It’s time to protect the poor and the migrants from rising edible oil prices
While the minimum support price (MSP) of mustard seeds for the Rabi Marketing Season (RMS) 2021-22 was fixed at Rs. 4,650 per quintal i.e., Rs. 225 per quintal higher in comparison to the MSP for RMS 2020-21, the same was sold at around Rs. 6,000-6,500 per quintal to private traders in mandis located in Haryana's northern districts during February this year. The State agencies were supposed to begin their procurement in April 2021-22. However, a recent notice by the Director of Food Civil Supplies and Consumer Affairs, Haryana shows that on account of the unavailability of mustard with the HAFED, which is the largest apex cooperative federation of Haryana, the concerned department would not be in a position to distribute mustard oil to the Public Distribution System (PDS) beneficiaries (having Antyodaya Anna Yojana-AAY and Below Poverty Line-BPL cards) at the ration shops/ fair price shops located in that state.
Clearly, open market sale of mustard seeds at a large scale to the private players left the HAFED with inadequate supply of the produce. So, a subsidy of the amount Rs. 250/- per 2 litres on mustard oil is supposed to be directly deposited to the bank accounts of the PDS beneficiaries, which is expected to benefit 11,40,748 families.
The subsidy to be transferred to the bank accounts of the PDS beneficiaries (i.e., AAY and BPL cardholders) in Haryana would still be inadequate since the open market retail prices of most edible oils, including mustard oil, have skyrocketed this year. According to the Price Monitoring Division, Department of Consumer Affairs, the price of mustard oil (packed) in Delhi (data sourced from State Civil Supplies Department) went up from Rs. 146.53 per kg in January 2021 to Rs. 175.23 per kg in May 2021, while in Karnal, it increased from Rs. 126.3 per kg in January 2021 to Rs. 165.82 per kg in May 2021. In Gurgaon, mustard oil (packed) price increased from Rs. 146.4 per kg in January 2021 to Rs. 152.47 per kg in May 2021. The price of packed groundnut oil in Delhi (data sourced from State Civil Supplies Department) soared up from Rs. 183.3 per kg to Rs. 197.58 per kg between January and May this year, whereas in Karnal, it rose from Rs. 167.2 per kg to Rs. 195.64 per kg between January and May. In Gurgaon, the price of packed groundnut oil increased from Rs. 172.75 per kg in January to Rs. 176.59 per kg in May this year. Similarly, packed sunflower oil and palm oil have become costlier in May in comparison to January. Therefore, the discontinuation of subsidised mustard oil at the ration shops/ FPS and transfer of a meagre sum of money as cash transfer in lieu of that would put an extra economic burden on the BPL and AAY beneficiaries. They have to shell out extra from their meagre incomes for buying edible oils from the market. It should be added here that the pandemic has rendered many workers in the informal sector without jobs and adequate incomes.
The mustard seed wholesale prices are not just high in Haryana this year; they are also high in the rest of India. On average (i.e., average monthly wholesale prices in 10 states i.e., Chhattisgarh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh, Uttarakhand and West Bengal), the wholesale price of mustard in May 2021 was Rs. 6,459.64 per quintal. In April, it was Rs. 5,696.43 per quintal. In May last year, the wholesale price of mustard seed was Rs. 4,519.82 per quintal. Please see table-1.
Table 1: State wise Wholesale Prices Monthly Analysis for Mustard (in Rs. per quintal)
Source: Agmarknet portal (accessed on 11th June, 2021), http://agmarknet.gov.in/PriceTrends/
Unlike mustard, one gets a different picture related to wheat. It should be added here that despite a rise in the procurement of wheat from 363.61 lakh metric tonnes (LMT) in RMS 2020-21 to 409.80 lakh metric tonnes (LMT) in RMS 2021-22 (till 1st June 2021), which is an increase by 12.7 percent, wheat in wholesale market was sold at below MSP (MSP was fixed at Rs. 1,975 per quintal for RMS 2021-22) in Madhya Pradesh i.e., at the rates of Rs. 1,925.63 per quintal in May and Rs. 1,933.09 per quintal in April this year.
Edible Oil Price: Domestic and International Trends
Since the annual increase of MSP for soybean (4.6 percent), sunflower seeds (4.2 percent) and groundnut (3.6 percent) pertaining to the Kharif Marketing Season-KMS 2020-21 and for mustard (5.1 percent) pertaining to the RMS 2021-22 was modest, it can be said that the remunerative procurement prices offered by the Government did not cause inflation in edible oils.
Due to the lockdown, most hotels and restaurants did not open and people opted for home cooked food instead of ordering food from outside (via mobile apps). So, the demand for edible oils was low during 2020-21 and has remained so in 2021-22 (till May) as well. Despite this, edible oil prices have steadily risen in the last one year or so. A reply to the unstarred question number 2014 to be answered on 12th March, 2021 in the Rajya Sabha suggests that the import of edible oils constituted 58.4 percent of total domestic demand in 2017-18 (in terms of quantity), 60.1 percent of total domestic demand in 2018-19 (in terms of quantity) and 55.7 percent of total domestic demand in 2019-20 (in terms of quantity).
Media reports indicate that the global prices of oilseeds such as soybean and edible oils such as palm oil climbed up in 2020-21 and 2021-22 because some of the producing nations witnessed a decline in output due to weather conditions and pandemic-induced labour shortage and other issues related to logistics. Aggressive import of soybean by China, which it uses for extracting oil and also to prepare animal feed pushed up the global prices in 2020-21 and 2021-22 (till May). Thanks to the delayed sowing in Brazil caused by drought, not enough soybean could be produced and exported to the rest of the world, which created shortage. The FAO's Monthly Price and Policy Update on Oilseeds, Oils and Meals (published in May 2021) states that the "reports of lower-than-expected planting intentions and accounts of below-average temperatures and dry conditions in parts of the country’s [i.e., the USA] main soy growing regions casted doubts over the supply prospects for the upcoming 2021/22 season." It adds that "Argentina’s production outlook continued to be conditioned by reports of lower-than-anticipated yields owing to prolonged dryness."
Due to drought-like conditions prevailing last summer in the Black Sea region countries such as Ukraine and Russia, output of sunflower seed was hit. A fall in the acreage under sunflower seeds noticed in Argentina also reduced the total availability of the oilseed. Weather conditions, labour shortages in Malaysia (caused by the pandemic) and the biofuel programme in Indonesia added to an increase in palm oil prices. Instead of satisfying the food needs of the people, palm oil is now being used either for blending with fossil fuel or used indirectly for manufacturing biodiesel. Many economists are suggesting that biofuels are a better option in comparison to fossil fuels like petrol, diesel or coal in order to curb the emissions of carbon dioxide, a greenhouse gas (GHG), which is a responsible factor for climate change. However, if crops like corn, palm oil and soybeans are more and more grown as “energy crops”, then that may increase competition for land, causing degradation, deforestation and desertification, and ultimately leading to food insecurity.
According to the FAO's Monthly Price and Policy Update: Oilseeds, Oils and Meals, published in May 2021, "[a]s for vegetable oils, the additional increase of the price index was driven by rising palm, soy, and rapeseed oil quotations, which more than offset lower sunflower oil price quotations. International palm oil prices appreciated for the eleventh month in succession in April, largely underpinned by concerns over slower-than-expected production growth in major exporting countries. Furthermore, global import purchases remained strong, although a marked rise of COVID-19 cases in India pointed to uncertain demand prospects going forward."
There is ample evidence to suggest that edible oil prices have skyrocketed in the country due to the rise in international prices. Figure-1 below clearly indicates that since May last year, there has been an upward trend in the FAO Vegetable Oil Price Index. The FAO Vegetable Oil Price Index, averaged 174.7 points in May, gaining 12.7 points (or 7.8 percent) over the same in April 2021. Please click here to access figure-1. The continued strength of the index primarily brings to our attention the rising palm, soy and rapeseed oil values. The Food and Agriculture Organisation (FAO) of the United Nations states that the “international palm oil quotations remained on an upward trajectory in May and reached their highest level since February 2011, as slow production growth in Southeast Asian countries”, coupled with “rising global import demand, kept inventories in leading exporting nations at relatively low levels”. Due to a robust global demand, especially from the biodiesel sector, soy oil prices have risen continuously, while international rapeseed oil values climbed up because of continued global supply tightness.
Figure-1 above also shows that the Wholesale Price Index of Manufacture of Vegetable and Animal Oils & Fats has risen ceaselessly since May last year. The Consumer Price Index (Combined) of Oils and Fats has also steadfastly increased since June 2020.
It can be observed from figure-2 above that the rate of inflation in FAO Vegetable Oil Price Index (on a year-on-year basis) has increased steadily from 27.7 percent to 124.5 percent between January 2021 and May 2021. In other words, the FAO Vegetable Oil Price Index in May this year was 124.5 percent higher than what existed in May last year. The rate of inflation in the Wholesale Price Index of Manufacture of Vegetable and Animal Oils & Fats (on a year-on-year basis) has gone up continuously from 20.8 percent to 43.3 percent between January 2021 and April 2021. The rate of inflation in the Consumer Price Index (Combined) of Oils and Fats (on a year-on-year basis) too has climbed up from 19.8 percent in January 2021 to 25.9 percent in April 2021. Kindly click here to access figure-2.
It is worth noting that under the Essential Commodities (Amendment) Act, 2020, stock limit on foodstuffs, including cereals, pulses, potato, onions, edible oilseeds and oil, may be imposed if there is a 100 percent increase in the retail price of horticultural produce; or 50 percent increase in the retail price of non-perishable agricultural foodstuff over the price prevailing immediately preceding one year or average retail price of last 5 years, whichever is lower.
India was the largest importer of edible oils with a share of 18.2 percent in TE 2019-20 (i.e., Triennium Ending 2019-20), followed by the European Union (14.4 percent) and China (13.6 percent). The demand for edible oils has steadily risen in the country over the years. So, the Government of India is incentivising the production of oilseeds in order to reduce its import dependence through careful synchronisation of price policy and trade policy. Please click here and here in order to know more about the policies of the Government to become self-reliant in edible oil production.
In terms of quantity, India’s import of edible oils has mounted from 69.0 lakh tonnes in 2010-11 to 146.4 lakh tonnes in 2019-20. In value terms, the country’s import of edible oils has grown from Rs. 299 billion to Rs. 682 billion between 2010-11 and 2019-20. Please see chart-1.
Chart 1: India’s Import of Edible Oils, 2010-11 to 2020-21 (quantity-lakh tonnes and value-‘000 crore)
Source: Report on Price Policy for Kharif crops of 2021-22 season by Commission for Agricultural Costs and Prices, released in March 2021, please click here to access
It should be noted that the Third Advance Estimates of Production of Foodgrains and Oilseeds for 2020-21, released on 25th May, 2021, shows that the total production of nine oilseeds (i.e., Groundnut, Castorseed, Sesamum, Nigerseed, Soyabean, Sunflower, Rapeseed & Mustard, Linseed and Safflower) has increased from 297.99 lakh tonnes to 332.19 lakh tonnes between 2011-12 and 2019-20. As per the Third Advance Estimate, the total production of nine oilseeds is expected to touch 365.65 lakh tonnes in 2020-21, which is around 10.1 percent more than the production in 2019-20. In comparison to 2019-20, the total production of nine oilseeds was higher in kharif and rabi seasons of 2020-21 by almost 23.05 lakh tonnes and 10.41 lakh tonnes, respectively. Despite this rising trend in domestic production of oilseeds, India is still dependent on the import of edible oils, as stated earlier.
During the period from 2008-09 to 2020-21, the total area under oilseeds (a total of nine oilseeds) has fluctuated between 24.51 million hectares (minimum) and 28.82 million hectares (maximum). Similarly, during the period from 2008-09 to 2020-21, the average yield of nine oilseeds has varied between 958 kg per hectare (minimum) and 1,295 kg per hectare (maximum).
The Report on Price Policy for Kharif crops of 2021-22 season by the Commission for Agricultural Costs and Prices (CACP), released in March 2021, indicates that the national level yield (921 kg per hectare) of soybean was about one-third of the world average (2,769 kg per hectare) in 2019. The yield of soybeans in Telangana (1,808 kg per hectare), which achieved the highest yield within the country during 2019, was also lower than the world average. The national level average yield of groundnut was 2,063 kg per hectare, which was higher than the world average of 1,647 kg per hectare during 2019, though it was almost half of the world's highest yield (4,426 kg per hectare) that prevailed in the United States of America.
How do the migrant workers cope with high prices of edible oils?
The procurement of oilseeds has increased steadily from 2.16 lakh tonnes to 18.24 lakh tonnes between 2016-17 and 2019-20. Till 11th March 2021, around 10.96 lakh tonnes of oilseeds has been procured. However, the Report on Price Policy for Kharif crops of 2021-22 season by the CACP adds that the "[p]rocurement of oilseeds by public agencies is neither desirable nor feasible as oilseeds procured under PSS [Price Support Scheme] are sold in open market at a discounted price, thereby creating disincentive for private players to procure directly from farmers. Therefore, efforts should be made to effectively implement Price Deficiency Payment Scheme (PDPS) and Private Procurement & Stockist Scheme (PPPS) for oilseeds instead of procurement under PSS." This shows that the provision of edible oils through the PDS shops for the AAY and BPL cardholders is not considered to be a prudent policy by the CACP since it creates disincentive for the private players who buy oilseeds directly from the farmers.
Under the Atma Nirbhar Bharat Abhiyaan, free foodgrains and pulses for 8 crore migrant labourers (mainly stranded migrants) who were not covered under either the National Food Security Act (NFSA) or State Scheme PDS Cards was announced. Under that scheme, 5 kg of foodgrains per person per month was provided free of cost for two months (May and June, 2020) to the eligible beneficiaries. In addition, 1 kg of pulses was also given per migrant family per month. However, the provision of edible oils was not mentioned in that scheme.
Under the Pradhan Mantri Garib Kalyan Anna Yojana-I, about 81 Crore NFSA beneficiaries covered under both categories of NFSA, namely Antyodaya Anna Yojana (AAY) and Priority Householders (PHH), were provided with an additional quota of free-of-cost foodgrains (rice/ wheat) at a scale of 5 kg per person per month, over and above their regular monthly entitlements. In addition, 1 kg of pulses was also provided per family per month. The Department of Food and Public Distribution had started the implementation of PMGKAY-I for a period of three months i.e., April, May and June 2020, so that the poor and vulnerable beneficiaries under the NFSA do not suffer on account of the non-availability of foodgrains during the crisis.
Following the implementation of PMGKAY-I between April and June last year, the Government of India extended the scheme for another 5 months from July to November 2020. Roughly 81 crore beneficiaries covered under the NFSA and AAY were provided 5 kgs of rice/ wheat free of cost under the PMGKAY-II.
To reduce the hardships faced by the poor and needy due to various disruptions caused by the resurgence of COVID-19 second wave in the country, the Department of Food and Public Distribution started the implementation of the PMGKAY-III for a period of 2 months i.e., May and June 2021, so that the poor and vulnerable beneficiaries under the NFSA do not suffer on account of the non-availability of foodgrains. Under the PMGKAY-III, about 80 crore NFSA beneficiaries covered under both the categories of NFSA, namely AAY and PHH, were provided with an additional quota of free-of-cost foodgrains (rice/ wheat) at a scale of 5 kg per person per month, over and above their regular monthly entitlements. The PMGKAY-III did not provide free-of-cost 1 kg of pulses per month to each household covered under the NFSA.
There are two things to be noticed about PMGKAY-I, PMGKAY-II, PMGKAY-III and PMGKAY-IV. Firstly, the PMGKAY won't cover such migrant workers who are not part of either the NFSA or any state level PDS scheme. Secondly, it is not mentioned whether edible oils would be provided under the PMGKAY. So, in those states where edible oils are not sold through the ration shops, beneficiaries would have to rely on open market purchases of the same.
The Atma Nirbhar Bharat Abhiyaan package for the migrant workers (announced last year) was not extended any further although the plight of the migrant workers still continues thanks to the state level lockdowns. It was thought that the portability of ration cards under the One Nation One Ration Card scheme, backed by technology, would be the panacea for combating food insecurity faced by the migrant workers. The portal of Integrated Management of Public Distribution System (IM-PDS), which began last year with the launch of One Nation One Ration Card, shows that in May 2021, there were a total of 9,097 transactions, out of which 2,762 transactions were pertaining to PMGKAY only (65,460 beneficiaries) under the One Nation One Ration Card scheme (as on 11th June, 2021). In May last year, there were a total of 378 transactions (3,077 beneficiaries) under the same scheme. The portal does not provide data on migrant workers from Bihar who buy foodgrains in Delhi under the One Nation One Ration Card scheme. This is because the Delhi Government has not yet implemented the scheme. There is no data available on the IM-PDS portal about edible oils being sold through the ration shops/ FPS under the scheme. Against the vast population of short-term migrant workers in the country, only a miniscule proportion of them have been able to access PDS foodgrains under the One Nation One Ration Card scheme, shows the IM-PDS portal.
Kindly note that on 24th May, 2021, the Supreme Court of India directed that dry ration has to be distributed to the migrant workers throughout the country by the states under the Atma Nirbhar Bharat Scheme or any other scheme found suitable by the states/ Centre. Further, the Supreme Court has directed all the states/ Union Territories to make operational community kitchens to provide food to migrant workers all over the country and ensure wide publicity of the locations of community kitchens. In the SC hearing dated 13th May, 2021, these measures were only restricted to migrant workers in the Delhi NCR area.
Experts have argued that if import duties on edible oils are reduced, international prices will go up since India is a major importer of such oils. So, the consumers won't benefit. On top of that, the Government will not be able to get its revenue. So, it is better to provide subsidised edible oils to the poor through the PDS ration shops/ FPS.
FAO's Monthly Price and Policy Update: Oilseeds, Oils and Meals, No. 142, published in May 2021, please click here to access
Integrated Management of PDS (IM-PDS) portal, please click here to access (accessed on 11th June, 2021)
Agmarknet portal, please click here to access (accessed on 11th June, 2021)
The Farmers’ Produce Trade and Commerce (Promotion And Facilitation) Act, 2020, please click here to access
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Indonesia’s biodiesel program fuels deforestation threat, report warns -Hans Nicholas Jong, Mongabay.com, 9 June, 2021, please click here to access
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Why edible oil prices are ruling high despite good crop and muted demand -Tina Edwin, MoneyControl.com, 26 May, 2021, please click here to access
Mustard seed prices soar in Haryana, fetch Rs.1500/quintal over MSP -Neeraj Mohan, Hindustan Times, 18 February, 2021, please click here to access
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Image Courtesy: TownTokri.com
Tagged with: AAY BPL CACP Consumer Price Index CPI Edible Oils FAO Food and Agriculture Organisation Haryana Minimum Support Price MSP Mustard OIl Mustard Seeds Oilseeds Oilseeds Production One Nation One Ration Card ONOC Palm OIl PDS PMGKAY Public Distribution System Rapeseed Oil Ration Shops Safflower Oil Soybean Oil Sunflower Oil Whholesale Price Index WPI