[Editorial Analysis] Why edible oils are Costlier

Mains Paper 3: Economy
Prelims level: Edible oil
Mains level: Issues related to Agriculture and Agricultural Income

Context:

• The prices of 6 edible oils have risen between 20% and 56% at all-India levels in the last one year.

• The monthly average retail prices of all 6 edible oils soared to an 11 year high in May 2021.

• This sharp increase in oil prices has come at a time when household incomes have been hit due to pandemic.

India’s Consumption and Production of Edible oil:

• According to the Agri ministry, India’s vegetable oils demand has been 24-25 million tonnes between 2015-16 and 2019-20.
1. However, India’s domestic supply in this period has been very low i.e. 9-11 million tonnes.
2. In 2019-20, against India’s total edible oil demand of 24 million tonnes, the domestic availability from both primary and secondary sources was only 10.65 million tonnes.
• So India depends heavily on imports. In 2019-20 itself, India imported about 13.35 million tonnes of edible oil which is 56% of the demand.
1. The major sources of imports are Malaysia, Indonesia, Argentina, Brazil and Ukraine.

Consumption:

• With rising incomes and changing food habits, the consumption of edible oils has been rising over the years. While mustard oil is consumed mostly in rural areas, the refined oils share is higher in urban areas.

• India’s monthly per capita consumption of edible oils increased from 0.37 kg and 0.48 kg in 1993-94 to 0.67 kg and 0.85 kg in 2011-12 in rural and urban areas respectively.

Reasons for price rise:

• The increase in domestic prices is basically a reflection of international prices because India meets 56% of its demand through imports.
• In the international market, the edible oil prices have jumped sharply in recent months due to:
1. The trust on making biofuel from vegetable oil, shifted edible oils from food basket to fuel basket.
2. Due to this, even in COVID situation global demand for edible oils has been high.
3. High buying by China.
4. Labour issues in Malaysia
5. Impact of La Nina on palm and soya-producing areas.
6. Export duties on crude palm oil in Indonesia and Malaysia.
7. Due to below-average temp and dry conditions in USA, the soya production is hampered for the 2021-22 season.
8. Due to prolonged dryness in Argentina, there are lower than anticipated yields.

Govt Options:

• Short-term:
1. Reducing edible oil prices by lowering import duties.
2. The policy for the import of crude palm oil is free while refined palm oil is restricted. The govt needs to reduce import duty on refined oil so that prices will come down immediately.
• Long term:
1. Encouraging farmers to increase production of vegetable oil seeds.
2. Govt needs to focus on allowing GM crops for enhancing vegetable oil production.

Conclusion:

• As the international prices are rising, reduction of import duties neither gets revenue for govt nor benefits consumer.
• The alternative for govt is to subsidize edible oils and make available to the poor under the PDS and also focusing on increasing domestic production.

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Prelims Questions:

Q.1) With reference to the Eight Core Industries, consider the following statements:

1. The Eight Core Industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP).
2. Monthly Index of Eight Core Industries (ICI) is released by NITI Aayog.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: A

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