Government bans edible oil exports for a year; prices expected to stabilise

The government, facing a general election next year, took a major step towards containing galloping inflation and spiraling food prices by banning the export of edible oils for one year with immediate effect. This decision was announced by the Directorate General of Foreign Trade in a notification on its website today.

The present problem of inflation is further compounded by the distinct possibility of a much lower oilseeds harvest than usual, with a possible decline to 86 lakh tons from 95.2 lakh tons a year earlier.

Output of mustard seeds, the nation's biggest winter-sown oilseed crop, may fall by as much as 15 per cent to 50.9 lakh tons this year, according to B V Mehta, executive director of the Mumbai-based vegetable oils trade body, Solvent Extractors' Association.

In spite of exporting tons of edible oils to the US, Europe and China, India depends on imports to satisfy half her domestic needs. India is at present the second-largest buyer of edible oils in the world, and the major sellers are Indonesia and Malaysia for palm oil, and Argentina and Brazil for soybean oil, both of which reached record prices this month. 

India's annual edible oil consumption is around one crore tons, with imports accounting for about half of that figure. Last month, the country's vegetable oils imports surged by nearly three-fold to 4.30 lakh tons compared to 1.50 lakh tons in the previous year. While non-edible oils went up by four times at 84,237 tons.

Compared to these gargantuan figures, India's export figures are relatively small. India mainly exports groundnut oil and coconut oil. The country exported about 30,000 tons of groundnut oil and 5,000 tons each of coconut oil and mustard oil during the November-February 2007-08 period, according to the Solvent Extractors' Association.

The government could take more steps such as reducing import duties or banning futures trade in oilseeds to curb increasing prices, if the export ban proves to be insufficient. The finance minister Chidambaram had said yesterday that the government would take steps to curb food prices that have driven up inflation to a nine-month high.

As a result of the government's pro-active step in curbing oil prices, soybeans, soybean oil and mustard oilseed prices fell on the National Commodity & Derivatives Exchange in Mumbai today. Prices of soybean oil for April delivery declined as much as 3.9 percent, while mustard oilseed for May delivery dropped 4 per cent.