The edible oil import duty increase, recently announced by the Indian government, is likely to have 'wide-ranging effects' on food sector in the country, according to GlobalData, the data and analytics company.
The Indian government has imposed a 20% basic customs duty on various edible oils to support domestic farmers.
GlobalData said the duty increase on crude edible oils, such as sunflower, soybean, and palm oil, will have effects across the food sector in the country.
“According to the statistics published by the Solvent Extractors’ Association of India, the import of edible vegetable oils registered an annual uptick of 1.2%, during the first eight months of 2024," said Shravani Mali, consumer analyst at GlobalData.
"However, the increase in import duty on crude edible oils can spark concerns among consumers and foodservice operators and may affect sales during the festive season, starting in October.”
Supply Chain Disruptions
Mali further noted that the edible oil market is influenced by various factors such as geopolitical tensions and supply chain disruptions, and that a reduction in imports could shield India from such external shocks.
She argued that the reduction in imports would mean less expenditure on foreign goods, which will positively impact the trade balance by decreasing the outflow of foreign currency.
'Inflationary Pressures'
“At the same time, reducing imports could possibly lead to higher domestic prices for edible oils, as local supply may not meet demand," said Mali.
"This is likely to exacerbate inflationary pressures within the economy. However, the rise in the cost of imported edible oil could encourage domestic production and will benefit domestic edible oil manufacturers, including Adani Wilmar, Patanjali Foods, and Godrej Agrovet."
Production Costs
In the coming months, the import duty hike is likely to increase input costs for food manufacturers and foodservice operators, which rely on edible oils for use as raw material.
For instance, GlobalData said an increase in the prices of palm oil may result in an upswing in production costs of many processed foods.
This may lead companies to either absorb the higher costs or pass it on to consumers, adversely affecting sales, especially among low-income households.
High Dependency
GlobalData referenced figures from the Ministry of Agriculture & Farmers Welfare which show that India’s average import dependency for edible oils stood at 57% in 2023.
The figures show that palm oil dominated these imports, accounting for 59% on average, followed by soybean oil, with a share of 23%, and sunflower oil, at 16%.
“Owing to this high dependency, the government is taking proactive steps to address import dependence and enhance domestic production of edible oil," said Francis Gabriel Godad, consumer business development manager at GlobalData India.
'Opposing Forces'
Godad believes the increase in import tax on edible oils aims to boost farmer incomes and that the food ministry has urged edible oil processors to maintain the maximum retail price as the current stock availability is sufficient for 45-50 days of domestic consumption.
The domestic oilseed crops are predicted to arrive in October.
"In summary, while reducing edible oil imports could lead to an improved trade balance by lowering the current account deficit, it may also result in higher domestic prices and inflationary pressures," said Godad.
"The net effect would depend on the balance between these opposing forces and the ability of the domestic market to adapt.”
