The recent 15% rise in edible oil prices in May is poised to bolster the financials of Companies like: Adani Wilmar, Emami Agrotech and Sunvin Group. 

Introduction: The present surge in prices of edible oils can be attributed to a confluence of factors affecting both domestic production and international supply chains. Given that India relies on imports for around 60% of its edible oil requirements, the volatility in the global market has significant repercussions on local prices.

India's dependence on imported edible oils such as palm oil, soybean oil, and sunflower oil is substantial, with these oils constituting a major portion of the market. 

Causes: Soybean oil shipments from Brazil and Argentina have encountered significant disruptions due to floods in Brazil and labor strikes in Argentina. Consequently, soybean oil prices have increased by Rs.3-4 per liter. Annually, India needs to import approximately 30 lakh tonnes of soybean oil to meet its demands.

The domestic market for mustard oil is also experiencing a price hike, driven by the extensive procurement of mustard seeds by the National Agricultural Cooperative Marketing Federation of India (NAFED) and the Haryana State Co-operative Supply and Marketing Federation (HAFED). 

Additionally, farmers are withholding their mustard seed stocks, anticipating further price increases, which has resulted in a 15% rise in mustard oil prices.

India's sunflower oil imports, predominantly sourced from Russia and Ukraine, face potential future disruptions due to adverse climatic conditions in these countries. Although it is not currently the season for sunflower oil supply, the anticipated impact of high temperatures on crop yields could exacerbate the situation.

The increased use of palm oil for biodiesel production in Indonesia and Malaysia has also constricted its availability on the global market, pushing up prices further. Indonesia's biodiesel mandate program, which allocates 13.4 billion liters for 2024, has contributed to this trend by maintaining a high blending rate. Palm oil, which makes up 38% of India's edible oil consumption, is thus significantly impacted by these international policies and production trends.

Moreover, the global production of palm oil experienced a seasonal low from January to March, resulting in reduced stocks and affecting both production and imports. 

Indonesia’s palm oil production forecast for 2023-24 stands at 45.8 million tonnes, slightly up from the previous year’s 44.7 million tonnes. 

While soybean oil imports from South American countries have not yet been affected, geopolitical tensions and rising freight rates could pose future challenges for sunflower oil imports from Ukraine and Russia.

Historically, restrictions on palm oil exports by Indonesia and the Ukraine-Russia war had caused a surge in edible oil prices in India. However, a subsequent cooling of prices last year led to increased imports. Companies that capitalized on this price differential by importing large quantities of oil stand to benefit the most from the current price rise.

Furthermore, the growing trend of eating out and the rise in online food purchases have contributed to increased per-capita consumption of edible oil in India. This consumer behavior shift is another factor underpinning the recent price hikes.

Conclusion: The rise in edible oil prices is driven by a complex interplay of global supply chain disruptions, domestic market dynamics, and changing consumer behaviors. 

If the price rises sustains, then companies like Adani Wilmar Ltd (Rs.343)Emami is likely to see improved profit margins. 

However, the sustained high prices pose challenges for consumers and highlight the need for strategic management of both imports and domestic production to stabilize the market. Photo: Business Bar