India: The World’s Largest Importer of Vegetable Oil

India is the world’s largest importer of vegetable oil, accounting for about 15% of the global trade in 2022/23. The country’s demand for vegetable oil is driven by its large population, rising incomes, changing dietary preferences and growing food processing sector. In this article, we will explore the factors that influence India’s vegetable oil imports, the challenges and opportunities for the domestic industry, and the implications for the global market.

India’s Vegetable Oil Imports: Trends and Drivers

India imports various types of vegetable oils, such as palm, soybean, sunflowerseed, rapeseed, palm kernel, coconut and olive oil. Among these, palm oil is the most dominant, accounting for about 60% of the total imports in 2022/23. Palm oil is mainly used for cooking, frying and making vanaspati (hydrogenated vegetable oil). India imports palm oil mainly from Indonesia and Malaysia, the world’s largest producers and exporters of palm oil.

According to the Food and Agricultural Organization (FAO), India’s per capita consumption of vegetable oil is increasing by 3.1% per year, reaching 19.5 kg in 2022/23. This is higher than the global average of 14.8 kg, but lower than some other major consumers like China (24.4 kg) and the United States (35.6 kg). The main factors that drive India’s demand for vegetable oil are:

Population growth

India has the second-largest population in the world, with about 1.4 billion people in 2022/23. The population is expected to grow by 1% per year, reaching 1.5 billion by 2030. This means more mouths to feed and more demand for vegetable oil.

Income growth

India’s gross domestic product (GDP) per capita is projected to grow by 6.7% per year, reaching $3,038 in 2022/23. This is higher than the global average of 4.1%, but lower than some other emerging economies like China (8.4%) and Indonesia (7%). As income rises, people tend to consume more vegetable oil as part of their diet.

Dietary preferences

India has a diverse and complex food culture, with different cuisines and preferences across regions, religions and communities. However, some general trends can be observed, such as a shift from cereals to fats and oils, a preference for fried foods and snacks, and an increasing consumption of processed foods and fast foods. These trends increase the demand for vegetable oil, especially palm oil.

Food processing sector

India has a large and growing food processing sector, which accounts for about 10% of the country’s GDP and employs about 13 million people. The sector includes segments such as bakery products, confectionery, dairy products, edible oils, snacks and beverages. The sector consumes about 25% of the total vegetable oil demand in India, mainly palm oil.

India’s Vegetable Oil Imports: Challenges and Opportunities

India’s dependence on vegetable oil imports poses several challenges for the country’s food security, trade balance and environmental sustainability. Some of these challenges are:

Volatility of prices

The global prices of vegetable oils are influenced by various factors such as supply and demand dynamics, weather conditions, biofuel policies, trade policies and exchange rates. These factors can cause fluctuations in prices, which can affect India’s import bill and consumers’ affordability. For example, in 2020/21, the global prices of palm oil surged by about 50% due to lower production in Indonesia and Malaysia amid the COVID-19 pandemic and higher demand from China and India.

Trade deficit

India’s vegetable oil imports account for about 3% of the country’s total imports and contribute to its trade deficit. In 2022/23, India’s vegetable oil import bill is estimated at $12 billion, which is higher than its export earnings from agricultural products ($10 billion). This means that India has to spend more foreign exchange to buy vegetable oil than it earns from selling agricultural products.

Environmental impact

The production of vegetable oils can have negative impacts on the environment such as deforestation, biodiversity loss, greenhouse gas emissions and water pollution. Palm oil production is particularly associated with these impacts due to its expansion in tropical forests in Indonesia and Malaysia. India’s import of palm oil can indirectly contribute to these environmental problems.

On the other hand, India’s vegetable oil imports also present some opportunities for the country’s domestic industry and farmers. Some of these opportunities are:

Diversification of sources

India can diversify its sources of vegetable oil imports to reduce its dependence on a few countries and enhance its bargaining power. For example, India can import more sunflowerseed oil from Ukraine or Russia, more rapeseed oil from Canada or Australia, or more olive oil from Spain or Italy. India can also explore new sources of vegetable oil such as camelina, jatropha or algae.

Value addition

India can add more value to its vegetable oil imports by processing them into refined, bleached and deodorized (RBD) oils, specialty fats, oleochemicals and biodiesel. These products can cater to the domestic and export markets and generate more income and employment. India can also invest in research and development to improve the quality and efficiency of its vegetable oil processing industry.

Domestic production

India can increase its domestic production of vegetable oils by improving the productivity and profitability of its oilseed crops such as soybean, rapeseed, sunflowerseed, groundnut and sesame. India can also promote the cultivation of oil-bearing trees such as coconut, palm, olive and neem. These measures can reduce India’s import dependence and enhance its food security and self-reliance.

India’s Vegetable Oil Imports: Implications for the Global Market

India’s vegetable oil imports have significant implications for the global market, as India is a major player in the demand and supply of vegetable oils. Some of these implications are:

Price transmission

India’s demand for vegetable oil can affect the global prices of vegetable oils, as India is a price-sensitive market that responds to changes in prices. For example, when the global prices of palm oil increase, India tends to reduce its imports of palm oil and switch to other cheaper oils such as soybean or sunflowerseed oil. This can lower the demand and prices of palm oil and increase the demand and prices of other oils.

Trade policies

India’s trade policies can influence the global trade flows and competitiveness of vegetable oils, as India is a major importer and exporter of vegetable oils. For example, India imposes tariffs and duties on its vegetable oil imports to protect its domestic industry and farmers. These tariffs and duties can affect the trade margins and incentives of the exporting countries such as Indonesia, Malaysia, Argentina and Brazil. India also exports some vegetable oils such as coconut oil, sesame oil and castor oil to various markets such as the United States, Europe and China. These exports can affect the supply and prices of these oils in the global market.

Sustainability standards

India’s sustainability standards can impact the environmental performance and social responsibility of the vegetable oil industry, as India is a large consumer of vegetable oils. For example, India has adopted some voluntary standards such as the Roundtable on Sustainable Palm Oil (RSPO) and the Indian Palm Oil Sustainability Framework (IPOS) to promote the production and consumption of sustainable palm oil. These standards can encourage the producers and exporters of palm oil to adopt better practices such as avoiding deforestation, reducing greenhouse gas emissions and respecting human rights.

The Global Vegetable Oil Market: Trends and Opportunities

Vegetable oils are edible oils extracted from plants, such as palm, soybean, sunflower, rapeseed, coconut, olive, and peanut. They are widely used for cooking, baking, frying, and as ingredients in food products. Vegetable oils are also used for industrial purposes, such as biofuels, lubricants, cosmetics, and paints. The global vegetable oil market is expected to grow at a compound annual growth rate (CAGR) of 5.14% from 2023 to 2029, reaching a value of USD 299.18 billion by the end of the forecast period.

Factors Driving the Demand for Vegetable Oils

One of the main factors driving the demand for vegetable oils is the increasing population and income levels in developing countries, especially in Asia and Africa. These regions account for more than 80% of the global vegetable oil consumption. As people become more affluent, they tend to consume more vegetable oils, especially palm oil and soybean oil, which are cheaper and more versatile than animal fats. Palm oil and soybean oil together account for more than 60% of the global vegetable oil production.

Another factor driving the demand for vegetable oils is the growing awareness of the health benefits of vegetable oils over animal fats. Vegetable oils are rich in unsaturated fatty acids, which can lower cholesterol levels and reduce the risk of cardiovascular diseases. Some vegetable oils, such as olive oil and rapeseed oil, also contain antioxidants, vitamins, and phytochemicals that can prevent inflammation and oxidative stress. Moreover, some consumers prefer vegetable oils for ethical or environmental reasons, as they avoid animal cruelty and deforestation.

Factors Affecting the Supply of Vegetable Oils

The supply of vegetable oils depends on the availability and price of oilseeds, which are the raw materials for vegetable oil extraction. Oilseeds are mainly produced by four crops: soybean, rapeseed, sunflower, and palm. The production of these crops is influenced by various factors, such as weather conditions, pest infestations, crop diseases, yield improvements, land use changes, and government policies. For instance, in 2021/22, the global oilseed production was estimated to decline by 2.4% due to droughts in Brazil and Canada, floods in China and India, and lower plantings in the United States.

Another factor affecting the supply of vegetable oils is the trade policies and regulations of major producing and consuming countries. Trade barriers, such as tariffs, quotas, subsidies, and sanitary measures, can affect the flow and price of vegetable oils in the global market. For example, in 2018/19, China imposed a 25% tariff on soybean imports from the United States in response to the trade war between the two countries. This resulted in a sharp drop in U.S. soybean exports to China and a shift in China’s soybean sourcing to Brazil and Argentina.

The Largest Importer of Vegetable Oil in the World

According to the Food and Agricultural Organization (FAO), per capita consumption of vegetable oil is increasing by 3.1% per year, and India is the world’s largest importer of vegetable oil, boosting the market’s growth. India imports about 15 million metric tons of vegetable oil annually, mainly palm oil from Indonesia and Malaysia, and soybean oil from Argentina and Brazil. India’s domestic production of vegetable oil is insufficient to meet its growing demand due to limited land availability, low yields, high production costs, and poor infrastructure.

India’s import dependence on vegetable oil is expected to increase further in the future due to its rising population, income levels, urbanization, dietary changes, and food processing sector. India’s per capita consumption of vegetable oil is projected to increase from 19 kg in 2019/20 to 24 kg in 2029/30. To reduce its import dependence and ensure its food security, India has taken several measures to boost its domestic production of oilseeds and vegetable oils. These include increasing the minimum support price (MSP) for oilseeds, providing subsidies for seed procurement and distribution, promoting intercropping and contract farming of oilseeds with other crops, expanding irrigation facilities, enhancing research and development on high-yielding varieties, and encouraging edible oil fortification with vitamins A and D.

References:

http://www.eia.gov/countries/index.cfm?topL=imp

https://economictimes.indiatimes.com/industry/energy/oil-gas/indias-oil-imports-hit-record-high-in-january/articleshow/62936711.cms

https://www.maximizemarketresearch.com/market-report/global-vegetable-oil-market/108821/
https://www.statista.com/statistics/613191/vegetable-oil-import-volume-worldwide-by-type/
https://www.fas.usda.gov/data/oilseeds-world-markets-and-trade
https://www.ers.usda.gov/topics/crops/soybeans-oil-crops/trade/
https://www.maximizemarketresearch.com/market-report/global-vegetable-oil-market/108821/
https://www.thehindubusinessline.com/economy/agri-business/indias-vegetable-oil-imports-to-rise-to-record-155-mt-in-2019-20-sea/article30584175.ece
https://www.oecd-ilibrary.org/sites/9789264311990-en/index.html?itemId=/content/publication/9789264311990-en
https://pib.gov.in/PressReleasePage.aspx?PRID=1734571