As India’s festive season unfolds, a sharp rise in edible oil prices is straining household budgets and raising costs for sectors like restaurants, hotels, and sweet shops. Last month, palm oil prices surged by 37%, with mustard oil following close behind at a 29% hike. This surge comes as retail inflation hits a nine-month peak, primarily fueled by climbing food and vegetable prices.
To ease this strain, the government has raised import tariffs on crude and refined edible oils, aiming to incentivize local farmers and encourage domestic oilseed production. By supporting local agriculture, the policy seeks to stabilize prices long-term and reduce the country’s dependence on costly imports.
Image Source: Pixabay
During the current festive season, edible oil prices have soared, placing immense strain on household budgets and increasing costs for restaurants, hotels, and sweet shops that rely heavily on these oils. According to the Times of India, palm oil prices alone have surged by 37% in the past month, while mustard oil, a household staple, has seen a 29% price hike over the same period. This spike in oil prices comes amid retail inflation hitting a nine-month high of 5.5% in September, primarily driven by rising vegetable and food costs.
This rise in prices reflects a deeper trend in India’s edible oil consumption. As per Prof. Venkateshwar from IIM Mumbai, “India has witnessed a dramatic rise in consumption of edible oils, from 17.70 kg per year in 2020 to 19.7 kg per year in 2023.” This increased demand has far outpaced domestic production, heightening India’s reliance on imports to satisfy both consumer and industrial needs. Despite significant growth in the area under cultivation over the last decade, the country continues to rely heavily on imports due to the challenges of low-yielding oilseeds and conventional farming methods, adds Prof. Venkateshwar.
Compounding these pressures, the kharif oilseed crops (June to October) are facing challenges this season. Soybean, the largest kharif oilseed, has been sown across over 12.5 million hectares—just above last year’s coverage. However, key production regions such as Madhya Pradesh and Maharashtra have experienced prolonged dry spells, impacting yield prospects. Groundnut crops in Gujarat and Karnataka are similarly struggling due to erratic rainfall. According to Gro Intelligence, a US-based agricultural data firm, similar conditions in 2017 led to a 24% decline in soybean production.
India’s edible oil imports witnessed a substantial increase of nearly 25% in 2022, reaching an import value of US$ 21.4 billion, up from US$ 17.2 billion in 2021. Palm oil remains the most imported edible oil, accounting for a significant 53% of total imports, followed by soybean oil at 24% and sunflower oil at 21%. This surge reflects rising domestic demand and the ongoing reliance on imports to meet the needs of one of the world’s largest edible oil markets. The increased import volume underscores the need for further investment in domestic oilseed production to reduce import dependency.
According to Prof. Mridul from IIM Kozhikode, “Technological constraints along with weather-related disruptions like droughts, affect the cultivation of oilseeds and increase its imports. We need to encourage technological breakthroughs, drip irrigation, and optimal water management for the crops in the oilseed sectors.” This observation highlights the key challenges facing India’s domestic oilseed production. Despite the country’s efforts to increase cultivation, various factors, both structural and technological, are holding back the sector from meeting its growing demand. As a result, India’s reliance on imported edible oils continues to rise. The main drivers behind these high imports are as follows:
Low Production: Farmers are hesitant to cultivate oilseeds due to the challenges posed by low-cost edible oil imports, which make it difficult for them to compete effectively in the market. Domestically produced oils like soya bean, mustard, and groundnut fulfill only 40% of the country’s demand. Additionally, the lack of robust price support mechanisms further discourages them from growing these crops, leaving them uncertain about the financial viability of oilseed farming.
High Demand: The demand for edible oils has surged, driven by factors such as rapid urbanization, a growing population, and rising income levels. As more people move to urban areas and have higher purchasing power, the consumption of edible oils has steadily increased, reflecting these socioeconomic shifts.
Low Oilseed Productivity: In India, oilseed productivity is significantly low, at less than half the global average of about one tonne per hectare. This gap is primarily due to limited access to advanced seed technology, which hinders farmers from maximizing their crop yields.
Traditional Farming Technology: The use of traditional farming methods by many farmers significantly affects productivity levels. These conventional practices often rely on outdated tools and techniques, limiting the potential for higher crop yields.
Last month, the government significantly raised import duties on crude soybean, palm, and sunflower oils, a move intended to increase the cost of imported edible oils and encourage domestic farmers to produce more oilseeds. The duty on crude oils has risen from 5.5% to 27.5%, and on refined oils from 13.7% to 35.7%, effective since September 14. This adjustment aims to support local agriculture by providing favorable prices for Indian farmers and incentivizing greater oilseed cultivation. Currently, India relies on imports for about 58% of its edible oil needs, positioning it as the world’s second-largest consumer and largest importer of vegetable oils.
With recent global price increases of around 10.6%, 16.8%, and 12.3% for crude palm, soybean, and sunflower oils respectively, the government’s policy seeks to create a competitive market for local producers. By prioritizing domestic production, this strategy aims to mitigate the impact of rising international prices, reduce import dependence, and help stabilize local edible oil prices. Ultimately, this approach is expected to make oilseed cultivation a more viable and profitable option for farmers, supporting them as they face global market pressures.
According to Professor Mridul, this policy shift offers temporary protection and import substitution opportunities for domestic farmers. However, he suggests additional measures, such as establishing floor prices to shield farmers from low-cost imports. Investments in technological advancements, he adds, would yield more durable benefits, enhancing consumer welfare and further supporting long-term self-sufficiency in edible oil production.
You must be logged in to post a comment.
Stay ahead in the dynamic world of trade and commerce with India Business & Trade's weekly newsletter.