Edible Oil Market in India
Edible oils constitute an important component of food expenditure in Indian households. Historically, India has been a major importer of edible oils with almost 30-40% of its requirements being imported till 1980s. In 1986, the Government of India established the Technology Mission on Oilseeds and Pulses (TMOP) in order to enhance the production of oilseeds in the country. The TMOP launched special initiatives on several critical fronts such as improvement of oilseed production and processing technology; additional support to oilseed farmers and processors besides enhanced customs duty on the import of edible oils. Consequently, there was a significant increase in oilseeds area, production, and yields until the late-1990s. However, in order to fulfill its obligations towards various international trade agreements and also meet the increasing demand-supply deficits, India began to reduce import restrictions on edible oils in the late 1990s; and it was gradually brought under Open General License. This led to a significant slump in the domestic oil seeds market, as edible oil prices fell sharply in line with the low international prices prevailing at that time. Subsequently, the duty structure was modified so as to maintain a duty differential between crude and refined varieties in order to protect the domestic industry. Nevertheless, due to high import dependence, domestic edible oil prices remain highly correlated to international edible oil price movement, and this has resulted in volatility in the key credit metrics of rated edible oil companies. At the same time, edible oil companies with benefits of large-scale integrated operations, multi-product offerings and recognizable branded presence in retail markets have fared better as compared to small/medium-scale domestic oilseed crushers. The demand for edible oils in India has shown a steady growth at a CAGR of 4.43% over the period from 2001 to 2011. The growth has been driven by improvement in per capita consumption, which in turn is attributable to rising income levels and living standards. However, the current per capita consumption levels of India (at 13.3 Kg/year for 2009-10) are lower than global averages (24 kg/year).1 The Indian edible oils market continues to be underpenetrated and given the positive macro and demographic fundamentals it has a favorable demand growth outlook over the medium-to-long term. In terms of volumes, palm oil, soyabean oil and mustard oil are the three largest consumed edible oils in India, with respective shares of 46%, 16% and 14% in total oil consumption in 2010. Given the high price consciousness and varied taste preferences of Indian consumers, ICRA expects these three oils to continue to account for the bulk of edible oil consumption in the country. There has been a significant gap between demand and supply of edible oil because of limited availability of oil seeds and shifting of acreage to other crops in the domestic market. This gap has been met through imports, which account for almost 45-50% of the total oil consumption. In H1OY2010-11,2 edible oil imports were observed to be the lowest in the last three years in view of improvement in domestic oilseed production. Notwithstanding that, ICRA expects the high dependence on imported oils to continue in the foreseeable future due to anticipated domestic supply constraints and the high cost competitiveness of imported oils. Refined and crude palm oil (CPO) have accounted for the major portion of edible oil imports in India (74% in OY2009-10) mainly due to their relatively low prices and ample availability. ICRA expects the dominance of palm oil in imports to continue in the near-to-medium term. The Indian edible oil industry is highly fragmented, with the presence of a large number of participants in the organized and unorganized sectors. This has resulted in severe competition and inherently thin profitability margins. Further,...
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