Burgeoning Edible Oil Imports and Price Shock(s)

The ever-increasing import bill of edible oil has become a chronic problem for India with edible oil being the third largest among imported goods in India, next only to crude oil and gold. There are structural issues in production, productivity, and trade of edible oils. These energy-rich crops are grown in energy-starved conditions where more than 70% of the area under cultivation is rain-fed and often cultivated with low-quality seeds in a fragmented landholding and outdated agri-management practices. It further studies the trade liberalisation measures of a liberal trade policy regime, lower import duties, duty-exemptions under free trade agreements, and changes that India has witnessed in consumption as well as retail of edible oil.

Oilseed crops, which produce vegetable edible oil, occupy a significant place in the Indian agricultural economy, as it is one of the main components of human food consumption. The increased consumption of vegetable edible oil can be attributed to the transformation towards the westernised diet in developing countries (Popkin 2003). Growing population, urbanisation, increased disposable income, brand awareness and preferences, health consciousness, flavour/taste-texture-colour of edible oil, family size, low oil prices, disincentive pricing, harvest and post-harvest losses, inefficiency of oil extracting plants, etc, affect the purchase and consumption of edible oil (Chaudhry et al 1998). The quality, packaging and prices, etc, also play a role in consumer’s purchasing behaviour (Ali et al 2013). Assuming the per capita consumption of more than 22 kg per person per annum, India’s total vegetable oil requirement has been estimated to be 33.20 million tonnes for 2022. It is anticipated that 13.69 million tonnes of vegetable oil will be produced from 45.64 million tonnes of oilseeds in 2022. The vast gap between demand and supply of edible oils over the years has forced on India a huge import bill of edible oils causing a considerable drain of foreign exchange.

Nearly 13–15 million tonnes (more than half) of edible oil is being imported annually to cater to the country’s annual consumption demand of about 23–25 million tonnes. The majority of these imports is palm oil, which accounts for 60% or about 7–9 million tonnes, with annual variations depending on domestic production, consumption and required deficit to be filled. Subsequent to the liberalisation of the edible oil sector in India in 1994, there was a sharp increase in the consumption of imported oil. Palm oil, not very popular in traditional Indian cooking and mainly imported, also saw a rise in consumption from just under 500 tonnes in 1994 to approximately 10 million tonnes in 2016 (USDA 2016), nearly 40% of the total consumption. Resultantly, India is the largest importer and second largest consumer of palm oil in the world.