Indian palm oil demand dips as food sector, households seek alternatives

Palm oil demand in India, the world's top edible oil importer, is set to plunge this year as coronavirus lockdowns slash food service sector demand and households opt for alternatives at the supermarket.

India's palm oil imports could plunge 20% from a year ago to 7.5 million tonnes in the 2019/20 marketing year ending on October 31, said Angshu Mallick, deputy chief executive of Adani Wilmar, a leading edible oil refiner in the country. That would be the lowest imports since 2010/11, according to data from India's Solvent Extractors Association (SEA).

"Hotels, restaurants are not opening the way we were expecting after the lockdown. People are not going out and eating the way they use to," Mallick said.

Edible oil consumption in India trebled over the past two decades as the population rose, incomes increased, and people started to eat out more.

Palm oil became the most widely used and imported oil but mainly for bulk buyers such as food processors and for use in restaurants. Indian households typically opt for premium alternatives such as sunflower oil and that has left palm vulnerable as lockdowns to prevent the spread of the coronavirus have reduced food consumption outside the home.

The impact of the shuttered food courts and street vendors is compounded by reduced demand at retail stores.

"We prefer buying sunflower oil. We never bought palm oil," said Mumbai native Pradnya Chavan, who has been cooking more meals at home since local eateries closed in late March because of the Covid-19 outbreak.

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Indian state governments have been providing palm oil to the poor at a subsidised price for years, which created the perception that it is not a premium product, industry participants said.

Palm oil accounts for nearly 43% of India's edible oil consumption, but "is still seen as very cheap oil," Sandeep Bhan, Chief Operating Officer for global trading at Malaysia's Sime Darby Oils, told industry officials in a webinar on June 26.

"Growth in the household consumption was replaced by soft oils with reduced market share of palm oil versus soft oils," Bhan said.

Palm oil has accounted for more than two-third of India's edible oil imports since 2010/11.

But that share could fall to 56% in 2019/20, the lowest since 1994 when New Delhi liberalised imports of palm oil, said Sandeep Bajoria, chief executive of Sunvin Group, an edible oil broker.

The drop in demand by a key buyer of palm oil could weigh on Malaysia's benchmark crude palm oil prices, which are currently at 2,366 ringgit ($553.71) per tonne.

Marketing Push

Indian consumer sentiment towards palm oil will need to change if the oil is to reverse its fall from favour among households, said B.V. Mehta, executive director of the SEA.

Of the 9 million tonnes of palm oil consumed annually in India, household demand accounts for only 1.6 million tonnes and comes mainly from rural areas in the south and east.

However, industry participants are at odds over how to capture more share among consumer buyers.

Indian companies should promote palm oil from "a bulk commodity to a premium category commodity," said Sime Darby's Bhan, who claimed middle class buyers are unaware of palm oil's health benefits.

Indian refiners, however, say palm oil producers Indonesia and Malaysia, respectively the world's largest and second-largest palm producers, should shoulder the burden of expanding sales in India.

The Indonesian Palm Oil Association (GAPKI) and Malaysian Palm Oil Board (MPOB) should collectively allocate funds to promote palm oil the way India's National Egg Coordination Committee successfully promoted eggs in the country, said Mallick of Adani Wilmar.