Edible oil import to slow down as demonetisation hits consumption

Higher domestic oilseed crop, rising palm oil prices, weaker rupee are other factors that have impacted inward shipments of the commodity

Edible oil imports are expected to slow down, with domestic consumption and offtake taking a huge hit following demonetisation. The industry and the community of importers fear there will be a decline in future imports by about 20 per cent for a couple of quarters. Around 800,000-1,000,000 tonnes of edible oil inventory lying at the ports is being used to cater to domestic demand. Experts suggest import of the commodity in oil year November 2016-October 2017 will be lower by around 1.5 million tonnes lower than the volume in the previous oil year.

While import orders placed earlier are being honoured, one importer said that prior to placing orders, importers book space with shipping companies and lately, around 1.5 tonnes worth space booked has been cancelled. This will reflect in lower import of edible oil, going forward. While consumption during the last fortnight has been lower, supply has also been impacted due to logistics issues and a 50 per cent fall in demand for the oil from bulk consumers.

Another reasons that could impact imports are the fact that the price of palm oil in the international market is at a four-and-a-half year high. This coupled with a weak rupee makes imports unviable at a time when the oilseed crop in India is higher. The effects of demonetisation has mostly impacted consumption by bulk users. Dorab Mistry, director, Godrej International, said, "(Demonetisation) has disrupted normal business. It is estimated that imports will shrink and India will rely on its internal pipeline and stocks for current consumption. In the short term, this will have a bearish impact (on prices) on the market. Overall, for oil year 2016-17, availability of locally produced vegetable oil in India is expected to rise about one million tonnes." He forecasts palm oil prices in Malaysia -- currently at a near eight-month high of above 3,000 ringgit -- could go up further by 10 per cent before a correction sets in. He was addressing a conference in Bali on Friday.

Siraj Chaudhry, Country Head and CEO, Cargill Foods India said, "Currently due to the impact  of demonetisation, the supply chain has been disrupted, affecting consumption as well.

Apart from supply chain disruption, a major impact of demonetisation was also felt in discretionary spending. Gyan Choradia, Managing Director, WICOF Ltd said, "Offtake from restaurants, hotels and small eateries has fallen by 30-40 per cent. We see a 50 per cent reduction in expenses on marriages and religious functions, resulting in reduced demand from that segment which is one of the largest in India."

Choradia estimates, India's edible oil import to be lower by 1.5 million tonnes in oil year 2016-17. In 2015-16 India had imported 14.74 million tonnes of vegetable oil.