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Adding to the woes of farmers, prices of most oilseeds and vegetable oils have declined in the last one month in major mandis in India amid similar global cues.
Crude palm oil (CPO) price in the benchmark Bursa Malaysia has fallen 12.5% in the last one month. It is currently trading at 2200 ringgit per tonne due to oversupply in major producing countries including Malaysia and Indonesia.
Falling crude oil prices have hit orders of alternative fuels for mandatory blending with petrol to meet the ongoing biofuel policy in developing countries. Consequently, renowned edible oil expert Dorab Mistry, Director of Godrej International, forecasts further decline in CPO prices going forward.
"The immediate outlook for prices is weak. There are too many uncertainties on the demand side and supply is very comfortable. It is therefore, CPO futures in Bursa Malaysia may decline to a low of 1900 ringgits by the end of September. Malaysian palm oil stocks should be around 3 million tonne by the by the end of November. I expect a gradual recovery in prices as production then declines and at that stage we are likely to see a range between 2100 ringgits and 2300 ringgits," said Mistry.
While the price decline in domestic market was restricted due to rupee depreciation, oversupply in major supply markets may keep prices under check in the future as well. Experts fear that oilseed farmers may divert to other remunerative crops, which may create a long term problem for Indian consumers and aggravate India's dependence on imports.
Data compiled by the apex industry body - Solvent Extractors' Association (SEA) - showed soybean price in Indore declined by 7.14% and is currently trading at Rs 32,500 a tonne.
"The correction was long overdue in domestic market as stockists are sitting on huge inventory. Over and above, acreage has also been higher this kharif season which may yield bumper output this year as well. So, we expect soybean prices to decline further to near minimum support price (MSP) level (Rs 26,000 a tonne)," said Davish Jain, President or Indore-based Soybean Producers' Association.
Among other oilseeds, sesame seed price has plunged 9.41% to Rs 77,000 a tonne and sunflower seed by 2.78% to Rs 35,000 a tonne in the last one month.
The government, therefore, needs to increase import duty of veg oil to protect the domestic crushing industry that is battling negative margins.
A senior industry official said the government should raise import duty to 15% for crude and 25% for refined oil from the current 7.5% and 15% respectively to protect the farmers.
Mistry estimates India's veg oil import at 13.8 million tonne in the oil year ending October 2015 as against 11.82 million tonne in the previous year. India's veg oil demand stands at around 20 million tonne.
Meanwhile, the Ministry of Agriculture estimates sowing area under oilseeds at 15.74 million hectares (ha) for kharif sowing season as against 15.23 million ha in the previous season.
