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Faced with disparity in the crushing and refining business, the edible oil sector is passing through a consolidation phase, with small units selling or renting out facilities to large ones for value-added products.
“With sustained fall in oil and elevated seed prices, domestic crushing units face a disparity of $40-50 a tonne. This means imported oil will be cheaper by $40-50 a tonne than through domestic seed crushing, Since the disparity continues for a few years, small units are renting out or selling their manufacturing facility to big players. There is widespread consolidation happening in the edible oil industry,” said B V Mehta, executive director, Solvent Extractors’ Association, the apex industry body with about 850 registered members.
For example, Gwalior (Madhya Pradesh)-based Advantage Oils has acquired the Bundi (Rajasthan)-based seed crushing and vegetable oil refining business of Bunge India, producer and distributor of the Dalda brand of edible oil, for an undisclosed sum. The Bundi unit’s seed crushing capacity is 800 tonnes a day and refining facility is 200 tonnes a day.
“There is enough domestic capacity to procure vegetable oil. Therefore, we sold out our Bundi manufacturing unit,” said a top Bunge official, on condition of anonymity, adding, “We retain our brands with us.”
Ruchi Soya Industries has also sold its 50 per cent stake in a Hyderabad-based Gemini Edibles and Fats India (GEFI) to Singapore-based Golden Agri International India Holding for $17.88 million (Rs 100 crore).
GEFI incurred losses for three out of five years since its existence, owing to unfavourable government policy, which made the edible oil business unviable. In FY14, GEFI recorded a net loss of Rs 4 crore, which, though small, is a significant loss for edible oil companies. Operating as a subsidiary of Golden Agri-Resources (GAR), the world’s second-largest palm oil plantation company, Golden Agri International is engaged in the production of palm-based edible oils and fats. With a market capitalisation of $5.7 billion, GAR has 470,600 hectares under palm plantation in Indonesia.
“GEFI had a lot of forex exposure, which due to depreciation in the rupee, turned out as losses. That apart, the company invested immensely in brand building and other promotional activities. The most striking of the reasons for the sell-off was the business un-viability,” said Pradeep Chowdhry, managing director of GEFI, producer of Freedom brand edible oil, in addition to cheese and fats.
The sector has recommended the government raise the import duty on crude palm oil to make the refining and fats business viable. Owing to a five per cent difference between crude and refined oil, the edible oil business has suffered immensely. Since the edible oil crushing and refining business offers disparity, large players are focusing on value-added segment, where business potential is quite high. “Producers of value-added products enjoy a different ball game all together. While primary edible oil producers face disparity, margins are high for producers of value-added soya products,” said Anil Agrawal, managing director, Sanwaria Agro Oils.
