Edible oils set for a bumpy course


The edible oil market will go through a period of ‘great’ volatility, first down and then ‘gradually up’, according to Mr Dorab Mistry, Director, Godrej International Ltd.

“The delicate economic situation in the developed world and the proliferation of what Warren Buffet has called ‘weapons of mass financial destruction’ leads me to believe there will be several short periods between now and the middle of 2012 when markets will be extremely volatile,” said Mr Mistry at a presentation on Global Vegetable Oil Price Outlook at ‘Globoil’ conference during the weekend.

Mr Mistry is one of the industrial leaders whose projections on vegetable oils price is eagerly watched by key players in the industry, exporters and importers.

The volatility will be such that people could tend to forget fundamentals and look only at the performance of financial markets and equities. Risk is high so that commodity and asset prices could course as the dollar weakens. But there is also the risk of a financial or stock-market collapse that could strengthen the dollar as the least bad currency.

Projecting crude oil to trade in the range of $85-105 a barrel, Mr Mistry said that crude palm oil (CPO) on Bursa Malaysia Derivatives Exchange would range between 2,800 Malaysian ringgit (MYR) and 3,100 MYR in the next 5-8 weeks. Malaysian palm oil production should be good in the next 6-8 weeks and there could be a bumper output. CPO prices could see some recovery from December onwards but the pace of the recovery will depend on the strength of economies of the developing world.

With soyabean oil prices ruling steady at $1,200-1,250 a tonne f.o.b, export demand for the oil has dropped due to the large discount that RBD (refined, bleached, deodorised) palmolein enjoys. “The erosion of demand, mainly in India and other price sensitive markets, will continue,” he said, adding that prices could rule steady around this level for the next several months.

Sunflower seed production in the Black Sea region, mainly Ukraine, could put pressure on soyabean oil. At least until January, sunflower oil could trade at discount to soyabean oil. But if any problem arises with rainfall in Argentina, then sunflower oil will regain its premium status.

Rapeseed oil is likely to remain at a premium to sunflower oil, while palm kernel oil is likely to drop to $1,150 levels before recovering to $1,500 by June.

Dwelling on the Indian scenario, Mr Mistry said that vegetable oil imports this season ending October would drop to 8.8 million tonnes mainly due to higher domestic oilseeds production. Edible oil consumption will keep rising next year too, and imports would be significantly higher.

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Experts see huge oilseed production potential in NE

A favourable policy, coupled with continuous monitoring of fund allocation from the government, could create the second green revolution through a dramatic spurt in oilseed production in India’s northeastern states, said Atul Chaturvedi, CEO of Adani Wilmar Ltd, one of India’s leading producers of edible oil under the ‘Fortune’ brand.

The agro climatic condition of the eastern sector is very conducive for expanding agriculture. Hence, India needs to get out of the cycle of wheat-rice in the northern and eastern parts of the country.

While responding to an email on the recent directive by the Prime Minister’s Office (PMO) to the Ministry of Agriculture, Chaturvedi said that the eastern part of our country has been singled out for increasing oilseed cultivation. But, the government can ensure procurement of oilseeds in line with wheat and rice to encourage farmers to bring more area under oilseeds.

There is also a need to invest in scientific research for increasing productivity. Average oilseed hovers around one tonne per hectare whereas world produces in excess of two tonnes. “If we manage to achieve world standards our dependence on imports would become negligible.” he added. The overall area under oilseeds has risen to 168.8 lakh hectares in the current kharif season as compared to 164.5 lakh hectares last year.

According to B V Mehta, executive director of the Solvent Extractors’ Association of India (SEA), India needs to raise oilseed output at least at 100 kgs per ha for the next five years.

R R Govindan, Vice President of Godrej Agrovet Ltd, said “Traditionally rape seed has been the oil seed popularly grown in the north east. However, there seems to be not much scope to push their productivity. What is not known widely is the suitability of this area for oilpalm which can give about 5 tonnes of oil per hectare. Hence, we must exploit this opportunity,”.

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PMO wants green east India…

The Prime Minister’s office (PMO) has directed the agriculture ministry to come out with a time-bound action plan to usher in a green revolution in eastern India, with a special focus on improving production of oilseeds and pulses.

The PMO wants the ministry to get back within a month with a plan to push up oilseeds and pulses production so that self-sufficiency is achieved in these key crops by the end of the 12th five-year plan (2012-13 to 2016-17). The directions were issued during a review meeting of the department of agriculture held in the PMO recently.

The department has also been asked to undertake the cluster approach to improve production. It has been directed to identify 60,000 oilseeds and pulses clusters in the country. India’s domestic oilseeds and pulses production is well short of the annual demand, which leads to heavy imports and permanent dependence on global conditions. The country annually produces around 18-19 million tonnes of pulses, while the demand is over 20 million tonnes, necessitating an annual import of around 1.5-3 million tonnes.

In case of oilseeds, the country’s annual edible oil imports have almost doubled in the last four-five years as domestic production has remained stagnant at about 24-31 million tonnes. The country annually needs around 12-14 million tonnes of edible oils, but the domestic supplies are sufficient to meet less than half of this demand.

Dependence on imports has grown over the years because of changing consumption patterns and rising disposable incomes. So much so, many experts believe Indian consumers are subsidising oilseeds and pulses cultivation in Malaysia, Indonesia, Myanmar and Canada. To address this, the PMO has directed the Indian Council of Agricultural Research (ICAR) to develop in two years high-yielding varieties of pulses and oilseeds that can withstand high temperatures. Agriculture ministry officials said work was on to implement most of the PMO suggestions and they would give a status report.

The programme to expand the green revolution to eastern India was announced in the 2010-11 Budget. The ministry has initiated the programme in Assam, West Bengal, Bihar, Orissa, eastern Uttar Pradesh, Chhattisgarh and Jharkhand. Officials said the PMO wanted a progress report on it.

On food and consumer affairs, officials said the PMO had directed the food ministry and the Food Corporation of India (FCI) to complete the work on creating an additional four million tonnes of storage capacity by the end of the financial year. This would be part of the food ministry’s ongoing initiative to create an extra 15 million tonnes of storage capacity in the next two years.

…to push for more powers to states on schemes run by the Centre

The Prime Minister’s Office has planned to direct all ministries and departments to ensure greater involvement of state governments in schemes and programmes run by the Centre, by delegating decision-making power.

Officials said the work done in this direction by the agriculture ministry, which has made the state chief secretaries major authorities in taking important decisions related to programmes like the Rashtriya Krishi Vikas Yojana, could act as model for delegation of such powers.

Some states in their annual plan meetings with the Planning Commission have been raising the issue of giving them flexibility in the management of these schemes to meet local needs in line with resources.

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