India: The other oil crisis

Edible oil imports are expected to surge 10 per cent in the new oil year that begins in November, despite the expectations of higher domestic output this kharif. This is a matter of concern, as the imports will be required at a time when global edible oil prices are on the upswing due largely to their diversion to bio-fuel production.

What should engage attention is the underlying trend growth in demand (4 per cent and more). It is hard to match that with comparable growth in indigenous production. The danger therefore is that the country may soon face in edible oils the problem that it already faces with regard to pulses — the global bazaar will be unable to deliver the quantities required to feed Indian demand.
Supply-side constraints in the global market have already surfaced as huge capacities are coming up in many countries for producing bio-fuel from vegetable oils. While soyabean oil is the preferred choice of the bio-fuel industry in the US, rapeseed oil is the favourite in Europe. Palm oil, which is the major constituent of the Indian oil import basket, is also being routed to the bio-fuel sector in the major producing countries of Malaysia and Indonesia. All of this is driving prices northwards, and the landed cost of imported palm oil remains high despite frequent cuts in import duty. What should cause worry from a food security perspective is that the country’s dependence on imports for meeting its edible oil demand has already escalated to 40 per cent and is increasing each year. Like pulses and onions, edible oils are part of every-day diet and the political risks of a steady spurt in prices are another complicating factor.

What should the government do?

Business Standard