Inflationary pressure in India amplified by rising edible oil prices


The rising cost of vegetable oils is posing a major challenge to India’s efforts to control inflation.

Palm oil, the world’s most widely consumed edible oil, has risen 15% to a new high this year, while rival soybean oil has risen 12%, contributing to a surge in global food inflation to near all-time highs.

India, the world’s largest customer of palm, soybean, and sunflower oils, is feeling the pinch as a result of the rally. Food prices grew at the fastest rate in six months in December, putting a strain on household budgets and putting more pressure on Prime Minister Narendra Modi’s government, which already provides food aid to 800 million people or two-thirds of the population.

The central government has taken steps to keep prices down, including lowering import levies on palm, soybean, and sunflower oils, as well as capping stockpiles to avoid stockpiling. Because India’s actions fanned anticipation of bigger purchases, which pushed up foreign prices even higher, success has been limited.

In the short term, India’s alternatives are restricted. Any further drop in import duties, according to veteran trader Dorab Mistry, a director at Godrej International Ltd, will not help to lower prices. Importing refined palm oil and selling it at a discount through the country’s public distribution system (PDS) is the immediate solution, he said.

The government allocates wheat and rice to the states for distribution under the PDS. In response to questioning from Bloomberg News, a representative for the food ministry claimed that state governments are “free to add any item they consider fit from their budgets” to their PDS program.

Domestic edible oil prices rose last year due to a spike in global rates, but the federal government was able to bring them down through a variety of measures, including duty rationalization, he added. He noted that India is working on medium- to long-term strategies to reduce its reliance on imported edible oils.

According to traders and analysts, the government’s longer-term alternatives include creating reserves, increasing domestic supply, and authorizing commercial cultivation of genetically modified (GMO) oilseed crops.

According to Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental, India should create an edible oil stockpile to protect itself from price increases.

This will enable the government to release supply in times of scarcity, soften prices, and reduce speculation and hoarding.

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