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The birth of Janmay + Special Reliance AGM thread

Before we attempt to understand why Amul has decided to plunge into the edible oils business, let’s try and understand the market.


Edible oil consumption has been trending upwards for decades. In 2019, India consumed 23 million tonnes of edible oils, a ten-fold increase compared to 50 years ago. Future projections set the consumption figure at 34 million tonnes per annum by 2030, going at a 3% CAGR. This is a positive as we inch closer to the global consumption average, especially for rural and poor households. Increasing income, urbanization, changes in food preferences, and a wider availability of processed foods will continue to drive consumption growth in the near future.

The supply side of the equation paints a less rosy picture. India spent about 10 billion dollars last year on edible oil imports as local production could meet only a third-third of the demand. Increasingly, edible oils have come to weigh in on our trade balances much the same way as gold. Half of the edible oil imports are for palm oil - a type that has quietly but firmly made inroads into our diet through processed foods. It is significantly cheaper than almost all other oils and is a preferred choice of the restaurant and catering industry. (While its health effects are contestable and the WHO lists studies with contradicting findings, its disastrous environmental effects are well known.)


Given the size of demand, it is natural to ask why is our production lacking? India has struggled with productivity in almost all types of edible oils. For soyabean, the oilseed with the largest area under cultivation, our productivity per hectare is just about half of the global average. The gaps are even larger for palm oil, with Indonesia and Malaysia having 3-4 times the productivity of our domestic cultivation. As a result, India has become the largest importer of palm oil and Indonesia and Malaysia have become the largest producers.


It is then no surprise that the government has been nudged to intervene. Import duties on crude and refined palm oil stand at 44% and 45% respectively, but the numbers are ever-changing with swings in political-economic climate. The constantly shifting trade climate makes it difficult for domestic producers, extractors, and refiners to compete. In fact, a change in duties and the spiralling debt that ensued dug the proverbial grave of Ruchi Soya and set the stage for the transfer of ownership to Patanjali Ayurveda.


Amul’s entry to the highly-competitive, low-margin world of edible oils


With Janmay’s launch, Amul is looking to have a presence across five edible oil variants (cottonseed, mustard, sunflower, groundnut, and soybean) and steering clear of palm oil. There are two key reasons for driving this selection. First, these five oils cost more than palm (at least 20%+) and cater to less price-sensitive medium-income and high-income households. This is also why they are more suitable to be marketed with a brand (only 30% of edible oils in India are branded for cooking). The second reason is that domestic oilseed supply can meet a significant portion of current consumption levels across these variants and therefore, the business can be protected from exogenous shocks of retaliatory duty rates.


Amul is specifically well-positioned to make the most of both these factors. It has previous experience with marketing Dhara and can re-deploy that strength for Janmay. And with its co-operative structure, it can repeat its success story of the White Revolution with oils - a farmer-first model to ensure that the growers receive remunerative prices and re-invest sustainably.

The go-to-market strategy reflects these positions of strength. The initial launch will span its existing distribution network of 30,000 parlours and retail counters across Gujarat and Rajasthan. By kicking off procurement, refining and distribution operations all within West India, it will have access to a region with the highest production and consumption levels for these oils. (Gujarat is the most important producer of groundnut and cotton in India and has the potential to be a leading producer of their oils as well. Over the last few years, the state has had a steady growth in the cultivation of soybean, mustard and sunflower  too.)

Given the current trade gap, it is going to a long road to Atma Nirbharta in edible oils. But with Amul leading the way once again, it is definitely on the cards for non-palm oils.


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If you missed the Reliance AGM yesterday, sweat not! We’ve got you covered - here’s a list of some of the most important points discussed in the AGM. Do visit the thread and follow us on Twitter if you would like to see more of these!

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About the Author: The post is written by our EZPP Partner Monika Chaudhary with relevant edits from our editorial team. Monika is a graduate from IIM Calcutta and has worked with Uber.

Disclaimer: All views expressed in the post are personal, and not related to any organization to which the writer belongs.

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