By Simmarpal Singh & Vibhav Agarwal
The Soybean Oil Link in the India Argentina Relationship Simmarpal Singh-CEO, COFCO International India Vibhav Agarwal- Senior Vice -President, Oils Desk, COFCO International India Due to the sheer size of the populationAsiais the leading consumption center for edible oils of which China happens to be the largest consumer with its per capita consumption at 21 kg followed by India where the per capita consumption is lower AT 17kgs. The fact that these averages are lower than the global average of 24 Kgs augurs well for the upside potential in consumption that exists in both these countries. Out of this total edible oil consumption basket of various oils in these two countries, Soybean oil constitutes 45% in China while in India it is at 20%.
However, if we look at the trade flows and how this consumption is fulfilled, we see that in China the demand of this soybean oil is fulfilled largely by the import of SoyBeans from USA and Brazil which are then crushed in the 120 Million Tons of crushing capacity installed in China. The direct imports of Soybean oil by China is minimal and pegged around 0.5MillionTons out of the total consumption of 38 M Tons.
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Meanwhile, on the Indian side our GMO policy restricts imports of the Soy Beans. Hence India only imports crude Soybean oil from the Crushing Capacities installed primarily in Argentina and partly in Brazil, which is then refined at the various refineries at the Port locations on the western and eastern coast of India.
The volume of Oil imported varies from year to year depending upon the gap that exists between the Indian demand and the supply that comes from India’s own soybean crop production. Hence India’s growing consumption led demand offers the perfect fit for any soybean production country which already has high installed capacity for Soybean Crushing like Argentina. It is a win-win since India does not want to import soybeans not only because of its GMO policy but because it would be a huge spend to build up soybeans crushing capacity at Port locations. On the other hand, the huge crushing capacity installed in Argentina would have a continuously growing offtake of crude oil fueled by India’s growing consumption.
In 2017 Argentina exported to India US $ 2.0 billion of Agro-industrial products. Almost 90% of these exports to India comprise only Soya oil.
Due to the different eating habits in Indian consumers who prefer vegetarian food versus Chinese consumers who prefer Non-vegetarian food, the Chinese policies need to safeguard their domestic Beans crushing industry. That is why there is encouragement to import soybean seed as they have a huge domestic demand base for the meal as well as the Oil. Which means that despite China being the largest consumer they import relatively lesser Soybean oil for their domestic demand as compared to India. This makes India the largest importer of Soybean Oil. This Indian edible oil demand has continued to grow at a rapid pace during the last one and half decade due to the growth in the Economy as well as the 1.2% growth in population over a huge base number taking the demand from 10M Tons in 2002/03 to 22M Tons in the last year.However due to various farm policy issues Indian domestic production of Soybeans has grown at a stagnant phase and over last 15 years has managed to grow oil production from 4.5mmt to 7.5mmt only. This makes India more reliant on edible oil imports. With Government focus now changing to help farmers, this area might see improvement over next decade or so but for next 5 years there is no short-term solution for this sector which can influence any unpredictability in the trade dynamics. And that is why we have seen that India’s oil imports have seen a massive growth from 5Million Tons to 15Million Tons between 2002/3 to 2018/19.
The graph below shows how Indian demand and imports have evolved over the years
Of the imports, palm oil imports contribute significantly followed by Soybean Oil and Sun Oil:
Though palm oil continues to be the most imported oil for India, it is pertinent to note that Indian demand is also changing for healthier oil options which can be seen in the chart below showing how soft oil imports have grown from 25% in 2002/03 to almost 40% which shows that soft oil imports have grown at a much faster pace than the palm oil:
Argentina happens to be the main exporter of Soybean oil to the world, hence its relationship with Indian consumers is important for both the economies. If we see the Argentine oil flow, majority of oil available is exported, though we have seen over the last few years the biodiesel exports from Argentina to European Union and Central America also going up. Of the exports for edible use, India happens to be the main destination which has grown from 25% to 40% share now of the Argentine Oil exports:
As India happens to be the main importer of bean oil, hence it can be inferred that India has been a contributor in the growth of Soybean Production acreages in Argentina and a big factor in the stability of the crushing Industry there.
In regard to the other Oils Argentina also produces 3.0-3.5 Million Tons of Sunflower seed annually and needs the destinations. India is also the largest importer of Crude Sunflower oil but the share of Argentine exports to India has dropped drastically from over 75% in 2006/07 to less than 5% since 2010. Ukraine which has seen a massive surge in sun seed production over the last decade has gained share and due to the better quality of the oil as evidenced by their lower wax content and lower bleachability. The higher costs related to subsequent refining make the Argentine Sunflower oil trade at roughly $20 discount to the Sunflower Oil from Black Sea.
This is one area where Argentina’s Sunflower seed crushing Industry needs to work on so as to supplement the bilateral trade between the two nations which has so far been largely Soybean Oil focused.
Singh is CEO and Agarwal is Senior Vice -President, Oils Desk, COFCO International India