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INDUSTRY PROFILE

The word 'oil' refers to the chemical substances taken into the body in order to keep the body in a healthy and active condition. The body requires oil for growth, repair and replacement of its worn-out tissues. Hence, oil has to provide the required raw material, energy and other regulating substances, like vitamins and minerals, for the smooth functioning of the body, besides meeting the calorific requirements like carbohydrates, proteins, fats, etc., India is the worlds second largest producer of oil next to China and has the potential of being biggest industry with oil and agricultural sector contributing 26 per cent to Indian GDP. It has the capacity of producing over 600 million tons of oil products every year; it is likely to be doubled in next ten years. Oil accounts for the largest share of consumer spending. Oil and oil products account for about 53 per cent of the value of final private consumption. This share is significantly higher than in developed economies, where oil and oil products account for about 20 per cent of consumer spending (www.tata.com). The average monthly per-capita consumer expenditure (MPCE) was Rs. 511 for rural India, which comprised of Rs.305 for oil and Rs. 206 for non-oil commodities. For urban population, it is Rs. 1060, which comprised of Rs.441 for oil and Rs. 619 for non-oil items. There was a decline in the share of oil in total expenditure that is 54 per cent in rural areas compared to 64 per cent in 1987-88 and 42 per cent in urban areas compared to 56 percent during 1987-88 (National Sample Survey Organization, GOI). In India, majority of oil consumption is still at home. Nevertheless, out-of-home oil consumption is increasing due to increase in urbanization, breaking up of the traditional joint family system, desire for quality, time which translates into an increased need for convenience, increasing number of working women, rise in per capita income, changing lifestyles and increasing level of affluence in the middle income group had brought about changes in oil habits. In the last two decades, the share of urban population has increased from 23.3 per cent in 1981 to 27.8 percent in 2001. During the same period the female work participation rate had increased from 19.7 to 25.7 per cent. The per capita income increased from Rs.7, 328 in 1980-81 to Rs.10, 306 in 20002001. The change in oil habits was evident from the growth of oil processing industries. India accounts for 9.3 percent of world oilseed production. It has the worlds fourth largest refined oil economy. Yet, about 43 percent of refined oil available in India is imported. In 1999

India ranked as the worlds largest importer of refined oils, displacing China. The bulk of refined oil India imports under the Open General License (OGL) are RBD Palmolein of Malaysian and Indonesian origin India has approximately 300 crude refined oil refining units. 60-70 percent of which are small. Unlike the bigger refiners, the small ones are unable to import huge quantities of crude either due to their low capacity or lack of financial resources, and may be forced to close down or sell out to the bigger ones in the foreseeable future. A major problem is the low capacity utilization. The installed capacity of oil mills is around 36 million tonnes annually, but capacity utilization is only 40 percent solvent extraction plants show only 33 per cent capacity utilization and vegetable oil refineries show 40 per cent. The total import of refined oils during the period from November 1998 to October 1999 totalled 4.4 million tonnes valued at more than Rs. 9.000 crores. That was against a demand supply gap of 1.4 million tonnes in 1998-99. Imports have therefore deluged the market. The import of relined palm oil was put under OGL (Open general License) in March 1994. Other refined oils were put under OGL in April 1995 (when an item is brought under OGL, it means that the item can be imported without seeking any approval). Originally, there was no discrimination between refined and non refined oil as far as import duty concerned. The duty on both was 65 percent. Duty was the slashed to 30 percent for both, then to 20 percent in 1996 and 15 percent in the 1999-2000 budgets. On December 30, 1999 a differential duty structure was introduced. Duty on refined oil was fixed at 27.5 percent (25 percent plus 10 percent surcharge) while that on crude was retained at 16.5 percent (15 percent plus 10 percent surcharge) But only actual users (as opposed to traders) are allowed to avail of this reduced duty on crude oil. Traders are nevertheless allowed to import crude at the reduced duty but only to sell to actual users on a high seas basis. This requires that the actual users fills in the import documents (and pays the reduced duty) but leaves the importing process to the trader.

In most parts of the world, the import duty on oilseeds is lower than that on oils. But, in India it is higher 40 percent. That is why no import of oilseeds of oil bearing material has taken place in India. The industry wants the duty to be lowered from the present 40 percent to 5 percent. Oilseeds and refined oils are two of the most sensitive essential commodities. India is one of the largest producers of oilseeds in the world and this sector occupies an important position in the agricultural economy and accounting for the estimated production of 25.14 million tonnes of nine cultivated oilseeds during the year 2003-2004. India contributes about 8-9% of the world oilseeds production. Export of oil meals, oilseeds and minor oils has increased from 2.28, million tonnes in the financial years 2003-2004. In terms of value, realization has gone up from Rs.2653/- crores to Rs.5447/- crores. India accounted for about 6.4% of world oil meal export. India is vast country and inhabitants of several of its regions have developed specific preference for certain oils largely depending upon the oils available in the region. For example, people in the South and West prefer groundnut oil while those in the East and North use mustard/rapeseed oil. Likewise, several pockets in the South have a preference for coconut and sesame oil. Inhabitants of northern plain are basically hard fat consumers and therefore, prefer Vanaspati a term used to denote a partially hydrogenated refined oil mixture. Vanaspati has an important role in our refined oil economy. Its production is about 1.2 to 1.4 million tonnes annually. It has around 10% share of the refined of the market. It has the ability to absorb a heterogeneous variety of oils, which do not generally find direct marketing opportunities because of consumers preference for traditional oil such as groundnut oil, mustard oil, sesame oil etc. For example newer oils like soyabean, ricebran and cottonseed and oils from oilseeds of tree and forest origin have found their ray to the refined pool largely through vanaspati route. Of late, things have changed. Through technological means such as refining, bleaching and de-odouraisation, all oils have been rendered practically colorless. Odorless and tasteless, and therefore, have become easily interchangeable in the kitchen. Newer oils, which were not known before they have entered the kitchen, like those of cottonseed, sunflower, palm, oils or its liquid fraction (palmolein) soya bean and rice bran. About 60-70% predominately groundnut and mustard seeds are used to make non-refined or filtered oils. This tends to have a strong and distinctive test preferred by most traditional customers. The share of raw oils refined oils and vanaspati in the total refined oil market is estimated at 42%, 48%and 10% respectively.

Major Features of Refined Oils Economy There are two major features, which have very significantly, contributed to One was the setting up of the Technology. This gave a thrust to Governments efforts for augmenting the production of oilseeds. This is evident by the very impressive increase in the production of oilseeds from about 11.3 million tonnes in 1986-87 to 24.8 million tonnes in 199899. There was some setback in 1999-2000 because of the unseasonal rain followed by inclement weather. The production of oilseeds declined to 20.7 million tonnes in 1999-2000. However, as per available information. The oilseeds production in 2003-2004 is estimated to be 25.1 million tonnes. The other dominant feature which has had great significant impact on the present status of refined oilseeds/oil industry has been the programme of liberalization under which the Governments economic policy allows greater freedom to the open market and encourages healthy competition and self regulation rather than protection and control. Controls and regulations have been relaxed resulting in a highly competitive market dominated by both domestic and multinational players. Demand for Refined Oils Rises in India Indian food industry continues to show a strong commitment to oils imports following drop in domestic demand, says industry body. Fresh figures from the Solvent Extractors Association of India (SEAI) that refined oils imports increased by some 21 percent for the first six months to April 2005. Imports jumped to 2.2 million tonnes in the first half of 2004-2005 up from 1.82 million tonnes for the same period last year. Imports are expected to be much higher this year because of a drop in domestic oilseeds production, said B.V. Mehta, executive director of SEIA adding that India was likely to import about 500,000 tonnes per month this year. Purchases of refined oils by India are expected to reach around 5 million tonnes this year from 4.4 million tonnes in 2003-2004 Mehta added reports the American Soybean Association. Soya oil in particular saw strong growth. Imports of crude soy oil leapt to 735.352 tonnes in the November 2004 to April 2005 period up from 236.990 tonnes in a year earlier. Crude palm oil purchases rose 10.8 percent to 1.01 million tonnes from 911,520 tonnes. Indias oilseed output for 2005 is estimated to be around 21.8 million tonnes, a fall of 6.4 percent from 23.3 million tonnes last

year. The processed food market is enjoying decent growth in India, pushing up demand for oils. The Indian branded food and drinks market grew last year by over 5 percent, according to recent figures from ACNielsen, outpacing the global the global average growth rate 4 percent. Supporting this buoyant overall trend, growth rates for individual product categories within the Indian market too, reflect aggressive performance within the similar period.

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