Overview on India Oils and Fats Market Dynamics
India’s edible oils imports and market shares are often the result of macro changes happening in the country’s domestic oils and fats market. The macro features mentioned include the ever changing of internal policies with regards to the domestic edible oils. One of the examples is the imposition of safeguard duty on MICECA which was politically driven. It was implemented successfully within a short period of time due to the aggressive lobbying by relevant local stakeholders.
It is widely known that India is heavily relying on the importation to supplement its domestic requirements. Imports of vegetable oils represent about 60% of its edible oil consumption. The country’s massive populations of close to 1.4 billion people will be the main factor that imports are likely to remain an important source of supply for the growing consumption. However, as mentioned many times, its actual level of imports will continue to be influenced by important trade policy changes, as well as other policies that have contributed to inadequate domestic oilseed production and an inefficient processing sector.
The supply-demand gap on the domestic oils and fats market that often leads to import requirements is illustrated in the chart below:
Chart 1: India Vegetable Oils Dynamics
However, 2020 saw India’s imports of major edible oils impacted by two major factors. Total imports decreased by 11.67% during Jan-Dec 2020 period compared to 15.88 million MT in Jan-Dec 2019. Palm oil import went down by 2.44 million MT or 24.28% compared to the same period last year. Two major factors were behind the decline. The first one was due to the significant drop in RBD olein imports during the whole year which reportedly only recorded 193,211 tonnes, as a result of a direct consequence of placement of palm olein from ‘Free’ category to ‘Restricted’ category in imported items. This represents a huge decrease of 93% from 2.52 million MT registered during the same period of 2019.
At the same time, the Covid-19 pandemic that struck the global market in March 2020 had caused a shift in demand pattern from HORECA to home consumption which ultimately saw the consumption of soft oils going up as the preferred household cooking oils. This can be seen from the increase in soybean and sunflower oil imports into the country. During Jan-Dec 2020 period, imports of soybean oil increased by 15.52% to 3.62 million MT, whilst imports of sunflower oil went up by 3.77% to 2.50 million MT.
Palm oil import represents 54% of total oils and fats imports in 2020; whilst the market shares for soft oils (soybean and sunflower oils) are at 27% and 18% respectively.
Chart 2: India Total Oils and Fats Imports
Palm Oil Market Share
There are many factors that drive the preference towards the usage of edible oils in India. These factors include prices, tastes as we as usage. As the main suppliers of palm oil to India, Malaysia-Indonesia market shares keep on switching due to the price factors. In 2019, Malaysia enjoyed a higher market share due to the duty advantage under MICECA.
In January 2020, India started to impose a restriction on refined palm oil products which saw a significant drop in the import of RBD palm olein (93%) throughout the whole year. Malaysia was greatly impacted by this move. It was reported that the imposition was done due to the influx of imports from the neigbouring countries as opposed to the geo-political issue that happened between Malaysia and India that many people had believed. The local industry see this move as a permanent solution to protect the local raw materials industry.
At the same time, CPO imports saw an increase into India. Malaysian CPO has always been pricier due to the supply and demand factors. Once the imposition on refined palm oil took place, the trade between Malaysia and Indonesia also changed. Malaysian CPO started to become cheaper sometime in April/May 2020 and India started buying from Malaysia almost immediately. Malaysia’s exports to India slowly gaining track from then onwards.
Chart 3: India Palm Oil Import Market Shares
Table 1: Malaysian Palm Oil and Palm Products Exports to India (MT)
|TYPE OF PRODUCTS||Jan-Dec 2020||Jan-Dec 2019||Difference (Volume)||Difference (%)|
Source: Malaysian Palm Oil Board
Current Duty Structure
On the 1st February 2021, the Indian government has decided to impose an Agriculture Infrastructure and Development Cess (AIDC) on palm oil. The import duty for crude palm oil has increased from 30.25% to 35.75%. The increase in the duty for the imported edible oil is to incentivize domestic oilseeds farmers to increase the productivity of domestic oilseeds and subsequently the oilseeds production.
Table 2: Latest Palm Oil Import Duty
|Products||As at Feb 2, 2021|
|Import Duty||AID Cess||Social Welfare Cess||Effective Duty|
|RBD Palm Olein||45%||0%||10%||49.5%|
For 2021, India is projected to import more than 7.5 million MT of palm oil and import could reach 9.0 million MT mark by the year 2024. Approximately between 60-65% of palm oil demand in India is used in the HoReCa sector and only 35% goes for household consumption. The IMF has projected a favourable and robust growth for India and this was also echoed by PM Modi. The availability of Covid vaccine is seen as the driving factor that will push up the economy and this will subsequently improve the HoReCa sector. It was reported that the first line workers have been getting their vaccines and this will be followed by the senior citizens.
The Agriculture Infrastructure and Development Cess (AIDC) that was recently introduced is meant to protect the end consumers due to the high inflation rate the country is facing at the moment. The cess is also to encourage the oilseed farmers as the additional cess will go to the agriculture usage only. The additional cess should not have much impact on palm oil exporters.
A rapid rise in consumerism and awareness for personal hygiene post-Covid 19 has led to the increase in the demand for personal care products, cosmetic, household goods as well as packed foods and beverages. Rising demand for these consumer products is subsequently driving demand for derivatives usage in fatty acids, fatty alcohols, glycerine as well as active pharmaceutical ingredients manufacturing.
MPOC through Mumbai office will continue addressing the negative perception of palm oil via social media and through better integration of marketing and promotional activities. To ensure level playing field for Malaysian palm oil and reach wider target audience, MPOC will continue working with the relevant stakeholders that include trade bodies, associations and policy makers. Of late, sustainability issue is reportedly gaining momentum in India and consumer engagement is one of the ways to address this subject matter.
Prices and policies are two crucial aspects in India’s vegetable oils market. Since prices are beyond our control, Malaysia needs to work on its bilateral agreements with India as it is the most effective way to gain market share for Malaysian palm oil. Bilateral agreements are a very important aspect that can completely change the trade dynamics. This was proven when MICECA took place in 2019, MPO exports went up drastically. Hence, Malaysia should work to get the advantage as far as policies are concerned which proved to be favourable in driving up MPO exports into the country.
Another trend to observe is despite the opening stocks being low, the purchases/imports have been on the ‘hand-to-mouth’ approach and people have been buying only what is required. These are all the factors that will determine the supply and demand for India in the coming months.
Prepared by Azriyah Azian
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