EDIBLE OIL SECTOR IN INDIA EDIBLE OIL INDUSTRY

March 22, 2013

E DI B L E O I L S E C T O R I N I N DIA I n d i a B e i n g t h e l a r g e s t Pr o d u c e r o f o i l s e e d s Y e t h a s t o I mp o r t O i l f r o m Ab r o a d .

3/22/2013

Course number:12MCE04 Course name: INTERNATIONAL BUSINESS Group Assignment No:31 Word count:2230

M e mb e r s Na me & E n r o l l me n t No :
K a r i s h m a G o ya l - 1 2 6 0 9 1 8 6 Ankita Agarwal-12609187 Aishna Jain-12609188 Shilpi Benerjee-12609189 Poonam Gupta-12609190 Kunal Singh-12609191

Page |1

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

T a b l e o f Co n t e n t s
Executive Summary ........................................................................... 3 Introduction ..................................................................................... 4 Objective & Methodology....6 Findings....7 Import Scenario...7 Export Scenario....10 Comparison 12 Consumption Scenario15 Reason... .16 Challenges in Indian Oil Sector .........17 Dependence on vagaries of monsoon 17 Lack of adequate seed multiplication.................. ....18 Production under energy started condition.18 Vulnerability to pests and diseases .....18 Weak infrastructure..18 Technical inefficiency of oil industry ...........................19 Weak transfer of technology .....19 Recommendations..........20 R e f e r e n c e s ....22

Page |2

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

E XE C UT I VE S UM M A R Y
India is one of the largest producers of oilseeds in the world and this s e c t o r o c c u p i e s a n i m p o r t a n t p o s i t i o n i n t h e a g r i c u l t u r a l e c o n o m y. India contributes about 6 -7% of the world oilseeds production. There has been a large gap between the domestic demand and production. Thus,the country meet half of its e dible oil requirements through import. To check the inflation, state owned trading companies may start increasing their overseas purchases. The policy and the business environment are conducive for the growth of the sector meeting the huge domestic demand and catering the international market as well. According to the latest reports found from The Ministry Of Agriculture, India the imports of vegetable oil in India has increased by 22% by February 2013.the reasons behind this increase are many such as population growth, rise in income levels, rise in spending power of the Indian population, more and more consumption rise and many more. India is into both import and export of the oilseeds but imports much higher quantit y of oil than exporting it. India impor ts maximum q u a n t i t y o f c r u d e P a l m O i l a n d e x p o r t s m a x i m u m q u a n t i t y o f S o yb e a n oil, the quantities of rest of the oilseeds are negligible but the quantity of imports of the other oils on the contrary is high. The paper aims to discuss the problem persisting in the Indian oil industry and to provide views on how can the Indian oil industry can o v e r c o m e t h i s s i t u a t i o n . I n b e s t i n t e r e s t o f t h e c o u n t r y, t o i n c r e a s e t h e yield of the oilseeds within th e country and to minimize its im ports it much produce more quantity of oilseeds, consume less, government should provide more remedies and must also work harder on the i n f r a s t r u c t u r e o f t h e i n d u s t r y.

Page |3

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

I NT RO D UC T I O N
India is one of the largest producers of oilseeds in the world and this sector occupies an important pos ition in the agricultural economy. Oilseeds and edible oils are two of the most sensitive essential commodities. India grows oilseeds on an area of over 26 million hectares, with productivity of around 1000 kg a hectare. But self reliance in edible oils is not in sight and the country imports almost half of its edible oil requirements. India has a wide range of oilseeds crops grown in its different agro climatic zones. Groundnut, mustard/rapeseed, sesame, safflower, linseed, inversed/castor are the major traditionally cultivated oilseeds. S o yb e a n a n d s u n f l o w e r h a v e a l s o a s s u m e d i m p o r t a n c e i n r e c e n t ye a r s . Coconut is most important amongst the plantation crops. Among the non-conventional oils, rice bran oil and cottonseed oil are the most important. The Indian edible oil industry is composed of some 15,000 oil mills, 600 solvent extraction units, 250 vanaspati units and about 400 refining units. The National council of Applied Economic Research has projected the demand for edible oils under three scenarios on the basis of per capita income growing annually by 4%,5% and 6%.Under the low growth scenario, the demand was to rise to 22.8 million tones ,under medium growth scenario to 25.9 million tones and under high growth scenario to 29.4 million tones in the near future. The edible oil industry is largely dominated by the bulk segment. Unbranded segment accounts f o r a n yw h e r e b e t w e e n 8 0 a n d 9 0 % o f t h e t o t a l c o n s u m p t i o n . I m p o r t s are taking place in two forms -refined and crude oil. A large pa rt of the crude oil gets sold as unbranded oil. The share of raw oil, refined oil and vanaspati in the total edible oil market is estimated at 35%, 55% a n d 1 0 % r e s p e c t i v e l y. With growing quality consciousness and plummeting price differences between packaged and non-packaged edible oils, the packaged edible

Page |4

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

o i l s e c t o r w i l l c a p t u r e 5 0 % o f t h e m a r k e t s h a r e i n c o m i n g ye a r s . T h e p a c k a g e d b r a n d e d e d i b l e o i l i n d u s t r y i s g r o w i n g a t 1 2 % a n n u a l l y. M a j o r P l a ye r s l i k e M a r i c o I n d u s t r i e s i s t h e m a r k e t l e a d e r w i t h i t s t w o main brands, Sweekar and Saffola, having 15% market share, followed b y ITC Agrotechs Sundrop at 13%. Godrej Foods has a market share of 11% and HLLs Flora has 3%. Cargil sells edible oil through Nature Fresh and Gemini brands, Ruchi groups with Ruchi G old and Mahakosh oil,Adani Wilmar Limited, owner of Fortune brand, National Diary D e v e l o p m e n t B o a r d ' s D h a r a b r a n d a n d o t h e r s m a l l p l a ye r s o w n r e s t o f the packaged edible oil market.

Page |5

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

O B J E CT I V E A ND ME T H O DO L O G Y
Objective- The objective of this paper is to find out the reason behind w h y I n d i a b e i n g t h e l a r g e s t p r o d u c e r o f o i l s e e d s ye t h a v e t o i m p o r t o i l to meet its domestic requirements. Methodology- We aim, at determining the reasons behind the increased imports of oil and we tend to achieve it via finding out the following. We have taken into consideration the Import data and Export Data of edible oil in India, Tariff data, Consumption rate of the edible oil w i t h i n t h e c o u n t r y, G r o w t h r a t e o f t h e e d i b l e o i l a n d D e m a n d r a t e o f the edible oil. The data sources are S ea data bank, http://www.indexmundi.com, ministry of Agriculture and research papers.

Page |6

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

F I N DI NG S
Import Scenario Below is the table showing the imports made by India of the Crude oil IMPORT OF EDIBLE OIL (QUANTITY IN TONNES) REFI CRU CRU CR CRUD CRU CRU TOTA NED DE DE UD E DE DE L PALM PAL SUNE SOYAB COC PAL IMPO OLEI M FLO RA EAN ONU M RTS N OIL WER PE OIL T KER. OIL OIL OIL OIL 463 62 139 50 111 22 907 58 989613 16693 10762 2 11197 3 84566 81775 46 88094 72 83649 58 99755 65

YEA R

12400 51870 59017 2008 18 63 5 2009 12134 51694 63000 2009 09 45 5 2010 10816 53743 80359 2010 86 33 3 2011 15773 59936 11348 2011 55 65 81 2012 Source-sea data bank

TOTA L IMPO RT OF CRUD E OIL 69375 28 75960 63 72832 72 83982 10

166649 2 100669 1 107900 4

4198

2967

1999

97903

From the above table we can see that India imports maximum quantity of Crude Palm Oil from Abroad and least quantity of Crude Coconut Oil and during the years we see that the quantity demanded of Coconut crude oil is decreasing but th at of palm, palmole, sunflower, rape and palm oil is increasing. Whereas, demand for Palm oil keeps on increasing initially and then declining.

Page |7

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

The above diagram is showing the growth in import of edible oil during t h e ye a r s 2 0 0 8 t o 2 0 1 2 . A s f r o m t h e d i a g r a m w e c a n s e e t h a t t h e i m p o r t for refined palmolei n has remained moderate through the years but the quantity is high. Crude Palm oil demand is maximum and demand for crude coconut oil is minimum. We can also see that the imports were c o m p a r a t i v e l y l e s s i n t h e ye a r 2 0 0 8 - 0 9 a n d h a v e k e p t i n c r e a s i n g thereafter which implies that the domestic need of oil in India has kept i n c r e a s i n g t h r o u g h t h e ye a r s . Page |8

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

The above diagram is showing the total amount of imports made by India in a form of a pie chart and the ex act share of every oil contributes in the total imports. It is clear that the highest imports are of Crude Palm oil and least are of Crude rape Oil.wh ereas,the demand f o r r e f i n e d p a l m l e i n , c r u d e S o yb e a n a n d C r u d e S u n f l o w e r o i l r e m a i n c o n s i d e r a b l y m o d e r a t e b u t ye t h i g h i n q u a n t i t y.

Page |9

EDIBLE OIL SECTOR IN INDIA Export Scenario

March 22, 2013

EXPORT OF OIL MEALS EXTRACTIONS(QUANTITY IN TONNES) YEAR SOYA RAPES GROUND RICE SUNFLO CASTOR TOTAL BEAN EED NUT BRAN WER SEED EXPORTS 41773 840901 54781 144696 203915 5421607 200814 2009 20092010 20102011 20112012 21143 91 38383 75 38295 21 752005 936238 1171895 5500 21480 2863 110933 66650 176725 1492 240466 209036 341308 3224787 5071779 5522312

Source-sea data bank

The above diagram helps in giving an insight on how much India is into ex porting the edible oil. We can clearl y see that India exports highest q u a n t i t y o f s o yb e a n o i l f o l l o w e d b y r a p e s e e d c o i l d e n c a s t o r s e e d o i l , Rest the quantity of groundnut oil, rice b ean oil is negligle and India does not export any quantity of Sunflower oil.

P a g e | 10

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

The above diagram helps to show with the help of a pie chart the c o n t r i b u t i o n o f e a c h t yp e o f o i l i n t h e e x p o r t s . I t i s c l e a r t h e m a x i m u m q u a n t i t y o f s o yb e a n o i l i s e x p o r t e d f r o m I n d i a ( 7 0 % ) f o l l o w e d b y Rapeseed oil (21%) rest all the quantities of exports are not very high and of sunflower oil is poorly 0%.

P a g e | 11

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

C o mp a r i s o n
IMPORT VS EXPORT (QUANTITY IN TONES) YEAR TOTAL IMPORTS 8177546 8809472 8364958 9975565 35327541 TOTAL EXPORTS

2008-2009 2009-2010 2010-2011 2011-2012 2008-2012 Source: Sea Data Bank

5421607 3224787 5071779 5522312 19240485

From the above chart we can see that though the export was high in the y e a r 2 0 1 1 - 2 0 1 2 c o m p a r e t o ye a r 2 0 1 0 - 2 0 1 1 b u t t h e i m p o r t o f t h e e d i b l e oil product is getting higher every year in terms of export In India .

P a g e | 12

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

T h e % a c q u i r e d b y t h e e d i b l e o i l i m p o r t f r o m l a s t f o u r ye a r s i s 6 5 % which is close to the double of the Export % from the last four Years .

P r i c e Ra t i o
Month Soybean Oil Price Palm oil Price (Indian Rupee per (Indian Rupee per Metric Ton) Metric Ton) Aug66,033.05 51,704.25 12 Sep-12 66,195.85 47,985.85 Oct-12 59,309.16 40,676.81 Soybean Oil ROC 0.25% -10.40% Palm oil ROC Soybean Oil / Palm oil Price Ratio 1.2771 1.3795 1.4581 1.4422 1.525 1.4459 1.4286

Nov58,646.61 40,664.00 12 Dec59,465.10 38,992.74 1.40% 12 Jan-13 60,984.49 42,176.37 2.56% Feb-13 60,836.44 42,585.19 -0.24% Source: http://www.indexmundi.com/commodities

-7.19% 15.23% -1.12% -0.03% -4.11% 8.16% 0.97%

P a g e | 13

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

Source: http://www.indexmundi.com/commodities F r o m t h e r e c e n t d a t a a n d t h e a b o v e f i n d i n g s t h e s o ya o i l a n d p a l m o i l a r e t h e m a j o r p r o d u c t s o f t h e e d i b l e o i l i n d u s t r y. S o t h e r e i s t h e r a t e fluctuation in both the products according to the demand and consumption.

P a g e | 14

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

C o n s u mp t i o n S c e n a r i o
Domestic consumption of edible oils has been growing at 4.0 -5.0 p e r c e n t a ye a r . T h e c o n s u m p t i o n i n 2 0 0 1 - 0 2 w a s a r o u n d 2 5 . 7 5 m i l l i o n tons. Non-packaged oils account for nearly 50.0 percent of consumption in both urban and rural markets. In the remaining 50.0 percent contributed by packaged oils, branded oils constitute a small portion of approximatel y 10.0-15.0 percent.

Ma j o r E x p o r t e r & I mp o r t e r
M e a n w h i l e , I n d i a ' s o i l s e e d p r o d u c t i o n f o r m a r k e t i n g ye a r ( M Y ) 2011/12 (Oct-Sep) is forecast higher at 35.6 million tons. The global oilseed trade for 2011 -12 is projected at 110.5 million tons, d o w n 2 . 6 m i l l i o n m a i n l y r e f l e c t i n g r e d u c e d s o yb e a n e x p o r t p r o j e c t i o n s f o r B r a z i l , A r g e n t i n a , a n d P a r a g u a y. Other major changes around the globe are higher rapeseed production for China and Russia, lower rapeseed and sunflower seed production for Kazakhstan, and higher cottonseed production for Pakistan. India imports edible oil mainl y from Indonesia and Malaysia.

P a g e | 15

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

W h y t h e Do me s t i c Co n s u mp t i o n o f E d i b l e O i l i s I n c r e a s i n g in India
Due to high growth in income levels, increasing trend in spending and better living standards,india promises to continue high growth in consumption of edible oils and Indian consumption may reach 210 Lac MT by 2015/16. A big expansion in the the middle class, due to big rise un income levels of the poor class. The double Digit growth of out of home consumption of edible oil. Per capita consumption of edible oil in India at 12.7 Kg is still a lot below threshold level of consumption. Low consuming states of central and east India at 7 -9 Kg are catching up with their peers of west and north India at 15 -17 Kg. Even with moderate population growth the absolute increase in number of people is quiet high. Special schemes are helping in rising the labor income and increasing the income level of people who are consuming much below the all India le vel. Rising urban population and many more.

P a g e | 16

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

C H AL L E NG E S I N I N DI A E DI B L E O I L S E CT O R
Edible oil is considered as essential commodities in india.with its large population and continued strong economic growth, India is likel y to register strong gai ns in total and per capita edible oil consumption in the coming decades. The extent to which increased consumption is met b y i m p o r t s a n d t h e t yp e o f o i l i m p o r t e d w i l l b e s t r o n g l y i n f l u e n c e d b y Indias trade and domestic agriculture policies .Thus there is a

requirement of reduction of dependence of oil import could be brought about by increased domestic oilseed production and amongst others much s t r o n g e r p r i c e i n c e n t i v e , p r o d u c t i o n a n d yi e l d i m p r o v e m e n t by stronger marketing strategies which will lead to

appended

efficiencies at industry level. Several challenges have been identified crucial to the growth of the sector.

Dependence on vagaries of monsoon

The annual oilseed production of the country is faced with high degree of variation as nearly 76% of the oilseed s area is under rain fed condition and therefore subjected to uncertainties of moisture

a v a i l a b i b i l i t y. A v a i l a b i l i t y o f q u a l i t y s e e d o f i m p r o v e d v a r i e t i e s a n d h yb r i d i s g r o s s l y i n a d e q u a t e a n d i s o n e o f t h e m a j o r constraints in

enhancing the oilseed production .in oilseed the farmer are using predominantly the saved seed resulting in about 80% of the area sown with seed of old and absolute varities.With the exception of sunflower and castor the seed production of oilseed is primarily left with pu blic sector agency due to bulky nature of oilseed crops more investment on infrastructure and less remuneration.

Lack of adequate seed multiplication

Although there is enough bred seed production in most oilseed crop further seed multiplication though f oundation and certified stages are the key constraint for availability of quality seed material P a g e | 17

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

Production under energy starved condition

These are energy rich crop but in India they are mostly grown under energy starved condition. No use or low use of plant nutrient is one of the most important factors for low productivity of oilseeds. The nutrient requirement of oilseed in general is high for all the nutrient that needs to be supplied in adequate quantities for attaining higher yields

Vulnerability to pests and diseases

They are prone to damage about by 64 major diseases .high level of resistance is found in cultivator against only seven(10.99%) diseases and partial resistance against 16(25%) diseases thus indicating the

lack of genetic insulation f or majority of the diseases cultivators with high level of resistance are available for rust and downy mildew in sunflower powdery mildew in rapeseed mustard ,rust in line seed wilt a n d r o o t r o t i n c a s t o r a n d m o s a i c d i s e a s e i n s o ya b e a n .

Weak infrastructure

Multiplicities of technology transfer by each line department and there is little coordination across different department involved. Narrow focus of the agricultural extension system i.e. limited activities have been undertaken to develop and transfer sustainable technologies to the farmers.

Technical inefficiency of oil industry

Little attention was given for developing both technical competence and professional skills to disseminate the improved oilseed

P a g e | 18

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

technologies to ten field staff as well as the oilseed growers. Some of t h e m a l s o d i d n o t i m p l e m e n t a s ys t e m a t i c f r a m e w o r k t h a t r e f l e c t s t h e p o t e n t i a l r o l e w i t h i n t h e o v e r a l l r e s e a r c h e x t e n s i o n s ys t e m s .

Weak transfer of technology

Indian processing indus try suffer from several maladies like outdated technology ,lower rates of utilization of installed capacity low oil

recoveries and high unit cost. The cost of vegetable oil processing in India is very high .As compared to the countries like china and Usa mainly due to smaller capacities ,low technical efficiency and low capacity utilization.

P a g e | 19

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

R e c o mme n d a t i o n s
Based on the paper the recommendation we give so as to increase the Indian oilseed production, following should be undertaken Competing In a Larger Context

For further improvements in oilseed production notably in terms of yield and oil and protein contents which remains below international s t a n d a r d s . I n r e a s e i n t h e o i l a n d p r o t e i n c o n t e n t a n d yi e l d improvements in the need of the hour to compete globally. Foreign Competition Encourages Efficiency Gains

Already exposed to foreign competition in the export of large quantities of oilseed meals and the import of edible oils, the oilseed complex has to improve significantly its marketing and p rocessing efficiency to counter the attraction of imports. The incentives for oilseeds meal exports somewhat distorted by various schemes which increase export earnings are dwarfed by the costs imposed upon the industry by the inefficiencies of the transpo rt and port infrastructure. Improving marketing and processing essential to preserve grains The continuing rigidities of domestic policies prevent the oilseed complex from gaining the maximum benefit of exposure to foreign competition. Central Government Programs To Support Rapid Technological Change The government programs such as Oilseed growers cooperative project, National oilseed development project, technology mission o oilseeds,etc all provide to increase the present efficiency of the oilseed sector.

P a g e | 20

EDIBLE OIL SECTOR IN INDIA Need for Better Infrastructure

March 22, 2013

A n e e d o f b e t t e r i n f r a s t r u c t u r e i n f o r m o f b e t t e r m a c h i n e r y, b e t t e r d o m e s t i c p o l i c i e s , m o r e g o v e r n m e n t r e g u l a t i o n a n d p r i c e s t a b i l i t y, increase in production on technological bases and adoption of newer and quality agricult ural techniques.

P a g e | 21

EDIBLE OIL SECTOR IN INDIA

March 22, 2013

References
Indian Edible Oil Scenario in 2015,Asso -Com Grain Conference | May 1, 2012 Edible Oil Sector in India:An Emerging Perspective And policy Issues; Debdeep De; published by Jaypee business School,2011 Indian Agricultural Commodities -Edible Oil;2013 Outlook Status of Vegetable Oil Industry-Indian Economy; Dr. P. Subramanyachary;2013 http://www.indexmundi.com/ http://www.seaofindia.com/ http://www.commodityonline.com http://www.researchandmarkets.com http://www.niir.org http://www.novodboard.com/ http://agricoop.nic.in/relatesites.htm

P a g e | 22