Vegetable oil usage soars during the festive season in the post-monsoon phase, as millions of people consume sweets, fried delicacies and other stuff during the September-December festive season.

In August, for instance, India's vegetable oil imports shattered all previous records, crossing the one million-tonne-mark, as processors and stockists began accumulating stock ahead of the festive season.

According to the Solvent Extractors' Association of India (SEAI), the country imported 1.06 million tonnes of vegetable oil in August, which is the highest since 1994, when the government allowed imports. It was also 64 per cent higher than in the same month last year.

Edible oil accounted for one million tonnes of imports in August, and the rest comprised non-edible oil. India imports palm oil from Indonesia and Malaysia and soyoil and sunflower oil from Argentina and Brazil. Palm oil accounts for the bulk of the imports (73 per cent), with soyoil adding another 20 per cent.

B.V. Mehta, executive director, SEAI, notes that the surge in imports was a consequence of the drying up of inventories in the pipeline and the firming up of global vegetable oil prices.

Vegetable oil imports for the current oil year (November 2009 to October 2010) are expected to top nine million tonnes, as against 8.6 million tonnes, a record by itself, in the previous oil year. In the first 10 months of the current oil year, vegetable oil imports were up by five per cent at 7.45 million tonnes.

The bulk of India's vegetable oil imports (86 per cent) are in crude form, while refined vegetable oil accounts for 14 per cent. Last year, India emerged as the world's largest importer of edible oil - it is the second-largest consumer, after China - acquiring nearly 50 per cent of its demand from abroad. India's overall demand for edible oil touched 15.6 million tonnes last year, as against 27 million tonnes in China. Demand is growing at about six per cent per annum and is expected to top 21 million tonnes in about five years.

But despite being such a huge consumer of edible oil, per capita consumption of vegetable oil is still very low in India, around 12 to 13 kg (it was 10 kg in 2001). In contrast, per capita consumption of edible oil is around 20 kg in Pakistan and China. However, with rapid urbanisation and a burgeoning middle-class, besides growing health consciousness, demand for refined vegetable oil is expected to climb sharply in the future.

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INDIA allows duty-free imports of crude vegetable oil, whereas refined oil imports attract a duty of 7.5 per cent. The domestic industry, comprising about 700 solvent extractors and 600 refiners, has been demanding the imposition of stiffer tariffs to curb imports.

However, the government is unlikely to concede their demand, especially in view of the continued high rate of food inflation. Last week, the government released figures indicating food inflation was up for the fourth straight week at 15.46 per cent. Earlier this month, the Reserve Bank of India (RBI), the central bank, raised the short-term lending rate by 0.25 per cent to six per cent, and the borrowing rate by 0.5 to five per cent, as part of its continuing battle against inflation.

Opposition parties in India have been cornering the government for several weeks on the question of inflation, accusing the United Progressive Alliance (UPA) government of mismanaging the economy. And with elections due in crucial states such as Bihar and West Bengal, the central government is unlikely to fiddle around with tariffs for such important commodities as vegetable oil.

The domestic industry is also witnessing a lot of changes, with smaller players being acquired by the large companies. Recent years have seen dozens of small solvent extractors and refiners shut down operations, or merge with the larger companies, as only financially strong players are able to face the challenges.

Large multinationals and domestic players, with their multi-million-rupee advertising and promotion budgets, are aggressively promoting vegetable oil - especially sunflower and soya oil - as health products. The branded segment accounts for about half of the total market, and the organised players are growing at a robust pace of 20 per cent annually.

International companies are also entering the segment, setting up joint ventures and introducing new products. Last week, for instance, Richardson Oilseed Ltd of Canada and its Indian partner, Jivo Wellness, part of an IT group, announced plans to set up a crushing-cum-refining facility in Punjab to market canola oil (which is made by processing rapeseed). Canola has one of the highest percentages of unsaturated fat among vegetable oils.

The new venture plans to start canola plantations on about 10,000 acres of land in north India over the coming years.

According to R.P.S. Kohli, director, Jivo Wellness, the company aims to a sell Rs1 billion worth of canola oil in two years and Rs5 billion over the next five years. “We aim to capture a 10 per cent share of the Indian packaged branded edible oil market in five years,” says Kohli. The packaged branded edible oil market is currently worth over Rs100 billion.

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INTERNATIONAL vegetable oil prices are heading northwards, adding to fears of acceleration of food price inflation during the festive season. Global palm oil prices have shot up by nearly 20 per cent in recent weeks.

And with India expected to import higher quantities of vegetable oil, prices are expected to advance sharply over the coming months. Already, the 64 per cent jump in August imports has set the trend, resulting in a spurt in global prices. But Indian importers are expected to switch over to other vegetable oils including soybean oil, to counter the rise in palm oil prices. But soybean oil prices have also risen by 12 per cent of late.

The excellent south-west monsoon this year, which saw heavy rains across north India - which contributes the bulk of oilseeds grown in India - could dampen imports over the coming months, say analysts.

India's oilseeds production is expected to rise by 10 per cent to 34.6 million tonnes this year. Land under oilseeds cultivation has also gone up to 16.9 million hectares this month, from 16.4 million last September. The sprawling central Indian state of Madhya Pradesh has seen an increase in soybean acreage, while groundnut cultivation has seen a spurt in southern states such as Andhra Pradesh, Karnataka and Tamil Nadu. Castor seed cultivation has also increased substantially.

Oilseeds crushing will begin in October, in time to meet the surge in demand for vegetable oil. Soybean production is expected to be higher this year, as yields have also improved.

The good monsoon is expected to result in increased exports of soymeal from India. Exports are expected to climb to 3.9 million tonnes, nearly 1.2 million tonnes more than last year. India sells soymeal to Asian countries including Thailand, Japan and Vietnam.

But global oilseeds production, especially in countries such as Brazil, Argentina and China, is expected to be lower this year, even as consumption continues to soar. This could result in a worldwide shortage of vegetable oil.