The rising price of oil and fats was the major driver of inflation in the foods and beverages category in the fiscal FY22 (till December), said the Economic Survey 2021-22. According to the survey, which was released by the Ministry of Finance on January 31, oil and fats contributed to around 60 percent of food and beverages inflation in the country, despite having a weight of only 7.8 percent in the group.
“Inflation of the sub-group has risen sharply since mid-2019; remained in double digits since April 2020 and witnessed a further uptrend in 2021-22. In 2021-22 (April - December), its inflation has been 30.9 percent, and stood at 24.3 percent in December 2021,” it added.
Edible oils such as palm oil are a key raw material for FMCG and HoReCa (hotels, restaurants and caterers) industries and a rise in the prices of these commodities impacts consumer goods beyond food products such as soaps, shampoos, etc. FMCG companies for several quarters have been battling inflation due to the spike in the prices of palm oil and other commodities.
India imports around 60 percent of its consumption of edible oils, and palm oils (crude and refined) constitute around 60 percent of the imports of edible oils. As a result, fluctuation in imports and international prices transmit to domestic prices of edible oil.
“The current spike in prices of edible oils is mainly on account of high and increasing international prices of edible oils.
The rise in oils component of Food and Agriculture Organisation’s (FAO) food price index from May 2020 onwards has been steep, and reached a 10-year high due to robust global import demand amidst the shortages over migrant labour impacting production in Malaysia,” said the Economic Survey 2021-2022 document.
According to the Survey, the rise in international prices was accompanied by a decline in imports of edible oils. During the oil year 2020-21 (November 2020-October 2021), India’s imports of edible oils have been the lowest in the last six years, the survey said. However, in terms of value, it has increased by 63.5 percent in 2020-21 as compared to 2019-20, reflecting the rise in international prices of edible oils.
Unlike last financial year, the food and beverages group was not the major driver of inflation, indicated the survey.
As per the survey, while food and beverages’ contribution to retail inflation stood at 59 percent in FY21, in the current financial year it has dropped to 31.9 percent. The sub-groups of ‘fuel and light’ and miscellaneous, which includes ‘transport and communication’ and health, were the largest contributors to the inflation in April-December 2021 period, said the survey.
The contribution of the miscellaneous group, showed the survey has increased from 26.8 percent in 2020-21 (April-December) to 35 percent in 2021-22 (April-December) and the contribution of ‘fuel and light’ increased from 2.3 percent to 14.9 percent.The government has taken several measures to stem the rise in edible oil prices. The duty on edibles oil has been reduced with effect from October 2021 and the basic duty on refined palm oil/palmolein, refined soyabean oil and refined sunflower oil has been reduced to 17.5 percent from 32.5 percent with effect from October 2021. Steps are also being taken to improve the production of secondary edible oils, especially rice bran oil to reduce the import dependence.