Indian Edible Oil Industry

A report on size, structure and status of Indian edible oil industry

Indian Edible Oil Industry

The Indian edible oil economy is the world’s fourth largest after the US, China and Brazil, harvesting about 35 million tons of oilseeds against the world. Since 1995, Indian share in world production of oilseeds has been around 10 percent. Although, India is a major producer of oilseeds, per capita oil consumption in India is only 10.6 kg/annum which is 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 rise in household incomes and consumer demand. India imports more than half (54%) of its edible oil requirement, making it the world’s third-largest importer of edible oil. The country buys soya oil from Argentina & Brazil and palm oil from Malaysia & Indonesia. Currently, India accounts for 11.2 per cent of vegetable oil import and 9.3 per cent of edible oil consumption.

Oilseed cultivation is undertaken across the India in two seasons, in about 26 million hectares; mainly on marginal lands, dependent on monsoon rains (un-irrigated) and with low levels of input usage. Yields are rather low at less than one ton per hectare. Of the edible oil crops, only oil palm has the potential to increase the yield per hectare, in a short time with YPH of 4 to 6 tonnes oil per hectare. In addition, unlike annual oilseed crops that need to be sown every year, oil palm has a productive life of about 25 years. This is the reason, Indian Govt. has allocated 300 crores in current budget year to promote the oil palm cultivation and support the farmers during initial unproductive phase (4 years) of oil palm cultivation, this budget outlay would be continued for few more years to bring edible oil production to higher level and reduce the dependency on imports from south Asia.

Types of Oils commonly in use in India:

India has a wide range of oilseeds crops grown in its different agro climatic zones. Groundnut, mustard/rapeseed, sesame, safflower, linseed, nigerseed / castorseed are the major traditionally cultivated oilseeds. Soyabean and sunflower have also assumed importance in recent years. Groundnut, soyabean and mustard together contribute about 85 percent of the country’s oilseeds production. Coconut is most important amongst the plantation crops. Efforts are being made to grow oil palm in Andhra Pradesh, Karnataka, Tamil Nadu in addition to Kerala and Andaman & Nicobar Islands. Among the non-conventional oils, rice bran oil and cottonseed oil are the most important. In addition, oilseeds of tree and forest origin, which grow mostly in tribal inhabited areas, are also a significant source of oils.

The opening of India’s economy and increasing exposure to world trends in cuisine and other areas has slowly brought olive oil to the attention of health-conscious Indians. The growing popularity is shown in the increase in imports of olive oil, which has gone up from 2300 tonnes in 2007 to around 4500 tonnes in 2008. Demand is estimated to increase to 42,000 tonnes in 2012, with the growing middle class affluence and concerns about health and fitness.

Indian oil seed production scenario:

India is one of the largest producers of oilseeds in the world and this sector occupies an important position in the agricultural economy and accounts for an estimated production of 35 million tonnes of nine cultivated oilseeds during the year 2010-11 with a growth of 20% from 2006-07 production owing to

active promotion and support from Indian government. Fig. 1 shows the production of different oilseeds during the period of 2006-07 to 2011-12. Cotton seed production rose at a significant rate during last 5 years in India, because of increase in yield by usage of Bt cotton.

Groundnut, Soybean and Rapeseed, together account for over 80 percent of total cultivated oilseeds in India. Mustard seed alone contributes Rs.120,000 Mln. turnover out of Rs.600,000 Mln. oilseed based Sector domestic turnover. Cottonseed, Copra and other oil-bearing material too contribute to domestic vegetable oil pool.

Cotton

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Oil Seeds - Production in India2006/072007/082008/092009/102010/11May 2011/12

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Fig. 1 : Oil seeds production in India. (USDA –FAS data).

Domestic consumption and import of edible oils in India:

As mentioned earlier, per capita oil consumption in India stood at 10.6 kg/annum, with rising income levels and popularity of fast foods this figure would only grow to a much higher levels. However, oilseeds output and in turn, vegetable oil production have been trailing consumption growth, necessitating imports to meet supply shortfall. Fig.2 shows the consumption of different edible oils in India. Palm oil consumption has grown substantially during last five years and occupies about 44% of total edible oil consumption, followed by soyabean (16.7%), rapeseed (14.5%), groundnut (8.5%), cotton (7%), sunflower (5.5%) and others (4%).

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Edible Oil - India - Domestic Consumption2006/072007/082008/092009/102010/11May 2011/12

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Fig. 2 : Domestic consumption of edible oil in India. (USDA –FAS data).

Since domestic edible oil only supports 46% of domestic consumption, India imports the edible oils from different regions of world. India imports its palm oil requirements from South East Asia and soyabean oil from South America. As shown in Fig. 3, major share of Indian edible oil imports is occupied by palm oil, followed by soyabean and sunflower.

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Edible Oil - India - Imports

2006/072007/082008/092009/102010/11May 2011/12

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Fig. 3 : Edible oil imports of India. (USDA –FAS data).

Segment No. of Units

Annual capacity (Mln. T.)

Utilization %

Oil Mills ( Primary Crushing ) 15000 36 30-35%Solvent Extraction Plants 600 31 40-45%

Vegetable Oil Refiners 650 12 55-65%

Vanaspati ( Hydrogenated) Units 250 3 30-35%

Feed Mills 200 16 40-45%

Table 1 : Edible oil mill and refineries industry in India.

Oil meal:

year Total Soybean Rapeseed Groundnut Castor seed Rice Bran

2009-10 4500 3400 750 50 150 1502008-09 5421.6 4177.3 840.9 54.8 203.9 144.7

2007-08 5442.1 3902.8 933.3 82.7 330.5 192.8

2006-07 5170.7 3661.9 970.7 83.6 202.2 252.3

2005-06 4423 3425 533.3 138 201.3 125.4

2004-05 2690 1862 590 122 71 44

Table 2 : Oil meal exports from India (,000 tonnes)

Statutory Regulations:

The Vegetable Oil Industry is administered through the following regulation orders which are statutory in nature and derive their powers from the Essential Commodities Act: Vegetable Oil Products (Regulation) Order, 1998; Edible Oils Packaging (Regulation) Order, 1998; Solvent Extracted Oil, De-oiled Meal and Edible Flour (Control) order,1967.

Duty Regime:

Custom Duty: With effect from 1st April, 2008, the customs duty on crude and refined forms of Palm Oil, Palmolein, Palm Kernel Oil, Soyabean Oil, Rapeseed/Mustard Oil, Sunflower Oil, Safflower Oil, Groundnut Oil, Coconut Oil and some other Vegetable Oils has been reduced to zero percent and 7.5% respectively. The customs duty on all grades of olive oil has been reduced to 7.5 percent from the previous 45 percent on virgin olive oil and 40 percent each on refined olive oil and olive pomace oil.

Import Duty: The import duty on crude edible oils has been abolished and duty on refined edible oils has been lowered to 7.5%.

Value Added Tax (VAT): There are differences in the percentage rates and rules from State to State under VAT for oilseeds, oil meals, oilcake and oils. There is an element of 4% VAT on edible oils / oilseeds plus octroi and other local taxes on edible oils imposed by the state governments, which accounts to nearly 6 to 7%. The VAT on Olive oils is also charged at the rate of 4% by the Indian States.

Foreign Direct Investment Policy:

100% Foreign Direct Investment (FDI) is allowed in Indian vegetable oils and vanaspati industry through the automatic route. Moreover in the Food processing sector and the Private oil refineries sector 100% FDI is allowed through the automatic route.

Market Trends:

The total market size of Indian edible oil industry is at Rs. 900 billion and import-export trade is worth Rs.320 billion. India being deficient in oils has to import 50% of its consumption requirements.

Domestic edible consumption stood at 17 Mln. tonnes in 2011-12 and would reach 24.5 Mln. Tonnes by 2015 if the current growth rate of demand persists. Table 3, shows the projections in demand of edible oils along with changes in key drivers of demand (growth in population and per capita consumption).

Govt. of India has taken many steps to raise the domestic production of edible oils, as this would reduce the imports bill of edible oils (2nd after petroleum products). Some of the measures include raising minimum support for different oil seeds, allocation in budget for raising levels of the palm oil and soya bean cultivation.

The total size of the olive oil market in India is around 4 million euro in terms of value and 2,000 tonnes in terms of volume, out of which Spanish companies command a share of about 60%.

Currently, India accounts for 7.4% of world oilseeds output; 6.1% of world oilmeal production; 3.9% of world oilmeal export; 5.8% of world vegoil production; 11.2% of world vegoil import; and 9.3% of the world edible oil consumption.

Table 3 : Forecast of demand for edible oil consumption in India.

India consumes over 7.5 million tons Palm Oil and other Palm Oil Products per annum, while domestic production of Crude Palm Oil in India is hardly 60,000 tons per annum and rising very slowly.

Indian edible oil industry is dependent on imports, so the domestic prices are reflection of international prices. Any change in situation of countries like Indonesia, Malaysia, Argentina and Brazil would affect the domestic prices of edible oils, as was evident after the tsunami in Indonesia. Another factor affecting the prices of edible oils is the levels of biofuel usage in USA, in winter some of the vegetable oils are diverted to biofuels leading to higher prices.

Growing preference for branded edible oils, because of hygiene factors and health reasons.

Branded edible oils:

Branded segment of edible oils has clocked the growth of 15% during last few years and has good prospects for the future. It occupies about 25% of total edible oil market. But it is not uniform all over India, The branded edible oil market tends to be fragmented based on regional tastes. For eg. Tamil Nadu accounts for about 50 per cent of the total sunflower oil sales in consumer packs. While soyabean is the oil of choice for consumers in Madhya Pradesh, Maharashtra, Bihar and Punjab, sunflower oil is consumed mainly in the southern States and urban India, rapeseed in North, central and east India. While branded soyabean oil is growing at 20-22 per cent annually, the branded sunflower oil market is expanding at 6-8 per cent. Major national players in this segment include Adani Wilmar, Ruchi Soya, ITC agrotech, KS oils, NDDB, Bunge etc.

Localization 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.

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% 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 irrigation. Although Tamil Nadu accounts for 12% of the total area under groundnuts, it contributes to 22% of the total production.

Rapeseed-Mustard:

India ranks fourth (after China, EU and Canada) in the world in the production of Rapeseed. Almost 40 percent of the rapeseed output comes from the state of Rajasthan. Other major states include Uttar Pradesh (18%), Madhya Pradesh (10%) and Haryana (11%). Yield improvements have taken place in all the major states although Haryana shows 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 percent of India's total soybean crop; Maharashtra, 13 percent; and Rajasthan, 10 percent. 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.

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