Edible oil firms increase share of branded & packed oil to fetch premiums

Change in consumer preferences, margin pressure cited as reasons for shift; loose oil's share falls from 70% to just 30% in five years

Faced with tremendous margins pressure, oil producers in India have shifted their strategies from selling loose oil in container form to value-added branded products.

The switch has helped large players like Ruchi Soya Industries, Adani Wilmar and Cargill to fetch premiums of up to 30% over loose oil in bulk containers. They also hope of an uptick in edible oil business with promotion of value-added products that offer health benefits.

As a consequence, the share of branded and packed segment in the entire edible oil demand has jumped up to 65-70% now from 30-35% five years ago, with a compounded annual growth rate (CAGR) of 15%.

“This is a natural transition with change in consumer preferences. There has been a rapid shift towards packed oil from loose oil in the last few years,” said Siraj Chaudhry, Chairman, Cargill India, the producer of NatureFresh, Gemini, and Sweekar brand edible oils.

While the government continued to raise the minimum support price (MSP) of oilseeds resulting into sustained rise in input cost, falling edible oil prices globally have made survival difficult for Indian oilseed crushers.

The government had continued raising minimum procurement price oilseeds by up to 100% in the last five years. The MSP of groundnut in shell was raised to Rs 4,030 a quintal for 2015-16 from Rs 2,300 a quintal for 2010-11, thus witnessing an increase of over 75%. Similarly, MSP of soybean (yellow) was raised to Rs 2,600 a quintal for 2015-16 from Rs 1,440 a quintal five years ago.

Surprisingly, prices of edible oil have slumped during the last five years due to global supply glut and reduced demand from bio-fuel sector. After setting the highest record of 3982 ringgit a tonne, crude palm oil (CPO) on the benchmark Bursa Malaysia slumped to 1800 ringgit a tonne in August last year. But, CPO price recovered thereafter to trade currently at 2454 ringgit a tonne.

“We were selling 65% of loose oil and the remaining 35% of packed oil five years ago, which has just reversed now. Within packed oil segment, we have focused more on branding. So, despite doubling of oil volume in the last five years, contribution of branded and packed segment has surged within our Group,” said Satendra Aggarwal, Chief Operating Officer, Ruchi Soya Industries Ltd, the producer of Mahakosh, Sunrich and a host of other edible oil brands. With branded segment in focus, the group has grown to Rs 18,000 crore now from Rs 8,000 crore five years ago.

Margin pressure, however, has resulted into shutting down of small and regional players which opened an opportunity for national brands to grab their market share. With 30% duty, import of oilseeds remains un-remunerative.

“Since oilseed availability has been either constant or declined in India, the government should reduce import duty on oilseeds to enable crushers to procure oilseeds from overseas markets. This will not only help India produce more oil and therefore reduce import dependence, but also produce more meals for bird and animal feeds,” said Atul Chaturvedi, Chief Executive Officer of Adani Wilmar Ltd, the producer of Fortune brand edible oil. Adani launched anti-diabetic ‘Vivo’ brand edible oil on Monday.

Data compiled by the Ministry of Agriculture showed India’s oilseed output at 26.68 million tonnes for 2014-15 as against 32.48 million tonnes in 2010-11.

India produces around 8 million tonnes of edible oils against its annual consumption of around 23 million tonnes. The difference is met through imports from Malaysia, Indonesia, Brazil and Argentina.