Edible oil prices set to rise 5%

Effect of falling rupee, as producers try to pass on higher cost of imports, protect margins

Edible oil producer-refiners are set to raise the price of their produce by around five per cent in a week, to absorb the impact of the falling rupee, which has made imported crude palm oil (CPO) costlier in recent weeks. The price rise would cover all products, including basic edible and derivatives, such as fats.

As the rupee's depreciation has made all imported commodities costlier, to protect themselves from an erosion in margins, domestic edible oil producers are seriously considering passing on the cost to consumers.

"Vegetable oil import has become costlier by around eight per cent in the past year in India, due to the drastic decline in the rupee. The cost has gone up over five per cent in the past couple of weeks. The industry has no option but to pass on the high import cost to consumers. Therefore, some price hike might happen in the coming weeks," said B V Mehta, executive director, The Solvent Extractors' Association (SEA), the apex trade body, with about 850 members across the country.

The price of vegetable oil had declined over the past year by 20-25 per cent. India meets around 55 per cent of its annual oil consumption of around 16.5 million tonnes through imports.

"The anomaly in the government policy has hit us very hard in the past six months. Current fluctuations in the rupee-dollar rate has added to the problems faced by Indian refiners. This is affecting our ability to make further investments and also has started showing adverse effects on employment. We urge the government to restore the duty differential between crude palm oil and refined bleached deoderised (RBD or refined oil) immediately. The government should impose an import duty of 10 per cent on CPO and 20 per cent on refined palmolein oil RBD, which will give sufficient protection to farmers, as well as the desired 10 per cent duty differential for the oil refining industry," said Dinesh Shahra, managing director of Ruchi Soya Industries.

There was a duty differential of 7.5 per cent between CPO and RBD till last year. However, on January 23, an import duty of 2.5 per cent was imposed on CPO, bringing down the differential to five per cent. This reduction has led to large-scale import of refined palmolein, complains the SEA, resulting in further underutilisation of refining capacity.

In the edible oils segment, leading brands such as Sundrop and Saffola enjoy high premiums of 20-25 per cent. Such premium brands would not be impacted by the short-term rupee depreciation.

Being long-term global players, manufacturers of such products always hedge their currency risks fully. Medium-size brands such as Fortune or Nature Fresh would be impacted more, since such companies only partly hedge their currency risk. Producers of bulk and unbranded edible oil would be hit the most, as they neither have adequate hedging capacity nor the skill to take exposure.

Gradually, small players have started taking parallel hedging exposures in both CPO and the rupee, to nullify the impact of currency fluctuations, said Pradeep Chowdhry, managing director of Gemini Edibles & Fats India, a Hyderabad-based company.