‘The Supply Line Has Improved': Asian Palm Oil Alliance's Atul Chaturvedi On Edible Oil Prices

The inflation rate of commodities such as pulses and cereals, staple food for many Indian households, has nearly doubled in the past five months. India's retail or consumer price index inflation rose for the first time in five months to 4.81% in June 2023 versus 4.31% in May 2023. 

However, it is also interesting to note that while food prices are on the rise, edible oils and fats, another critical component of Indian households, has come down substantially. 

To understand what is keeping edible oil prices and inflation down for Indian consumers, Govindraj Ethiraj, founder, The Core, spoke to Atul Chaturvedi, Chairman of Sri Renuka Sugars and President of the Asian Palm Oil Alliance.

Here are the edited excerpts from the interview: 

 

Edible oil prices were moving up north early last year. And now we are seeing a sharp fall. What has led to this reversal?

Anything that goes up too fast has a tendency to fall lower than what it was before it went up. The same is the case with edible oil. Last year, edible oil prices skyrocketed northwards largely on the strength of the Ukrainian war, which dislocated sunflower oil supplies. Then Indonesia banned palm oil exports from their country. Additionally, they also upped the blending of palm oil into biodiesel. So all these factors actually contributed to edible oil prices going through the roof.

Typically, when prices go too high, you have a farmer response. In this scenario, the farmer response looks something like this: in Brazil we have close to uninfected 6 million tonnes of soya bean crop; USA too had a good crop of soybean though Argentina has been a little bit of a problem. So now the supply line has improved.

The Ukraine-Russia war is actually going nowhere. However, in the bargain, Ukraine started shipping oil out of Europe and then the grain deal happened which helped improve the supply chain. So overall the situation has improved in terms of the supply chain and that is getting reflected in the values.

Along with this the Indian mustard seed crop has been phenomenal. In fact, this year, our mustard crop is closer to about 12.5 million tonnes or thereabouts. So that is also helping keep the prices in check.

So now we have a situation where practically all prices are within the Rs 90 per kilo range give or take five rupees here or there. That is  a very happy situation and as you mentioned earlier in the conversation it is probably helping keep the inflation under control.

Could you roughly tell us the consumption split between palm, sunflower and mustard oil in India?

As far as the Indian consumption story goes, palm oil is the biggest and India traditionally consumes about roughly 60% of palm oil. The next would be soya, followed by sunflower, and then mustard oil. Soya, sunflower and palm oil are imported whereas mustard is domestic and produced within the country. On a very rough basis, India imports about close to 14 million tonnes of which palm oil would be around 7-8. The balance would be soya and sunflower. Soya largely comes to India from Brazil, and Argentina and palm oil from Indonesia and Malaysia.

 

In early May, the government had indicated to the players that they should be reducing prices because international prices had fallen. I am assuming the present figures are due to that. So what is the transmission of prices like– is there a lag or is it instant? 

No, it generally takes three weeks for the price to reflect in the domestic market. International market happenings start to reflect in the domestic market in about three weeks time. But having said that, the Indian edible oil market is very competitive. So nobody can keep the prices very high. 

See, the maximum retail price (MRP) gets printed at the factory level.The government is worried that even though oil may be available at a much cheaper rate than the MRP, unscrupulous retailers could charge gullible consumers the higher MRP when in reality the company may have reduced the prices. Companies cannot afford not to respond because our markets are very competitive.

 

What is your general outlook for edible oils for the rest of the year? Also, all the climate related impacts that we are seeing, at least on cropping patterns in India, I'm assuming is also happening elsewhere in the world. Is that something to be worried about?

I will not worry too much. The El Nino is likely to impact palm oil only towards the end of the year and hence the actual impact would be felt only next year, if El Nino becomes a reality. 

Now as far as the prices are concerned, on the edible oil front, the world is adequately supplied. Brazil has a fantastic crop. Argentina has a lower profit, as they import from Brazil and other places and then supply to us. So there's absolutely no hassle on that front. Sunflower oil continues to remain very competitive. As for palm oil, till about two months ago, its prices had actually gone through the roof and were rather not very attractive for the Indian consumers. So, Indian palm oil imports have actually come down. However, now palm has become much more reasonable. In fact, in the Indian market, you need a minimum discount of about $150 or closer to that on a per tonne basis for palm to gain acceptability. 

And this is an interesting situation today because of the US internal issues or their biodiesel mandate, soya oil in the USA is expensive. But that is not the case as far as Brazil and Latin America are concerned. So you have a situation where soya oil is now selling much higher compared to sunflower oil. Though the sunflower oil is  considered as a premium oil vis-vis soya oil. So what is happening is soya is losing ground in the country and sunflower oil gaining ground big time. So we do not see markets going anywhere. Our field is that the potential of soya oil to go up is limited and prices may remain range bound of all oils.