Vegetable oil exporters shouldn’t get excessively anxious about their trade with top importer India.
Yes, the country looks intent on cutting its reliance on imports by increasing its own production of the likes of palm oil and soyoil.
But it looks a stretch to think that India will manage to cut its imports by up to one-quarter over the next three years, as the Solvent Extractors’ Association of India (SEA) industry group believes.
Sure, India’s domestic vegetable oil production is expanding.
Output of the top eight oils, including rapeseed oil, palm oil and soyoil, is expected to top 9.0m tonnes in 2022-23 for the first time, on US Department of Agriculture estimates.
But that reflects an average rate of expansion of 2.5% a year – well short of the level that SEA is hoping for.
The association forecast factors in growth of more than one-third between 2021-22 and 2025-25, equivalent to annual expansion of 8%.
That looks wishful thinking, especially given that farmers are starting off on that journey burdened by soaring input costs and rising borrowing costs.
Output vs demand
In fact, India’s production has over the past decade expanded a little slower than the rate of consumption, at 2.7% – hence the need for mounting imports.
While buy-ins indeed slowed by 2.0m tonnes in 2019-20, to 13.5m tonnes, and stayed there in 2020-21, even the SEA acknowledges that this was largely “due to Covid-19 induced demand destruction”.
The expansion of 880,000 tonnes last season, to 14.4m tonnes, as SEA revealed on Monday, looks down to a return to a more normal state of affairs than a one-off.
Indeed, signally, the season ended on a high, with imports last month soaring by 32% to 1.40m tonnes, well ahead of the average pace for the year of 6.5%.
Not that the October sprint looks sustainable, now that prices have recovered a little, and with Indian consumers having built up strong stocks through their buying spree – with inventories as of the start of this month estimated up 42% year on year at nearly 2.5m tonnes.
But strong production growth looks a pipe dream too, especially with imported vegetable oil prices now, translated into Indian production terms, close to the equivalent of the government’s minimum support price.
It doesn’t look a good use of Indian farmers’ efforts, nor government funds, to focus too much on these crops, let alone to go all in and expand output by 8% a year.