Godrej Plans to Triple Palm Oil Output as Indian Demand Surges

By Thomas Kutty Abraham

Feb. 2 (Bloomberg) -- Godrej Agrovet Ltd., India’s biggest palm oil producer, plans to triple domestic output as demand for cooking oil surges, a company executive said.

Godrej will invest 1 billion rupees ($22 million) in the next five years building refineries to process production from more than 100,000 hectares (247,000 acres) of palm trees, Managing Director B.S. Yadav said in an interview in Mumbai yesterday. That may boost the Mumbai-based company’s output to more than 75,000 metric tons, he said.

India surpassed China as the biggest buyer of palm oil last year as rising incomes increased demand for fried and processed food. The country imports almost all its palm oil requirements. Palm represents 80 percent of all cooking oil purchases, which will jump 34 percent to a record 9.4 million tons this year, according to the Solvent Extractors’ Association of India.

“If the government ramps up oil-palm cultivation, they can substantially reduce the import bill,” Yadav said. “We certainly hope to play a part in that growth story.”

Imports will climb this year after drought across half of the country damaged crops and pushed food inflation near to an 11-year high. Shipments will also increase after an import-tax waiver lowered costs, the association said last month.

Monsoon-sown oilseed production may drop 9 percent this season to 13.7 million tons, according to the Central Organization for Oil Industry and Trade, the country’s biggest group of processors.

Government Subsidy

India’s government subsidizes as much as 60 percent of the cost of growing oil palms in a bid to reduce purchases from Indonesia and Malaysia, the biggest producers.

Increasing demand will maintain India’s reliance on imports for the next few years, Yadav said. Boosting the national crop to 1 million hectares would do a lot to cut them, he said.

“It’s a business model that works for the government, the farmer and the companies,” he said.

The company, a unit of Godrej Industries Ltd., has about 36,000 hectares of oil palms in the south Indian states of Andhra Pradesh, Tamil Nadu and Goa, producing 25,000 tons of raw oil annually. The producer plans new plantations in Orissa in east India and Mizoram in the northeast and will consider acquisitions, to help increase the share of sales from palm oil to 10 percent in five years from 7 percent now, Yadav said.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net;