The government is cautious about reducing import duties to check the inflationary trend in edible oils at a time when many domestic farmers are sowing mustard crops even as a part of the liquidity pumped into the economy by various governments during the pandemic has gone into commodities, industry insiders said.
Mustard oil prices are ruling at record highs.
“There is an acute shortage of mustard in the country and prices have increased by 40% to 50% during the last couple of months,” said Gnanasekhar Thiagarajan, director at commodity futures research and advisory firm Commtrendz Research. “Prices of other edible oils too have increased by 15% to 20%.”
India imports close to 70% of its domestic requirement of edible oils.
Both industry and the government now expect the spike in mustard prices to make many local farmers to shift away from wheat and sow more mustard in the rabi season.
Though the central government has put breaks on inflationary trends in prices of pulses and onions by banning exports and facilitating imports, it is taking a cautious stand in the case of edible oils.
“It will be counterproductive reducing import duty on edible oils at this time when soyabean is being marketed and farmers are sowing mustard crops,” said Atul Chaturvedi, president of Solvent Extractors’ Association (SEA) of India. “It has been our experience that whenever India reduces import duty on edible oil, the prices of palm and soyabean oils in exporting countries go up, helping their farmers.”
Chaturvedi said the prices in India have increased despite demand contraction caused due to Covid-19. “Many countries are pumping liquidity into the system, which is going into the stock markets and the commodities,” he said. “This is why, despite the demand contraction, we have seen an increase in prices of edible oils.”
According to SEA, the overall import of vegetable oils during November 2019 to September 2020 (11 months) is reported at 12,257,834 tons compared to 14,171,462 tons during the same period of last year i.e. down by 13.5%.
Experts said vagaries of weather across the world and pandemic-induced labour shortage and other disruptions in palm oil producing countries like Malaysia and Thailand are also driving edible oil prices upward.
“Agricultural commodities normally tend to respond more to supply worries than the demand pull,” Thiagarajan of Commtrendz said. “Edible oil prices may dip only marginally by December and again become firm in January as the Chinese buying of edible oils, which has contributed to the rally in global edible oil prices, will continue till January for Chinese New Year,” he said.
SEA, however, said a reversal in global edible oil prices has started and is reflected in futures prices of major international exchanges.