India is the world s fourth

By: Dr M. ThamaraiKannan, Dr G. Palaniappan and Dr A. Sengottiyan EDIBLE OILS: Demand soaring Vegetable oil consumption in India has increased following a considerable rise in household incomes. To meet the rising demand, the country needs to import almost half of its edible oil requirement. India is the world s fourth largest vegetable oil economy after the United States, China and Brazil. Although India is a major producer of oilseeds, per capita oil consumption in India is only 10.6 kg/annum, which is very low compared to 12.5 kg/annum in China, 20.8 kg/annum in Japan, 21.3 kg/annum in Brazil and 48.0 kg/annum in USA. Vegetable oil consumption has increased following a considerable rise in household incomes and consumer demand. India imports almost half of its edible oil requirement, which makes it the world s third-largest importer of edible oil. The country buys soya oil from Argentina and Brazil and palm oil from Malaysia and Indonesia. Currently, India accounts for 11.2 per cent of vegetable oil import and 9.3 per cent of edible oil consumption. Oils commonly used in India India has a wide range of oilseed crops grown in its different agro-climatic zones. Groundnut, mustard/ rapeseed, sesame, safflower, linseed and nigerseed/castorseed are the major traditionally cultivated oilseeds in the country. Soyabean and sunflower have also assumed importance in recent years. Groundnut, soyabean and mustard together contribute about 85 per cent of the country s oilseeds production. Coconut is the most important amongst the plantation crops. Efforts are being made to grow oil palm in Andhra Pradesh, Karnataka and Tamil Nadu in addition to Kerala and Andaman and Nicobar Islands. Among the non-conventional oils, ricebran oil and cottonseed oil are the most important. Oilseeds of tree and forest origin, which grow mostly in tribal inhabited areas, are also a significant source of oils. Until 2002, the olive oil sector in India was predominantly unorganised. Olive oil has a small market and people largely use it more for cosmetic purposes than for cooking. Of late, though, Indians have started to move to better cooking media like olive oil for health and wellness reasons. And the domestic olive oil consumption is rising 25 per cent annually. Olive oil has always been placed October 2010 FACTS FOR YOU 7

Table I Production of Oilseeds, Net Availability and Consumption of Edible Oil in India (Quantity in million tonnes) Year Production of Net availability of Consumption of oilseeds edible oils edible oils 2000-01 18.440 5.499 9.676 2001-02 20.663 6.146 10.468 2002-03 14.839 4.664 9.029 2003-04 25.186 7.140 12.430 2004-05 24.354 7.247 11.789 2005-06 27.979 8.316 12.604 2006-07 24.289 7.370 11.587 2007-08 29.755 8.654 14.262 2008-09 (P) 29.971 8.756 15.264 Average 23.942 7.088 11.901 P=Provisional; Source: Ministry of Agriculture and Directorate of Vanaspati, Vegetable Oils and Fat somewhere between food and medicine and the biggest challenge is to educate Indian consumers on the benefits of olive oil as a cooking medium. Importance in the Indian economy Oilseeds and edible oils are two of the most sensitive essential commodities. India is one of the largest producers of oilseeds in the world and this sector occupies an important position in the Indian agricultural economy, accounting for the estimated production of 29.62 million tonnes of nine cultivated oilseeds during the year 2008-09. India contributes 6 to 7 per cent of the world oilseeds production. The export of oil-meals, oilseeds and minor oils increased from 5.06 million tonnes in financial year 2007-08 to 7.3 million tonnes in financial year 2008-09. In terms of value, realisation has gone up from Rs 55.14 billion to Rs 79.97 billion. India accounted for about 6.4 per cent of world oil-meal export. There are two major salient features that have significantly contributed to the development of this sector. One is the setting up of the Technology Mission on Oilseeds in 1986 and the programme of liberalisation under the government s new economic policy. The Technology Mission on Oilseeds in 1986 gave a thrust to the government s efforts for augmenting the production of oilseeds. This is evident by the very impressive increase in the production of oilseeds from about 11.3 million tonnes in 1986-87 to 24.8 million tonnes in 1998-99. There was some setback in 1999-2000 because of the unseasonal rain followed by inclement weather. The production of oilseeds declined to 20.7 million tonnes in 1999-2000. However, the oilseeds production went up to 27.98 million tonnes in 2005-06 and was 24.29 million tonnes during 2006-07 oil year. The production of nine major oilseeds reached about 30 million tonnes during 2008-09. The programme of liberalisation under the government s new economic policy allowed greater freedom to the open market and encouraged healthy competition and self regulation rather than protection and control. The controls and regulations have been relaxed resulting in a highly competitive market dominated by both domestic and multinational players. Localisation of the industry India is one of the largest producers of oilseeds in the world. The oilseeds area and output is concentrated in central and southern parts of India, mainly in Madhya Pradesh, Gujarat, Rajasthan, Andhra Pradesh and Karnataka. In India, oilseeds are grown over an area of nearly 27 million hectares across the length and breadth of the country. Groundnuts India ranks second in the world (after China) in groundnut production. The three southern states of Andhra Pradesh, Tamil Nadu, Karnataka and the western state of Gujarat together account for close to 80 per cent of the annual output in India. Regional trends in groundnut production indicate that the recent increase in groundnut yields has mainly occurred in Tamil Nadu due to increased area under irrigation projects. Although Tamil Nadu accounts for 12 per cent of the total area under groundnuts, it contributes to 22 per cent of the total production in the country. Rapeseed-mustard India ranks fourth (after China, EU and Canada) in the world in the production of rapeseed. Almost 40 per cent of the rapeseed output comes from the state of Rajasthan. Other major states include Uttar Pradesh (18 per cent), Madhya Pradesh (10 per cent) and Haryana (11 per cent). Yield improvements have taken place in all the major states, although Haryana has shown the maximum growth in yields in the last two decades. Soybeans In India, Madhya Pradesh is the leading state in producing soybean followed by Maharashtra, Rajasthan and Uttar Pradesh. On an average, Madhya Pradesh produces 74 per 8 FACTS FOR YOU October 2010

Table II Import of Edible Oils in India During 2000-01 to 2008-09 Year Quantity Value (million tonnes) (Rs million) 2000-01 4.177 59,765.3 2001-02 4.322 64,649.7 2002-03 4.365 87,796.4 2003-04 5.290 116,832.4 2004-05 4.542 107,556.5 2005-06 4.288 89,609.9 2006-07 4.217 95,805.3 2007-08 4.903 102,986.8 2008-09 (P) 4.094 125,355.4 Average 4.466 94,484.2 Source: DGCI&S, Kolkata, Ministry of Commerce and Industry cent of India s total soybean crop, Maharashtra 13 per cent, and Rajasthan 10 per cent. The crop has exhibited a vast potential as a monsoon season crop mainly in Central India, and is extending its coverage in the Southern parts of the country. Olive oil India relies on imports for its olive oil requirement, as the country has no olive cultivation locally except in a few pockets in Jammu and Kashmir and Himachal Pradesh. For the first time, Rajasthan government has tied up with an Israeli firm called Indolive and Indian company Plastro Plasson Industries to promote olive farming on 210 hectares in the state. In India, the major olive oil importing companies are clustered in the states of Delhi, Mumbai and Chennai. Citrus oils A number of citrus plants yield pressed oils. Some of the citrus oils, like lemon and orange oil, are used as essential oils, which is uncommon for pressed oils. Grapefruit seed oil, extracted from the seeds of grapefruit, was extracted experimentally in 1930 and shown to be suitable for making soap. The lemon oil, similar in fragrance to the fruit, is one of a small number of cold pressed essential oils used medicinally, as an antiseptic, and in cosmetics. Orange oil, like lemon oil, is cold pressed rather than distilled, consists of 90 per cent d-limonene, and is used as a fragrance, in cleaning products and in flavouring foods. Problems faced by edible oil industry High import duties on refined oil cause hardship to crushing mills. Most of the edible oil plants are already suffering from lower crop output and lower productivity of seeds. Local importers of edible oil make handsome gains by blending olein a cheaper alternative with almost all edible oils. This is illegal, yet 80 per cent (equivalent to the oil consumed in loose forms) of the edible oil sold contains 30 per cent olein, which is the liquid fraction of palm fruit and can pose severe risk to health. Low prices of edible oils (less than branded oils) attract consumers particularly in rural areas. Production and consumption pattern of oilseeds Depending on the period of cultivation, oilseeds are classified as kharif crop and rabi crop. The kharif crop, which is dependent on the monsoon, is harvested around October-November each year. On the other hand, the rabi crop is harvested around March-April each year. India is a vast country and inhabitants of several of its regions have developed specific preference for certain oils largely depending upon the oils available in the region. For example, people in the South and West prefer groundnut oil, while those in the East and North use mustard/ rapeseed oil. Likewise, several pockets in the South have a preference for coconut and sesame oil. Inhabitants of northern plain are basically hard fat consumers and therefore prefer Vanaspati a term used to denote a partially hydrogenated edible oil mixture. Vanaspati has an important role in our edible oil economy. Its production is about 1.2 million tonnes annually. It has around 10 per cent share of the edible oil market. It has the ability to absorb a heterogeneous variety of oils which do not generally find direct marketing opportunities because of consumers preference for traditional oils such as groundnut oil, mustard oil and sesame oil. For example, newer oils like soyabean, sunflower, ricebran and cottonseed and oils from oilseeds of tree and forest origin had found their way to the edible pool largely through vanaspati route. Through technological means such as refining, bleaching and de-odouraisation, all oils have been rendered practically colourless, odourless and tasteless and, therefore, have become easily interchangeable in the kitchen. Newer oils which were not known before cottonseed, sunflower, palm oil or its liquid fraction (palmolein), soyabean and ricebran oil have entered the kitchen. These tend to have a strong and distinctive taste preferred by most traditional customers. Market trends India is the world s fourth largest edible oil economy, after USA, China and Brazil, with 15,000 oil mills, 711 solvent extraction units, 264 vanaspati plants, and over 1000 refineries employing more than one million people. The total market size is Rs 600 billion and import-export trade is worth Rs 130 billion. India October 2010 FACTS FOR YOU 9

Table III Export of Oilseeds, Minor Oils and Fats and Oil Meals During 1998-99 to 2007-08 (Quantity in tonnes and value in Rs million) Year Oilseeds Minor oils and fats Oilcake/extraction Total Quantity Value Quantity Value Quantity Value Quantity Value 1998-99 139,000 5,154 196,000 6,146 3,627,000 20,429 3,962,000 31,729 1999-2000 240,000 6,636 237,000 9,186 2,677,000 17,369 3,154,000 33,191 2000-01 323,000 8,377 232,000 8,438 2,353,000 17,116 2,908,000 33,930 2001-02 373,000 8,604 209,000 5,813 3,022,000 21,181 3,604,000 35,597 2002-03 210,000 5,916 165,000 5,307 1,902,000 15,307 2,277,000 26,530 2003-04 385,000 12,873 262,000 10,966 3,371,000 30,650.6 4,018,000 54,495 2004-05 366,000 12,612 260,000 10,277 2,734,000 23,239 3,360,000 46,128 2005-06 418,000 13,145 184,000 6,359.7 4,457,000 35,636 5,059,000 55,136 2006-07 523,000 18,252.6 189,000 6,689.6 6,592,000 55,029.7 7,304,000 79,971.9 2007-08 603,000 27,560 199,000 9,140 5,463,000 71,254 6,263,000 107,954 Average 358,000 11,913 213,000 7,832.2 3,620,000 30,721.1 4,191,000 50,466.2 Source: Solvent Extractors Association of India, Mumbai being deficient in oil requirement, has to import 40 per cent of its annual consumption. The domestic turnover of the vegetable oil industry is Rs 700 billion and import-export turnover of about Rs 160 billion per annum consists of Rs 100 billion for import of edible oils and Rs 60 billion for export of oil-meals, oilseeds castor oil, groundnut oil and vegetable fats of tree-borne oilseeds. India s edible oil industry is growing at a compounded annual growth rate (CAGR) of 90 per cent. By rationalising the import duty, the growth rate of the sector was expected to rise up to 150 per cent by 2010. The total size of the olive oil market in India is around 4 million euro in terms of value and 2000 tonnes in terms of volume, of which Spanish companies command about 60 per cent share. Currently, India accounts for 7.4 per cent of world oilseeds output, 6.1 per cent of world oil-meal production, 3.9 per cent of world oil-meal export, 5.8 per cent of world vegetable oil production, 11.2 per cent of world vegetable oil import, and 9.3 per cent of the world edible oil consumption. India consumes over 4.5 million tonnes of palm oil and other palm oil products per annum, while domestic production of crude palm oil in India is hardly 60,000 tonnes per annum and rising very slowly. Foreign direct investment policy Foreign direct investment (FDI) up to 100 per cent is allowed in the Indian vegetable oils and vanaspati industry through the automatic route. Moreover, in the food processing sector and the private oil refineries sector, 100 per cent FDI is allowed through the automatic route. India, the world s biggest vegetable oil importer after China, buys almost half of its annual consumption of around 11 million tonnes, including palm oil from Malaysia and Indonesia and soya oil from Brazil and Argentina. The olive oil market in India is expanding rapidly. Spain is the largest exporting nation in this category and occupies the largest share of India s total import volume in this grade. It is closely followed by Italy, which occupies the next position in India s total import volume in this grade. Spain is the largest exporter of provisionally preserved olives to India. Italy is the second biggest exporter of provisionally preserved olives to India. Exports of all oilseeds such as groundnut, sesame seeds, sunflower seeds and mustard seeds, for consumption, have been streamlined and made free without any quantitative or licensing restriction. Impact of trade liberalisation practices The edible oils/oilseeds sector currently faces several challenges: 1. Oilseed cultivation is becoming increasingly unattractive due to low and unstable yields. 2. The technology mission on oilseeds had only limited success. Decreasing price of edible oils due to trade liberalisation may result in low prices for oilseeds resulting in poor supply response. 3. High import tariffs and nontariff barriers such as sanitary and phyto-sanitary (SPS) restrictions have made oilseed imports unattractive. 4. Low domestic output of raw materials combined with restricted import of oilseeds can lead to a high 10 FACTS FOR YOU October 2010

degree of under-utilisation of processing capacity. 5. The government s help to oilseed growers has been in the form of providing minimum support prices (MSP)) through its stocking policy and by imposing customs duties on imports of edible oils and oilseeds. 6. MSP policy does not appear to have worked as well in the case of oilseeds as it has been in the case of wheat and rice. 7. Import tariffs on edible oils tend to impose a large burden on consumers and help processors more than oilseed farmers. 8. Government intervention needs to balance the interests of different stakeholders in the oilseed complex. 9. Protecting the oilseed growers could make oil and meal products internationally uncompetitive. 10. Low-priced imported oils enjoy benefits to the consumers but tend to reduce the margins on domestic oils affecting processors and oilseed farmers adversely. 11. Thus, with trade liberalisation several issues arise, including the choice between protecting the seed sector as opposed to the processing sector. Both consumption patterns and cropping patterns are likely to be influenced by the choice of customs duties and the price differences maintained among various oils. 12. Imported oils account for close to fifty per cent of the total edible oil consumption. For example, soy oil is competitive due to its low price and the low duty it faces. Refined palm oil is also competitive due to its low price, even though it bears a high duty. This could affect Market Survey the prospects for other oils such as sunflower and rapeseed oils, both of them being priced relatively high and bearing higher duties. 13. The impact of such changes can have varying effects on consumers from different regions with varying tastes. Need of the hour The edible oil industry needs to be strengthened by raising productivity, ensuring a reasonable price to the farmers and levying import duties at a reasonable level. Dr M. ThamaraiKannan is an associate professor in commerce at Sri Vasavi College, Erode, and Dr G. Palaniappan and Dr A. Sengottiyan both are assistant professor in commerce at Kaamadhenu Arts and Science College, Sathyamangalam, Erode, Tamil Nadu October 2010 FACTS FOR YOU 11