A sustained slowdown in domestic oilseed crushing activity has led to an increase in the import of vegetable (veg) oil in recent months. Consequently, overall import of veg oil shot up 73 per cent in the second quarter of the current oil year (November 2011–October 2012) as against 31 per cent growth in the first quarter, to meet a deficit created by lower production from domestic sources.
Data compiled by the Solvent Extractors’ Association (SEA) showed overall veg oil import rose 95 per cent to 897,404 tonnes in April alone, compared with 475,123 tonnes in the corresponding month of the previous year. During the last quarter of the current oil year, import surged to 2.52 million tonnes (mt) compared to 1.46 mt in the same period last year. With a marginal decline in the first quarter, owing mainly to increased availability from domestic sources on intensified local crushing, the overall import of veg oil recorded a 31 per cent increase at 4.71 mt, against 3.6 mt in the comparable period last year.
There is an abundance of oilseed inventory in domestic godowns for crushing. But mills are not keen on procuring seeds at the current price, which makes crushing unviable.
“Around 2.5 mt of soybean is lying with various stockists, traders, farmers and mills for crushing. At the current price of Rs 3,300-3,500 a quintal, soybean crushing is unviable. Since imported soybean oil works out cheaper, traders prefer imports to domestic crushing, which is unhealthy for the domestic industry,” said Rajesh Agrawal, spokesperson of the Soybean Processors’ Association.
Operating currently at 25-40 per cent of installed capacity, domestic soybean crushing mills are losing Rs 6-7 for every kg of refined soy oil production. Owing to farmers’ reluctance on releasing their holdings at a lower price, crushing units are currently abstaining from fresh purchase of soybean. They are operating with just manageable capacity and focusing on the packing and retailing business. Agrawal said the operating capacity of mills sometimes declines to an alarming low of 25 per cent.
An increase in the minimum support price (MSP) last year also held up the oilseed price throughout the season.
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Meanwhile, veg oil prices have shot up since the beginning of this year. The average price of RBD (refined, bleached and iodized) palmolein shot up to $1,205 a tonne in April this year, as compared to $1,091 a tonne in January. Similarly, the average price of crude palm oil has surged from $1,041 a tonne to $1,184 a tonne, crude soybean oil from $1,206 a tonne to $1,318 a tonne and crude sunflower oil from $1,180 a tonne to $1,295 a tonne.
According to B V Mehta, executive director of SEA, “This year, oil availability from domestic sources has declined due to lower crushing of seeds. Hence, traders are filling the demand gap through additional imports. Oil availability from local sources was high last year, due to positive crushing parity (conversion margin from seed to oil). This year, the parity turned negative.”
Farmers, however, would release their holdings in about a month when sowing of soybean and groundnut begins with the first monsoon rain. Either the edible oil price would go up or the seed price decline to make crushing activity viable. Meanwhile, Agrawal urged the government to raise the tariff in tune with the market price to help edible oil prices rise marginally in the domestic market and improve the overall crushing condition. The tariff is an indicative price set by the government over which the import duty is imposed. It varies for different veg oils and has remained unchanged for six years.
Amid these circumstances, farmers are likely to bring additional area under kharif oilseed this season. Total acreage under kharif oilseed, therefore, is estimated to rise this season on high realisation last year, said Mehta.
According an estimate by the Central Organisation for Oil Industry & Trade, a trade body, total oilseed output rose 11.95 per cent in the 2011-12 season to 37.36 mt, compared to 36.17 mt in the previous year. Based on a normal monsoon (94 per cent) forecast by the India Meteorological Department, output may rise this year in proportion to the growth in acreage. According to an estimate, farmers are holding nearly 25 per cent of seed in anticipation of higher prices.