Rising Prices of Edible Oils

News: Edible oil prices have risen sharply in recent months.

Details:

  • The prices of six edible oils — groundnut oil, mustard oil, vanaspati, soya oil, sunflower oil, and palm oil — have risen between 20% and 56% at all-India levels in the last year.
  • The prices of soya oil and sunflower oil, too, have increased more than 50% since last year. In fact, the monthly average retail prices of all six edible oils soared to an 11-year high in May 2021. The sharp increase in cooking oil prices has come at a time when household incomes have been hit due to Covid-19.
  • With rising incomes and changing food habits, consumption of edible oils has been rising over the years.
  • While mustard oil is consumed mostly in rural areas, the share of refined oils —sunflower oil and soyabean oil — is higher in urban areas.

Status of Production:

  • In 2019-20, domestic availability of edible oils from both primary sources (oilseeds like mustard, groundnut etc.) and secondary sources (such as coconut, oil palm, rice bran oil, cottonseed) was only 10.65 million tonnes against the total domestic demand of 24 million tonnes.
  • Thus, India depends on imports to meet its demand.
  • In 2019-20, the country imported about 13.35 million tonnes of edible oils or about 56% of the demand.
  • This mainly comprised palm (7 million tonnes), soyabean (3.5 millon tonnes) and sunflower (2.5 million tonnes). The major sources of these imports are Argentina and Brazil for soyabeen oil; Indonesia and Malaysia palm oil; and Ukraine and Argentina again for sunflower oil.

Global Trend:

  • The increase in domestic prices is basically a reflection of international prices because India meets 56% of its domestic demand through imports. In the international market, prices of edible oils have jumped sharply in recent months due to various factors.
  • Even the FAO price index (2014-2016=100) for vegetable oils, an indicator of the movement of edible oil prices in the international market, has soared to 162 in April this year, compared to 81 in April last year.
  • One of the reasons is the thrust on making biofuel from vegetable oil. There is a shifting of edible oils from food basket to fuel basket.
  • There has been a thrust on making renewable fuel from soyabean oil in the US, Brazil and other countries.
  • Other factors include buying by China, labour issues in Malaysia, the impact of La Niña on palm and soya producing areas, and export duties on crude palm oil in Indonesia and Malaysia.

Solutions:

  • One of the short-term options for reducing edible oil prices is to lower import duties. However, the edible oil industry is not in favor of reducing duties. If import duties are reduced, international prices will go up, and neither will the government get revenue nor will the consumer benefit. The government can rather subsidize edible oils and make them available to the poor under the Public Distribution System.