | 41.25 | 44 | 48.4 | 48.4 |
| RBD Palmolein | 13.75 | 19.25 | 35.75 | 41.25 | 41.25 | 49.5 | 45 | 49.5 | 49.5 | 59.4 | 59.4 |
| (Malaysia) | |||||||||||
| 55 | |||||||||||
| (Indonesia) | |||||||||||
| RBD Palm Oil | 13.75 | 19.25 | 35.75 | 41.25 | 41.25 | 59.4 | 54 | 59.4 | 59.4 | 59.4 | 59.4 |
| Crude Soyabean Oil | 5.5 | 5.5 | 24.75 | 30.25 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 33 |
| Refined Soyabean Oil | 19.25 | 19.25 | 35.75 | 41.25 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 38.5 |
| Crude Sunflower Oil | 5.5 | 5.5 | 24.75 | 30.25 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 27.5 |
| Refined Sunflower Oil | 19.25 | 19.5 | 35.75 | 41.25 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 38.5 |
| Crude Rapeseed Oil | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 27.5 |
| Refined Rapeseed Oil | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 38.5 |
| Crude Cottonseed Oil | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 38.5 | 33 |
| Refined Cottonseed Oil | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 49.5 | 38.5 |
Source: MPOC Intelligence
Last year the demand for soft oils surged due to the rise in household consumption, whereas this year the demand for Palm Oil has regained its momentum due to the opening up of the HORECA sector.
Table 4: Malaysian and Indonesian Share
| Palm Oil Share |
Jan-Nov 2021 | Jan-Nov 2020 |
|---|---|---|
| % | % | |
| Malaysia | 41.06 | 32.31 |
| Indonesia | 58.94 | 67.69 |
Source: MPOC Intelligence
The import share for Malaysian palm oil has increased significantly from last year. Indonesia imposed high export taxes and levies last year, which has further added fuel to the skyrocketing palm oil prices, and has made Malaysian Palm Oil more favourable to Indian importers. Government of India has adopted various measures to curtail high inflation in edible oils by changing the tariff value and custom duties several times.
Table 5: Changes in Customs Duties of Veg Oil
Source: Central Board of Indirect Taxes and Customs
After the introduction of AIDC during the 2021-22 Budget, import duties were slashed to lessen the impact of AIDC. When the international prices of edible oils saw a decrease and the domestic prices didn’t soften, the Government of India reduced import duty on palm oil on 30th June, 2021 to 30.25%. Later, on 20th August, 2021 the duties on crude and refined soyabean oil and sunflower oil were reduced. These revisions were time bound till 30th September, 2021 to protect the farmers and domestic industries. Also on 30th June 2021, the import policy for refined Palm oil which was restricted from 08th January, 2020 was changed to “free” till 31st December, 2021 and was later extended till 31st March, 2022. After the import policy change the import of RBD Palm olein and Palm oil increased tremendously and it is expected to upsurge in the first quarter of 2022.
While the move was meant to cool down domestic prices of edible oils, it failed to do so as international prices rose quickly to near record highs, anticipating a renewed demand from Indian buyers. To provide some relief to the consumers from the soaring prices of edible oil and considering the festive season ahead, the government further cut duties on 11th September, 2021, but the AIDC on Crude Palm Oil was increased to 20%. These duty cuts did not have any sunset clauses.
International prices of Soyabean oil, Sunflower oil, Crude Palm oil and RBD Palm olein increased by 1.85%, 3.15%, 8.44% and 10.92% respectively over the month of September 2021, nullifying the effect of the duty cut. To lower the woes of the consumers during the festive season, the Government of India again slashed the import duties on crude and refined oils with effect from 14th October, 2021. The AIDC was also reduced. The duty cut as well as reduction in AIDC is subject to a sunset clause, which makes these revisions valid up to 31st March, 2022. In addition, the Government further reduced import duty on RBD Palm olein by 5% on 20th December, 2021, being concerned with the skyrocketing prices.
Along with the duty cut in October, the Union Ministry of Consumer Affairs, Food and Public Distribution asked the States to impose stock limits on Edible oils and oilseeds till March 2022. The stock limit has been decided by the States and Union Territories based on the available stock and consumption pattern of their state. Uttar Pradesh was the first state to impose these stock limits and others followed.
Table 6: Tariff Value (January 2020- December 2021)
| With effect from | Crude Palm Oil | RBD Palm Oil | Other – Palm Oil | Crude Palmolein | RBD Palmolein | Other- Palmolein | Crude Soybean Oil |
|---|---|---|---|---|---|---|---|
| 31.12.20 | 992 | 1018 | 1005 | 1024 | 1027 | 1026 | 1072 |
| 15.01.21 | 1049 | 1061 | 1055 | 1064 | 1067 | 1066 | 1165 |
| 29.01.21 | 1013 | 1038 | 1026 | 1044 | 1047 | 1046 | 1127 |
| 15.02.21 | 1045 | 1070 | 1058 | 1076 | 1079 | 1078 | 1103 |
| 26.02.21 | 1082 | 1108 | 1095 | 1114 | 1117 | 1116 | 1123 |
| 15.03.21 | 1071 | 1097 | 1084 | 1103 | 1106 | 1105 | 1210 |
| 31.03.21 | 1131 | 1156 | 1144 | 1162 | 1165 | 1164 | 1302 |
| 15.04.21 | 1081 | 1105 | 1093 | 1111 | 1114 | 1113 | 1292 |
| 30.04.21 | 1163 | 1186 | 1175 | 1192 | 1195 | 1194 | 1312 |
| 13.05.21 | 1219 | 1242 | 1231 | 1248 | 1251 | 1250 | 1333 |
| 31.05.21 | 1222 | 1245 | 1234 | 1262 | 1265 | 1264 | 1452 |
| 15.06.21 | 1222 | 1245 | 1234 | 1262 | 1265 | 1264 | 1452 |
| 16.06.21 | 1136 | 1148 | 1142 | 1150 | 1153 | 1152 | 1415 |
| 30.06.21 | 1036 | 1059 | 1048 | 1065 | 1068 | 1067 | 1246 |
| 15.07.21 | 1029 | 1055 | 1042 | 1061 | 1064 | 1063 | 1228 |
| 30.07.21 | 1029 | 1055 | 1042 | 1061 | 1064 | 1063 | 1228 |
| 11.08.21 | 1029 | 1055 | 1042 | 1061 | 1064 | 1063 | 1228 |
| 31.08.21 | 1029 | 1055 | 1042 | 1061 | 1064 | 1063 | 1228 |
| 15.09.21 | 1130 | 1153 | 1142 | 1160 | 1163 | 1162 | 1328 |
| 30.09.21 | 1130 | 1153 | 1142 | 1160 | 1163 | 1162 | 1328 |
| 15.10.21 | 1203 | 1214 | 1209 | 1221 | 1224 | 1223 | 1388 |
| 30.10.21 | 1239 | 1252 | 1246 | 1259 | 1262 | 1261 | 1406 |
| 15.11.21 | 1268 | 1288 | 1278 | 1295 | 1298 | 1297 | 1421 |
| 30.11.21 | 1307 | 1327 | 1317 | 1334 | 1337 | 1336 | 1434 |
| 15.12.21 | 1323 | 1348 | 1336 | 1354 | 1357 | 1356 | 1450 |
Source: Central Board of Indirect Taxes and Customs
The Government froze the tariff structure at higher levels in June, 2021. Various industry members, alongwith several associations, requested the government to lower the tariff value and the tariff was revised immediately. In late July, 2021, the tariff was frozen at lower levels which have been on rise from September, 2021.
It was perceived that trading in commodity derivatives was leading to high food prices. In a bid to rein in prices, the Securities Exchange Board of India (SEBI) has suspended the trading of futures and options contracts including intra-day, for Wheat, Chana, Rapeseed-Mustard, Soyabean, Refined Soyabean Oil, Hipro Soyabean meal, Crude Palm Oil, Moong, NCDEX Soydex, with effect from 20th December, 2021, for a period of one year. Only squaring up of the existing positions has been permitted.
Despite vigorous efforts of the Government, the vegetable oil prices did not provide the consumers any relief. Skyrocketing international prices and farmers holding the soyabean crop with the expectations of high prices, low levels of mustard inventory due to off-season are collectively responsible for the inflation. However, there is high hope with the winter harvest of mustard, which might bring much-needed relief to the consumers. Conducive weather and record high prices have prompted farmers to expand their area under mustard and output is likely to jump by around 16%. The government and edible oil industry are looking forward towards the cooling of edible oil prices by February-March 2022.
The agriculture sector was going through a rough patch due to the disagreement of farmers and government over the three Farm Laws introduced in September 2020. Tensions continued between farmers and the government as they were unable to come on the same page. Hundreds of farmers, mainly from Punjab, Haryana and UP, are said to have lost their lives during the year-long agitation. Several rounds of negotiations took place between the Central Government and Farmers’ Union. The government efforts to convince farmers, using agricultural economists and scientists, fell on deaf ears. Hence, addressing the nation on 19th November, 2021, PM Narendra Modi announced that the three contentious farm bills would be repealed during the winter parliamentary session and urged the farmers to return to their fields and home.
The Government has set an ambitious objective to augment the availability and reduce the import of edible oils by increasing domestic production and productivity of oilseeds and oil palm. Prime Minster Narendra Modi, on 09th August, 2021, announced the National Mission on Edible oils – Oil Palm and USD 1.48 billion (11,040 crores) has been allocated for the same. Special focus has been given to North Eastern States and Andaman and Nicobar Islands as the agro-ecological climatic conditions in these states are conducive for Oil Palm cultivation. The NMEO-OP will bring additional area of 0.65 million hectares under oil palm plantation with 0.33 million hectares in North-Eastern States and 0.32 million hectares in rest of India in the next five years. A sunset clause has been set for 1st November, 2037, for this mission. This mission has been opposed by some sections of the society as they feel this mission can be disastrous for the environment, citing the harmful impacts seen in Malaysia and Indonesia. Some states like Arunachal Pradesh and Telangana have appreciated the efforts and have started to work towards making this mission a success. Though, in short term, it is not possible to meet the huge gap, there is a need to increase domestic production significantly over a period of time. Self-sufficiency in edible oils is a splendid vision which can provide much needed food security to the nation in an uncertain world order. It will bear fruits only if the Centre and the States work together and short-term concerns of food inflation are not allowed to dictate government policies towards trade and imports.
Prepared by: Bhavna Shah
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