The study brought out by the ASSOCHAM Agri Research Wing has revealed that the major three Khariff oil seeds viz sunflower, groundnut and soyabean would witness a fall in production respectively by 35%, 31% and 1%. As of now (till October mid), India has imported more than half of its domestic edible oil requirements, adds the ASSOCHAM paper.
The immediate impact of witnessing such a short fall in the production of groundnut and sunflower is due to the volatility in their short run price movements. However, prices of edible oils since April 2014 reveal that there has been no perceivable build up in the retail prices of edible oils on the whole in India.
However, as against All India trend, Mr. D.S. Rawat, ASSOCHAM Secretary General said, some regional level volatility in prices of edible oils has been noticed. First, movements in the price of groundnut oil are highly volatile. Barring the Southern region, they fluctuated widely in all the four regions of the country.
Second, Sunflower oil prices have declined in the Southern and Western regions. Thus, there has been no significant impact of build-up of prices of these commodities despite their expected short supply from domestic sources.
The integration of domestic markets with international markets has, in fact, resulted in reducing the price shocks of edible oils. However, dependence on imports have made India footing high import bill and invite volatility into the Indian market. Moreover, oilseeds and edible oil markets are not vertically integrated in India.
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As a result, there exists asymmetry in the transmission of prices from raw materials to final products and vice-versa. Another peculiarity of Indian edible oil market is the volume of edible oil imports is a function not only of demand, but also of speculative trading positions as well as the credit period and payment cycle.
The vulnerability of Indian edible oil market to international prices as well as supply chain imperfections can be seen from the stock-to-use ratios . The industry stocking norms of the seasonal crops indicate that about 20 percent of the production should be in the form of stocks to meet the ongoing demand until arrival of the next crop in the market. The stock-to-use ratios of the edible oils in India remained at less than half of the required levels indicating how much their prices are susceptible to volatility, said Mr. Rawat.
The import bill on account of edible oils into India during April-August period in the current fiscal has already jumped by 53.2% on year-over-year basis and September-October bill has been on a much higher side due to festive season, says the study. Thus, in the current context imports have been helping the domestic market to ward off the adverse impact of short fall in the production of oil seeds in the Khariff season.
While, India's deficient production of oil seeds is a well known fact, its skewed trade policy further adds to its high import dependency. There also exists a case of inverted duty structure as import of oil seeds has been subjected to higher customs duty than import of crude edible oils. There also exist restrictions on export of edible oils like groundnut oil from India. Table 6 contains information on domestic availability of edible oils in India.
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