Indian edible oil industry to grow at 6% annually till 2015 - Rabo India report

Aug. 6, 2010 - PRLog -- Mumbai, 05 August 2010: The Indian edible oil industry is expected to grow at a rate of 6 percent annually over the next five years, said Rabo India in its latest research report.

India relies heavily on imports to meet over 50 percent of domestic edible oil requirements. Through the years, India’s domestic production of oilseeds has not grown in line with edible oil demand. Lower levels of oilseed production have resulted in low capacity utilisation.

Key highlights
•   India is the fifth largest producer of major oilseeds in the world while the domestic edible oil market is estimated at USD 15 billion
•   India is expected to import 9 million tonnes of edible oil in 2009/10
•   Palm and soy oils constitute more than 95% of total edible oil imports
•   Increasing trend of consumer shift towards branded/packaged oil. Branded oil segment in India is annually growing at the rate of 20%, with sunflowers and soy oils leading the market

Domestic oilseed production not going to meet demand

The gap between demand and production of edible oil in India has increased sharply in recent years. Since 2000-01, production of oilseeds grew at the rate of 4.7% per annum, but edible oil consumption increased at the rate of 6.5% per annum. Additionally, further increase in areas under oilseed cultivation is a challenge due to lack of arable land and competition from grains and other cash crops.

"Under normal circumstances, oilseeds compete with food grains for acreage. However, due to government policies favouring production of competing crops over oilseeds, a higher share of irrigated land has gone to grains and cereals crop,” said Pawan Kumar, Rabo India Analyst. He further added, “Low quality seed, low access to inputs, poor farming practices, and the fact that much of India's oilseed crop is cultivated in unirrigated areas is the reason for oilseed productivity to be lower than the global average.”

Notably, India’s annual current per capita consumption of about 12.7 kilogrammes is well below the world average of 20 kilogrammes, thus providing growth opportunities for the Indian edible oil industry. These opportunities have attracted investments from some of the world’s leading global players.

Consumers shift towards cheaper oils

The domestic prices of various edible oils are largely correlated. Palm oil, being the cheapest oil, impacts the price movement of other oils. Palm, soy and rapeseed (mustard) together account for 73% of edible oil consumption in India, with palm oil accounting for 44% of total consumption. Market share of soy & palm oils have gained significantly over the years, due to increased access to imports. The strong growth of soy and palm oil consumption reflects Indian consumers’ sensitivity to prices.

Non-packaged oils are estimated to account for nearly 50% of consumption in both urban and rural markets. However, the development of the retail sector in India, backed by rising income levels, has provided an opportunity to sell branded packs especially in the urban markets. The branded segment is growing at 20% annually with sunflowers and soy oils leading the market.

Imports of palm & soy oil increasing

The failure of the Indian monsoon in 2009, and the resulting crop losses are likely to raise the vegetable oil import needs in 2010. This, in turn, will further impact domestic edible oil prices. High prices of domestic oilseeds make it economically viable to import cheap crude oil from origin and refine it at Indian ports.

“It is expected that India will import around 9 million tonnes of edible oil this year,” noted Mr. Kumar who authored the report. He further added, “As reliance on imported palm and soybeans is increasing, players are actively looking for plantation acquisition or development at a global level. The step to integrate backward will increase the profitability of industry players in the long term.”



Global palm & soybean prices impacting domestic prices

The domestic oil prices in India move largely in line with international price movements, especially for the oils which India imports.

To conclude, the Indian Edible oil industry is expected to grow 6% annually, and reach 20 million tonnes of consumption by 2015. Due to increasing demand and lower production, India will continue to depend on imports going forward.

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