Edible oil trade faces raw material shortage

The Indian edible oil industry faces a likely raw material shortage after May 2007 because of low kharif oilseed production and less-than-expected rabi output.

If 2006 was characterised by good local oilseed harvest and adequate stocks with state-run and private agencies, the scenario is likely to be dismal in 2007.

As per industry estimates, the country is likely to produce 12.8 million tonne of oilseeds during 2006-07 kharif sowing season (June-October), down 6.5 per cent from last year. The prospects for rabi oilseeds is also not encouraging.

Diminishing returns are driving the farmers away from oilseeds forcing them to shift to crops like wheat and pulses. As a result, oilseed acreage has shrunk, plunging the over $20 billion oilseed industry into a crisis.

Because of low domestic production, industry players see India importing a record 6 million tonne of vegetable oils in 2007 to meet growing consumption. The biggest challenge to the edible oil industry in the coming year will be from diminishing output due to better returns from competing crops.

"Already, we have seen groundnut acreage in the main growing state of Gujarat shifting to cotton and wheat this year and pulses eating up land secured for mustard sowing, which might happen next year as well if prices remain unremunerative," BV Mehta, executive director, Solvent Extractors Association of India, said.

India's total area under nine major oilseeds usually is 22-25 million hectares each year. However, due to shift in crops, the country's kharif groundnut production dropped to 3.6 million tonne in 2006-07 (Nov-Oct) oil year, from 4.4 million tonne a year ago.

In the case of mustard, industry players said that India might produce around 500,000 tonne less mustard than previous year's industry estimated production of 7.2 million tonne.