Economy
In charts: Will rising edible oil prices fry your kitchen budget?
Summary
- Rising oil prices are adding to inflationary pressures at a time when the country is already reeling under the strain of high food prices. What are the factors behind the rise, and will it dent your kitchen budget?
Edible oil prices are on the boil again. The ‘oils and fats’ group in India’s consumer price index rose 2.5% year-on-year in September, marking the first increase in nearly two years and adding inflationary pressures at a time when the country is already reeling under the strain of high food prices. Headline inflation jumped to a nine-month high of 5.49% last month, with food inflation surging to 9.24%.
A concoction of global and domestic factors is responsible this rise. First, the government hiked import duties on key crude and refined edible oils such as soyabean, sunflower and palm oil from 14 September. As a result, the effective duty on crude edible oils increased from 5.5% to 27.5% and on refined edible oils from 13.75% to 35.75%, data from the Solvent Extractors’ Association of India showed. The government says the duty hikes aim to protect domestic oil seed farmers against the softening of edible oil prices globally. “The government aims to preserve a floor price for these sellers by decoupling Indian supplies from global supplies," said Debopam Chaudhuri, chief economist at Piramal Enterprises.
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The import duty hikes were immediately followed by a sharp rise in retail prices of packed edible oils, particularly palm oil, sunflower oil and soyabean oil, data from the government’s Department of Consumer Affairs showed.
However, an uptick in global prices in recent weeks has worsened the situation.
Global headache
Many Indian households use sunflower and soyabean oil in their daily cooking, while palm oil is a major ingredient in sweets, biscuits and cakes, not to mention cosmetics, soap and detergents.
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Global vegetable oil prices rose steeply in 2021 and 2022 as covid disrupted supply chains. A vegetable oil price index run by the Food and Agricultural Organization (FAO), which tracks palm, soyabean, sunflower and rapeseed oils, which was below 100 before the pandemic, hit a high of 251 in 2022. Since then, prices have declined.
But lower prices, coupled with low duties, hurt domestic production of soyabean oil, which was selling below the minimum support price, a report by India Ratings and Research said. While the goal of the import duty hikes is to protect domestic farmers, it could hurt consumers. The vegetable oil index has seen an upward trend since June 2024, reaching its highest level since December 2022 in September.
Double whammy
India has little control over edible oil prices as it meets close to 60% of demand through imports. Indonesia and Malaysia are the primary suppliers of palm oil, while Argentina and Brazil fulfil our soyabean oil needs. Palm oil forms the biggest chunk of India’s edible oil imports. Last month, Indonesia slashed its palm oil export duty by 30%, which would have provided India a price cushion. However, the hikes in import duties have offset Indonesia’s move. Moreover, a rise in global prices in recent weeks has delivered a double whammy.
All of these factors could make managing food inflation even more difficult. The consumer price index (CPI) basket gives a 3.6% weigh to oils and fats, so they could influence headline inflation to a great extent. “I expect this move (hiking duties) to create additional uncertainty in food inflation, and it may not be well timed," Chaudhuri added.
Impact on consumers
Kitchen budgets have already been under stress this year even as overall inflation has cooled. Eight out of the 10 main food items have seen high inflationary pressures this fiscal year, with vegetables in particular seeing extreme price increases.
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Moreover, it could also make discretionary food items more expensive, potentially hurting demand. Most fast-moving consumer goods (FMCG) companies and oil traders operate on thin profit margins owing to the consumable nature of the products, and rolling and perishable inventory. “Edible oil prices are likely to witness an increase in October-March," said India Ratings and Research. “The rise in oil prices is likely to increase the cost of production and affect the margins of these FMCG products unless they undertake a commensurate price hike".
