Low production, high demand: Why edible oils are getting costlier

The price of several edible oils sold in India has increased by up to 70% in the last year

The price of several edible oils sold in India has increased by up to 70 per cent in the last year.

According to data released by the Consumer Affairs Ministry, the price of groundnut oil has gone up by up to 61 per cent, while mustard oil is nearly 70 per cent costlier in 2021. As a consequence of this, the common man's budget is taking a hit. But why are edible oils getting costlier?

The increasing demand for edible oil coupled with relatively lower domestic production are some of the key reasons for the rise.

Read | Centre talks to stakeholders over edible oil prices

As per a report by the Indian Express, India's edible oil demand is in the range of 23.48–25.92 million tonnes. However, the country produces 8.63–10.65 million tonnes, less than half of what it needs. As a result, India relies heavily on imports to meet its demand. And the price of edible oils, and that of importing them, has also increased.

According to government data, retail prices of palm oil rose by 62.35 per cent to Rs 138/kg on Monday from Rs 85/kg in the year-ago period.

Similarly, sunflower oil rose 59 per cent to Rs 175 from Rs 110/kg, while vanaspati prices increased by 56 per cent to Rs 140/kg from Rs 90/kg and soya oil price rose by 55 per cent to Rs 155/kg from Rs 100/kg in the said period.

Groundnut oil prices also showed an increase of 35.33 per cent to Rs 180/kg on May 24 from Rs 133/kg in the year-ago period, while that of mustard oil showed an increase of 48 per cent to Rs 170/kg from Rs 115/kg in the said period.

Read | Govt making efforts to ramp up edible oil production

And as per the Food and Agriculture Organization (FAO), the price index for vegetable oils soared to 162 in April this year, compared to 81 in April last year.

International palm oil prices continued to rise in April on concerns over slower-than-expected production growth in major exporting countries. Soy and rapeseed oil values climbed further too, underpinned by firm global demand, including from biodiesel producers, and protracted global supply tightness respectively. By contrast, international prices of sunflower oil contracted moderately on-demand rationing, the FAO said.

One of the other reasons appears to be the push to make biofuel out of vegetable oil, according to B V Mehta, executive director of the Solvent Extractors' Association, a Mumbai-based trade body.

“There is a shifting of edible oils from food basket to fuel basket,” Mehta said as per IE report, adding there has been a thrust on making renewable fuel from soyabean oil in the US, Brazil and other countries.

Chinese buying, stimulus money, la Nina weather problems in palm and soya producing areas, labour problems in Malaysia due to Covid-19, aggressive biodiesel thrust in Indonesia and renewable fuel from soybean oil in the USA and Brazil, etc, are some of the major reasons for the rise in prices, SEA President Atul Chaturvedi said.

Trade body SEA has suggested that the government distribute edible oils at subsidised prices through the Public Distribution System (PDS).

The body has also suggested to the government to curb speculation in the trading of oilseeds and edible oils on the commodity bourses and insisted on compulsory delivery contracts.
That apart, the Mumbai-based trade body said the government should freeze tariffs at lower levels, reduce agri-cess on imports and revisit customs duty reduction measures.

(With agency inputs)