Swine flu fear may affect India's oil, oilseed market

The World Health Organisation gives the assurance that there is no risk of infection of swine flu virus from consumption of “well cooked pork and pork products”. Though we are now at the WHO alert level 5 (just one notch below the threshold for a full pandemic outbreak), many countries, including China and Russia, have put a ban on imports of pork products.

Demonstration of this kind of caution is reflective of the recent history of consumer concern over flu virus. Goldman Sachs point out that the poultry demand fell in Eastern Europe and East Asia when avian influenza surfaced. Similarly there was contraction in US beef demand on mad cow fears.

People in more and more countries are now certain to stop eating pork products as the swine flue virus has surfaced in 12 other countries in four continents beyond Mexican borders claiming many lives. This, no doubt, will have some serious implications for the global grains and feed market. According to a trade official, the reports of China cancelling several shipments of soybeans from the US are to be linked to the panic over swine flu and not to any commercial reasons.

In India’s edible oil import basket, soybean oil ranks next only to palm oil. As for our export of oilmeals, soymeal tops the list. It had a share of 4.177 million tonnes out of the total oilmeal exports of 5.42 million tonnes last year. It will be anxiously watched what impact global swine flu makes on our imports of soyoil and export of soymeal in the coming days.

The size of India’s imports of oils and of oilseeds from China so far this season has got as much to do with speculation as with domestic requirements. India’s imports of oils took a 59 per cent jump to nearly 3.6 million tonnes in the first five months of the current oil year. Is the trade lured into making big imports in anticipation of the government reimposing duty at some stage which will create an opportunity for making a killing?

Quite unlikely of this happening any time soon. Why should a new government to be installed after the elections put a duty on imports when retail prices are so high? Moreover, in view of the robust market for oils, in spite of the summer setting in early when cooking medium use is seen to fall, farmers are holding on to a portion of the rape-mustard crop in anticipation of prices going up further.

Continuing high levels of imports in spite of huge stocks at various ports and large contracted volumes in the pipeline are a cause of concern for Ashok Sethia, president of Solvent Extractors Association of India. Mind you, there are no let up in imports in spite of big advances in world prices of palm oil.

Sethia says India may end up importing as much as 7.5 million tonnes this oil year which will amount to a jump of 1.2 million tonnes over the previous season. He has raised the question if the country is going to end up importing 10 million tonnes of oil in another five years costing up to Rs 40,000 crore. The implications of this for the rural economy as also the exchequer are to say the least quite serious.

According to the Economic Survey, the Indian productivity of nine major oilseeds ranges from 900 kg to a little over 1,000 kg a hectare. It hardly needs to be said that oilseeds productivity could be given a major boost with the right kind of farm extension programme.

That there is a marked speculative angle to Indian imports of oils this season is undeniable. But Dorab Mistry, director of Godrej International, informs that even while China is having a bumper rapeseed crop of 12 million tonnes, it has “imported record tonnages of rapeseed so far this year.”

This no doubt is done to ensure domestic price stability. We are aware that China, which till 1994 was the world’s largest exporter of soybean, now tops the list of the importing countries of this oilseed. Last year China’s soybean imports of 37.44 million tonnes marked a 21.5 per cent rise over 2007. Incidentally, the US had a share of 40 per cent of Chinese soybean imports.

Till the swine flu virus fear broke, China was making heavy purchases of soybean from the US. The reason why China was turning more and more to the US was the forecast of at least a 3 million tonne fall in the 2009 Argentinean crop to 37 million tonnes.