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Opportunities are Set to Fire Up in the Indian Cooking Oil Market

cooking oils

India purchases its cooking oils from overseas markets, as their demand far outpaces its domestic production. Reports suggest that it will continue to do so for at least another decade (1).

“Cooking oil consumption is likely to surge in India by 17% over the next few years,” said B. V. Mehta, Executive Director of the Association of Solvent Extractors (2). Such a rise would further widen the manufacturing gap. India would likely make about 10 million tons of edible oils in 2021-2022 than local consumption of as much as 23 million tons.

One of the world’s largest purchasers of vegetable oils, India is struggling to wean itself off imports. Since we at TimesNext look at any struggle as an opportunity, we believe there is much room for agritech startups to fill this massive gap and help India become self-reliant on edible oil.

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Why are Cooking Oils Getting Expensive?

As most of you know, cooking oils are integral to the Indian diet. They play a big role in feasts served during our massive festivals, everyday meals, and almost every other staple dish.

Its ubiquity has made our country the world’s largest importer of palm, sunflower, and soybean oil.

However, our country has faced several challenges to control its prices over the past few years. It has taken multiple measures to ease the price surge, including but not limited to cutting imports, imposing import restrictions, and putting limits on inventories. Yet, their impacts have been minimal.

Why though? Since most commodities are linked to global prices that have been rallied in the past year amid the supply crunch and the surge in biofuels, there has been a considerable rise in the prices of edible oils.

Since last year, we have witnessed a jump in consumer food prices. And they were at their fastest pace in December in the last six months.

Although there are several factors to consider, the rising costs for vegetable oils, which have surged over 24% compared to a year prior, as per the ministry statistics, are considered among the primary reasons for this surge.

The rise in food costs is not limited to India alone. It has been happening worldwide, which is especially true for crops that are also useful for fuel production because of the surging costs of crude oil.

For instance, in Kuala Lumpur, Malaysia, palm oil prices, the most consumed vegetable oil, were up over 30% in 2021 (3). There was a similar surge in soybean oil in Chicago during the same time.

According to the Indian food ministry, there was a 12% to 30% price surge in vegetable oils like rapeseed, soybean, sunflower, and palm last year alone (4).

Even though India has slashed its import taxes on edible oils, we will likely see more surges in its prices. Reportedly, it is because the world prices of cooking oils continous to increase as the market expects more purchases from India.

Overall, we would be better off if we could meet at least 60% to 70% of our demand from the domestic market and focus on reversing the current trend.

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What Can We Do About It?

Among the world’s largest buyers of vegetable oils, India has struggled to wean itself off imports.

Typically, Indian farmers focus on planting cotton and staples like wheat, rice, and sugar, because the government sets price floors for these crops and buys some of them, like food grains, in bulk for its welfare programs.

There is a need for a shift in this mindset which, of course, would not happen overnight.

While high-yielding sunflower seeds and rapeseed, along with remunerative prices, can boost our domestic output, we need to offer stronger incentives to our farmers, said Siraj Chaudhry, MD and CEO of National Commodities Management Services Ltd, a trading and warehousing company (5).

According to Chaudhry, the change needs to start happening at a local level with a close watch on the crop cycle. For instance, we can encourage rice producers to grow sunflowers during the rainy season or wheat farmers to cultivate rapeseed during the winter months.

We can also encourage them to produce rice bran oil and peanuts as supplements.

cooking oil in India
Source: Bloomberg, Solvent Extractors’ Association of India

There is also a potential to close the gap with palm oil. There are many Indians who prefer palm oil over other oils because of its cheap cost and its ability to blend easily with other fats. Also, it lasts longer compared to others, making it cost-efficient for bulk buyers like hotels and restaurants (6).

There are plenty of opportunities for agritech startups to move supply chain parts in the domestic market. For instance, most experts in commodities recommend our government import soybeans and crush them domestically instead of directly purchasing soybean oil. It can boost soy oil supplies in our country and meet the rising demand for feed from the animal farming industry.

Our government has taken many measures to increase the domestic production of oilseeds to reduce its imports dependency and offered incentives to farmers.

The government has implemented measures like Oil Palm Area Expansion under Rashtriya Krishi Vikas Yojana to increase the minimum support prices of oilseed crops, build oilseeds buffer stock, cluster demonstration of oilseed crops, and more to boost the overall domestic production (7).

For instance, policies and initiatives like the Technology Mission on Oilseeds have helped India increase its oilseeds production from mere nine million tons in 1986 to 31 million tons in 2019. However, the total production is still insufficient to meet the rising demand (8).

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How Founders and Innovators Can Help With India’s Goals Towards Self-Reliance in Cooking Oils?

While India has become a self-reliant nation in its sugar, rice, and wheat production, it still depends excessively on imports when it comes to cooking oils.

Below are two ways we can ensure its increased productivity:

  • Increase production of oils’ primary sources like sunflower, soybean, groundnut, rapeseed, ramtil, and mustard.
  • Increase production of secondary sources; oil as a byproduct

It is important to highlight that India imports about 8 to 9 billion USD worth of edible oil despite being an agricultural nation. While we produce nearly 7 to 8 tonnes, we still import about 15 million tonnes of edible oil every year. And it would increase as our population grows (out of which palm oil makes up about 55%) (9, 10).

Therefore, it has become vital to bridge this gap. The money we save on imports can offer farmers more incentives to produce cooking oil domestically.

Quality Seeds

Startups can offer technology to produce high-yielding varieties of edible oilseeds to farmers.

Agdhi Technologies Pvt Ltd, an agritech startup based in Bengaluru (11), leverages computer vision and machine learning for seed classification.

The company offers efficient seed classification and qualitative methods with its computer vision, AI, radiometry, and photometry technologies to determine seed purity, germination percentage, and more to achieve better yields.

Businesses can focus on niche – edible oilseeds, offer good seeds for cultivation, and help farmers improve cycle numbers.

Crop Health Management

Businesses have an opportunity to build a mobile app or a web platform, especially considering the increased smartphone and internet penetration pan India, to manage crop health. Businesses can help farmers detect potential crop damage, offer them suggestions, and do other analyses with the help of crop level data mapped by the entire life cycles of plants.

If you want to take a step ahead and help farmers connect with industry experts and help them diagnose any potential issue remotely from their mobile phones.

BharatAgri (12), for instance, offers tech-enabled digital services to farmers like personalized advisory, data science, real-time monitoring, and weather-based advisory. However, BharatAgri primarily targets farms that grow cash crops like vegetables and fruits. As a new entrant, you can focus on cooking oil crops or expand your offerings into this space.

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B2B Marketplace

If you don’t wish to involve directly with crop technologies, there is still plenty of room to connect farmers with oil producers, mills, and mediators.

There has been an increased focus on digitizing the offline agriculture marketplace and offering partakers a user-friendly mobile app. One such example we found is Bijak which connects buyers and sellers of Agri commodities (13).

We also see opportunities in offering post-harvest supply chain solutions to farmers and helping them get better prices for their produce.

Improving Soil Health

Freshokartz, a Jaipur-based startup (14), offers and recommends quality seeds, pesticides, and fertilizers to farmers’ doorstep based on their soil data. We see similar opportunities in the edible oil space, and businesses can offer advisory and even recommend needed products on their soil health to gain maximum yield.

Startups can also consider offering farmers financial support, market linkages, and other services to increase oilseeds production in India.