Importing CRUDE SUNFLOWER OIL............
HS Code : 15121110
Did you think "oil"? Not surprising though. Import of crude sunflower oil has been a thriving business in India. However, with constant changes in its import policy and price fluctuations in international markets, questions are being raised over how lucrative this imports business remains.
If you are amongst those who doesn't comprise on both health and taste, chances are high that at this moment, a jar or bottle of sunflower oil will be found on your kitchen shelf. For, with its high smoking point, the slightly amber coloured sunflower oil is considered perfect for Indian cuisine. And not to say, the oil boasts of several health benefits, including its ability to strengthen the human immune system, lower cholesterol, protect against asthma, improve heart health,etc. Interestingly, for these very reasons, sunflower is today known more as a source of an edible oil , and less as a flower!
These are also the reasons why, over the last decade, India's import of crude sunflower oil has seen a massive jump of about 1,727% to touch $1,299.35 million in CY2015 (UN Comtrade data). In fact, industry experts are of the opinion that even if domestic production increases, imports will keep on rising, as lifestyle changes mean that India's consumption of sunflower oil will rise amid stagnant domestic production of the flower.
Despite the positive trend in sunflower oil consumption, sunflower seed production in India has not kept pace with demand. And this has led to more and more imports, mostly from Ukraine – the country today accounts for almost all of India's total imports of sunflower oil (CY2015; UN Comtrade data).
Though Indonesia (36%), Malaysia (23%), Argentina (17%) and Ukraine (13%) are the biggest source of edible oils for India, when it comes to sunflower crude oil imports, Ukraine has been enjoying a clear monopoly, boasting of a solid share of anything between 94% and 99% in India's total import of the product in the last five years. “A few years ago, import of sunflower crude oil used to only go up during festive seasons, but this trend is slowly changing. Because of a constant increase in population, household income and standard of living, imports of sunflower crude oil is increasing in volume and it will only grow,” says a senior official from Athena Tradewinds, an exporter and importer of edible oils including sunflower oil.
According to a recent CARE Ratings report (released in Q3, CY2016), the current per capita consumption of edible oil in India is way below the global average – 14.4 kg per year as against 24 kg per year globally. And considering low domestic production (India imports nearly 67% of its edible oil requirements; the rest is being met from domestic production) and rising consumption, one can assume with a fair degree of certainty that the imports of edible oils, including crude sunflower oil, will only rise further.
"India sources 99% of its crude sunflower oil from Ukraine"
While production remains worryingly inconsistent, the domestic consumption of edible oil has been growing at a rate of 7% annually over the last few years. In the early 1800s, Russia was the first country to commercialise sunflower oil. But, in case of India, sunflower as a commercial crop, was introduced only in 1969. Commercial cultivation took off in 1971, which reached its peak in MY2008, with a production of 1.4 MMT. However, since 2008 the production has been a downhill journey and, as per the government's advance estimates, 2016 could be the worst year in the recent past with respect to sunflower oil production.
Sunflower, as a rain-fed crop, depends a lot on the monsoons and most of the farming areas are not properly irrigated. Bird damage in isolated areas is a serious concern, and marketing, infrastructure and expeller units are still not available in non-traditional areas. In addition, the minimum price support given to farmers isn’t properly implemented. Thus, farmers are shifting to alternate crops because sunflower is seen as a non-remunerative crop,” says Dr. M. Sujatha, Principal Scientist at Indian Institute of Oilseeds Research (IIOR). According to her, Ukraine has a legislation for stringent crop rotation, plus, their soil is highly fertile, which is quite the opposite of India. Nevertheless, IIOR is striving hard to develop superior sunflower hybrids with high yield, oil content and resistance to pests and insects.
In recent years, Karnataka and Andhra Pradesh have emerged as some of the largest producers of sunflower cro in India, followed by Maharashtra, Bihar, and Orissa. But for a country that consumed over 1.8 MMT of sunflower oil in MY2015, and produced just 0.43 MMT, incremental increases will cut no ice.
A low domestic production means exports have remained miniscule for sunflower oil and imports have grown manifold, though sources of our imports have changed over the years. According to the Ministry of Commerce, GoI, in FY2012, the imports of sunflower crude oil from Ukraine soared by 60.48%. Data also shows that in FY2014, imports from Argentina dropped by 87.23%. Sharma affirms, “We started with Argentina as our biggest sourcing destination. After a few years, importers flocked to Brazil. Importers switched because of the price difference. And, now, Ukraine is the obvious choice because it offers good prices and excellent quality. The distance is also shorter, which adds to our advantage.”
According to Sharma, easy availability of vessels from Ukraine also keeps the business flowing. “A vessel can carry around 60,000 MT. But since we don’t need that much of oil at one go, we book around 10,000 MT, and the rest belongs to other importers. Ukraine also offers better quality," says Sharma. However, Argentina still comes as a huge threat to the rest of the sunflower oil exporters.
“There is a noticeable price difference between Argentinian and Ukrainian sunflower oils because of the differences in quality. Crude sunflower oil from Argentina is cheaper because their oil is darker, which requires extra bleaching – the same is the case with crude from Europe. Whereas, crude from Ukraine is light in colour and there is no processing loss. So, they have an edge,” says a senior official from Athena Tradewinds.
However, of late, Argentina is coming back into the game. Indian importers are sourcing a sizable volume of crude sunflower oil from Argentina because of price advantage. Importers say that Argentinian price is 5% lower than the Ukrainian price – and as such Argentina's share in India's imports is slowly going up, from 0.07% in CY2014 to 0.47% in CY2015. Saran, Partner, Greenish International, a company that imports sunflower oil says, “I did not do any business with Ukrainian exporters this year because their prices were too steep. In addition, the country abounds in fraudulent practises. So unless you’re an established importer, it isn’t easy to find someone genuine. This year, Argentina was a better source because their prices were lower and ease of business have increased. They are competing against Ukraine, so Indian importers have an advantage – one just has to play smart." Which means Indian importers might negotiate on quality, but definitely not on their profit margin!
Seconding Saran, Elya Kupets, Owner of Alfa-Eteks, a Ukraine based exporter of sunflower oil, says, “The competition is tough from Argentina. It’s because the price of crude sunflower oil depends on the price of oil seeds, and this year, the price of oil seeds is high. Price fluctuates once (sometimes twice) a week. We enjoy doing business with Indian traders, but it’s hard to find regular customers. There are many buyers, but they buy in small quantities, and perhaps, it may be the price that’s stopping them from going in for bulk purchases.” However, Olga Danyuk of Ukrainian Agribusiness Club (UCAB) believes Russia or Argentina won't impact Ukraine's sunflower oil export business. "The share of Ukraine, Russia and Argentina on the global sunflower oil market is 56%, 21% and 6% respectively. Lower prices in Russia and Argentina cannot have significant impact on Ukrainian market prices because of their low share of market. The price difference in these countries may be due by differences in quality and transportation costs. The price for sunflower oil in Ukraine depends on global market of vegetable oils and can decrease by downhill trends on palm oil and soybean oil," Danyuk explains.
According to a report released by the US Department of Agriculture (USDA), Ukraine’s production of sunflower oil for MY2017 has reached 5.54 MMT, which is close to 33% of the global production – its production in MY2016 reached 4.7 MMT. So, what does the tough global competition between Ukraine, Argentina and Russia indicate (of course, couple with India’s low production and increasing domestic consumption)?
It only points in one direction – importers of crude sunflower oil will continue to reap sunny gains for a long long time. Though margins will keep on fluctuating because of the seasonality of the product, the future definitely looks promising for importers of crude sunflower oil. All they need is little policy interference and high volume play!