Continuing Impact Of COVID-19 Restrictions

The country is waiting with bated breath as the countdown to the ending of the extended session of the national lockdown is around the corner, on 3rd May 2020. Various states have already started lifting the restrictions partially, based on local conditions, but the central government is not too happy with that. Prime Minister Narendra Modi has held video conferences with Chief Ministers to review the progress in the containment of the spreading pandemic. Indications coming out of the fourth such interaction with the Chief Ministers is that there could be a gradual, graded opening up of the lockdown.

The consensus of opinion, overall, is that there could be a further extension of the lockdown with a window of hope for the rural and lesser infected areas, where the lifting of the lockdown is expected to be around early May. In larger cities and towns, people seem to be resigned to see more extensions of the lockdown with no definite date for relaxation in the very near future. This is because of the continued spike in the number of positive cases coming out of these locations, specially in Maharashtra/Mumbai and New Delhi. Only when the graph plateaus and then shows a downward slide, can exemptions be expected.

India’s game plan of protecting its citizens even at the expense of choking of the economy is expected to continue. This is probably best for the longer-term recovery.

This extended period of lockdown is casting a huge shadow on edible oils. The consumption of vegetable oils in India in normal times was around 2 million metric tonnes every month. However, the impact of the lockdown is such that the monthly offtake has plunged to between 1.20 to 1.30 MMT.

The nearly 40% plunge in consumption is due to the continued closure of the Hotels, Restaurants and Cafeteria/Catering sector (HORECA). If the lockdown is lifted in stages across the country, especially in the rural areas, there could be a gradual increase in the consumption of vegetable oils, with the HORECA sector becoming active.

In 2019, the average monthly imports were in the region of 800,000 MT for palm oil. It has now nosedived to half, at less than 350,000 MT in March 2020. Challenges in the transportation of locally grown oilseeds has also contributed to regional imbalances.

To meet the shortfall in supply of domestic soft oils, imports have been stepped up. The import of soft oil has been steady and continuous. Last year, India imported 15.5 million metric tonnes of vegetable oils.  This year imports maybe in the range of 14 MMT, a drop of around 10% over the previous year.

The sealing of state borders at different locations has impacted the transportation of vegetable oils. Though vegetable oils come under the purview of ‘Essential Goods’, the bottle necks that vehicles have to encounter on the route to the drop off locations is adding substantially to the freight costs.

The fluid state of the economy will see GDP shrinking drastically for the April 2020- March 2021 period. Fitch, which had estimated the GDP growth to be a low 4.60% before the COVID-19 scare, has now revised its estimate to 1.80%. The only solace is that this estimate is amongst the best for the large global economies.

The pandemic has wrought havoc across the globe. Some sectors like travel, leisure, fine dining and branded luxury items are expected to bear the brunt of this fallout. In the post Corona era, we can expect significant changes in the eating and travel habits of Indians. This is expected to reduce the demand for food and, by extension, the cooking medium, edible oil. People will be wary of going out to eat, keeping an eye on the hygiene factor. The continued need for social distancing in eating establishments will also see the number of patrons they can accommodate, at any given time, to be sliced significantly.

The world is still in the grip of the COVID-19 virus and like the rest of businesses, the fortunes of palm oil have also been significantly impacted. One can only hope that the worst is behind us and pray for a better tomorrow.

Prepared by  Bhavna Shah

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