The increasing prices of edible oil needs government intervention

Synopsis:

In the past year, the prices of edible oil increased significantly. There are many internal and external reasons behind the price rise. So, the government has to pay attention to the edible oil prices.

Introduction:

In India, Edible oil prices have risen sharply in recent months. According to the data from the Department of Consumer Affairs, the prices of six edible oils — groundnut oil, mustard oil, vanaspati, soya oil, sunflower oil and palm oil — have risen between 20% and 56% at all-India levels in the last one year.

India’s Demand of Edible Oil:

• India’s production of oilseeds is too little to fulfil the domestic demand. Therefore, India is dependent on imports.
• India is one of the largest importers of oilseed and edible oils in the world. About 56% of the domestic edible oil demand is met from imports.
• The major sources of these imports are
  • Argentina and Brazil for soybean oil;
  • Indonesia and Malaysia palm oil; and
  • Ukraine and Argentina for sunflower oil.
• Therefore, any increase in global prices of oilseeds and edible oil is bound to be transmitted into domestic prices.

Why are International Prices of Edible Oil rising?

• Firstly, Demand on making biofuel from Soybean oil: There has been a demand on making renewable fuel from soybean oil in the US, Brazil and other countries. This increased the demand for edible oil in these countries and increased prices globally.
• Secondly, Aggressive Buying by China: China uses soybean for extracting oil as also to prepare the animal feed. Hence, aggressive Chinese buying of soybean depleted inventories in the market. This in turn put upward pressure on prices.
• Thirdly, Labour issues in Malaysia: Malaysia’s palm oil sector is dependent on migrant foreign workers. However, pandemic induced border closure meant the palm oil sector faced a severe labour shortage causing the output to fall.
• Fourthly, Impact of La Niña on palm and soya producing areas
• Fifthly, Imposition of Export duties on crude palm oil in Indonesia and Malaysia.

Suggestions to reduce prices of edible oil 

•  Firstly, Short Term Measures:
  • Lower Import Duties: India can lower the import duties on the edible oil prices. This can lower the prices immediately.
  • Subsidise Edible Oil: Government can subsidise edible oils and make them available to the poor under the Public Distribution System.
• Secondly, Long Term Measure: India needs to reduce its dependence on imports of edible oils. This can be feasible by incentivising farmers to diversify wheat and paddy crops to oilseeds.

Source: The Indian Express