Impact of Covid-19 On Indian Vegoils Business

COVID-19 has wormed itself into the consciousness of people around the world. It has laid bare the boundaries created by men. In its rampage across the globe, it has brought the high and mighty to their knees. India has been a late entrant to the visitations of this virus. Almost all those afflicted in India can trace the origin of the virus to foreign lands.

In an address to the nation on 24th March 2020, the Indian Prime Minister Modi declared a 21 days’ lock down of the country, starting midnight of the same day. The aim is to keep people locked in their homes to break the chain of transmission. This would reduce person-to-person contact and thus reduce the chances of infected persons passing it on to strangers. Severe restrictions have also been placed on vehicular movement which will impact movement of goods and people. Goods such as cooking oil, flour, sugar and pulses, are amongst some of the items that have been classified as essential commodities and exempted from the restrictions.

Though well-intended and necessary, these measures are bound to have an impact on the overall demand and supply of vegetable oils. Cooking oil manufacturers encounter challenges. Availability of labour for production and distribution is a huge problem. Many of the migrant population have uprooted themselves and hot-footed it to their native villages. Labour is reluctant to go to work for fear of being harassed on the way to work by over-zealous law enforcement authorities. With public transport having ground to a halt, commute to and from the work place has become a major hurdle. To keep their factories running, manufacturers have gone the extra mile by offering to provide transportation to workers. In many cases, workers were fearful of taking up this offer.

As edible oil is a liquid, it needs to be packed properly. Packaging materials are generally outsourced. As these activities may not come under the Essential commodities umbrella, units manufacturing tins, cans, card board boxes for packaging, etc.. may have to be shut down temporarily. Activities like packaging of edible oil, loading and movement are all labour intensive. Although, raw material is available for production, such labour shortages may force the major importers of vegetable oils and manufacturers of cooking oils to cease their operations. This could happen soon, in some cases as early as within the next 24 hours. 

All out efforts are being made to facilitate the movement of the required workforce but results on this front have not been very encouraging. Cross-border (between states) movement of goods is another challenge. There are reports of many consignments being held up at state border crossings as many states have sealed off their borders.

Port operations are also likely to come under stress. Like many other countries, India has imposed a requirement of ship/crew quarantine for a period of 14 days from the time of departure from last port of call. At the same time, more stringent checks of crews will be conducted before being granted free pratique. This will result in delays and demurrages, adding to the costs for importers, costs which they cannot absorb in these difficult times.

Few of the other challenges facing the trade and industry are: 

• although banks are in the exempt category, importers may find it difficult to get them to establish LCs for imports. Decision taking by banks is bound to take a hit,

• some ports have already declared Force Majeure, thus disclaiming any responsibility for delays,

• restrictive measures will definitely inhibit the movement of road transport, resulting in congestions at ports and shortage of space for imported goods,

• Ramadan exports to African/Middle Eastern countries have slowed down, further affecting demand for imports,

• all these factors may force some importers to also declare Force Majeure under their contracts with overseas suppliers,

• there are reports that the activities of some plantations in Malaysia/Indonesia may be affected as some workers are suspected of being infected. This may push up the prices of POP in the short term.

Vegetable oils is not the only affected segment. A similar dilemma also confronts certain other sectors. The IHPCIA is making a representation to the Government to include cleaning products, hygiene and personal health care products in the list of Essential goods. This is recognising the direct impact it has on the health and hygiene of the community.

It is anticipated that Indian edible oil imports could drop by 5% this year, from 14.9 MMT to 14.2 MMT. To say the least, the Covid19 threat has generated a lot of uncertainties in the trade. It is only hoped that the measures introduced in India and ASEAN will settle down and bring some degree of sense and stability.

Prepared by: Bhavna Shah

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