The Indian government has recently imposed a 20% basic customs duty on various edible oils to support domestic farmers. The duty increase on crude edible oils, such as sunflower, soybean, and palm oil, is expected to have wide-ranging effects across the food sector, says GlobalData, a leading data and analytics company.

Shravani Mali, Consumer Analyst at GlobalData, comments: “According to the statistics published by the Solvent Extractors’ Association of India, the import of edible vegetable oils registered an annual uptick of 1.2%, during the first eight months of 2024. However, the increase in import duty on crude edible oils can spark concerns among consumers and foodservice operators and may affect sales during the festive season, starting in October.”

In the coming months, the import duty hike is likely to increase input costs for food manufacturers and foodservice operators, which rely on edible oils for use as raw material. For instance, an increase in the prices of palm oil may result in an upswing in production costs of many processed foods. This may lead companies to either absorb the higher costs or pass it on to consumers, adversely affecting sales, especially among low-income households.

Francis Gabriel Godad, Consumer Business Development Manager, GlobalData India, adds: “According to the Ministry of Agriculture & Farmers Welfare, India’s average import dependency for edible oils stood at 57% in 2023. Palm oil dominated these imports, accounting for 59% on average, followed by soybean oil, with a share of 23%, and sunflower oil, at 16%.

“Owing to this high dependency, the government is taking proactive steps to address import dependence and enhance domestic production of edible oil. The increase in import tax on edible oils aims to boost farmer incomes. In addition, the food ministry has urged edible oil processors to maintain the maximum retail price as the current stock availability is sufficient for 45-50 days of domestic consumption and the domestic oilseed crops will arrive in October.”

Mali continues: “The edible oil market is influenced by various factors such as geopolitical tensions and supply chain disruptions. A reduction in imports could shield India from such external shocks. Furthermore, the reduction in imports would mean less expenditure on foreign goods, which will positively impact the trade balance by decreasing the outflow of foreign currency.

“At the same time, reducing imports could possibly lead to higher domestic prices for edible oils, as local supply may not meet demand. This is likely to exacerbate inflationary pressures within the economy. However, the rise in the cost of imported edible oil could encourage domestic production and will benefit domestic edible oil manufacturers, including Adani Wilmar, Patanjali Foods, and Godrej Agrovet.”

Godad concludes: “In summary, while reducing edible oil imports could lead to an improved trade balance by lowering the current account deficit, it may also result in higher domestic prices and inflationary pressures. The net effect would depend on the balance between these opposing forces and the ability of the domestic market to adapt.”