Sustainable Sourcing Becomes Key for MSMEs in Edible Oil Supply Chain

The foundation for making any aromatic and delectable bite of food is cooking oil. For India’s SME retailers, refiners, and distributors, cooking oil pricing directly impacts cash flow, retail margins, and customer loyalty. As per NITI Aayog's policy report, per capita consumption is currently at 20 kilograms a year. Cooking oil defines what we eat, how we cook, and how SMEs manage consistent inventory to feed families affordably across communities. It is the stability anchor for tradition, fuels nutrition, and sustains livelihoods in every corner of the nation.

India’s edible oil consumption has soared over the decades. Mostly due to rising population, expanding incomes, and changing food habits. Unfortunately, domestic production meets less than half of the nation’s needs. In 2022–23, India imported 16.5 million tonnes of edible oil, fulfilling more than 57 percent of total demand, as reported by the Department of Food and Public Distribution.

We can’t attribute this gap to agricultural shortfall alone. For SME distributors, this import dependence translates into price unpredictability that complicates procurement and pricing for consumers. It’s also a structural vulnerability. India spends over USD 20.5 billion annually in foreign exchange to procure edible oils. Driving the stakes high for consumers, the economy, and long-term food security. To achieve price stability, India will have to strategically balance its import dependence, domestic cultivation, and global trade dynamics.

Identifying the Right Oils

India's edible oil policy is not a uniform exercise. Each of the oilseeds, including mustard, soybean, sunflower, groundnut, and sesame, has contributed to local cuisines and agricultural incomes in the past. Yet these crops yield under one tonne of oil per hectare, remain climate-sensitive, and function seasonally. Despite policy encouragement and research development, the crops have not been able to match the increasing demand.

On the other hand, palm oil produces fruit all year round and can yield between four tonnes of oil per hectare. In addition to being the largest oil importer, it opens up full value chains. From nurseries, plantations, mills, and logistics to packaging, generating jobs and rural revenues. In palm cultivation states, farmers have reported long-term returns, since oil palms remain productive for more than two decades.

Navigating Global Volatility

As India continues to import more than half of its edible oil, global events routinely ripple through domestic prices, often with little warning. A drought in Indonesia, flooding in South America, or a surge in demand from China can send cooking oil prices soaring for Indian households.

Looking ahead to 2025, the outlook remains tight. The Council of Palm Oil Producing Countries (CPOPC) anticipates a modest growth in global output, with ageing plantations, erratic weather, and limited replanting dragging down yields. Meanwhile, Indonesia is channelling more of its supply into biodiesel, and disruptions in global shipping routes, from the Red Sea crisis to soaring freight costs, are pushing up import prices. At the same time, buyers are turning to palm oil as an alternative, as supplies of sunflower and soybean oil remain volatile. These pressures are converging into a high-stakes squeeze, where production struggles to keep pace with shifting, surging demand.

For India, the lesson is clear. In such an environment, import diversification is not sufficient. Building internal supply security is key to anchoring price predictability in the long term.

Leveraging Policy Tools

India has increasingly used trade policy to shape edible oil pricing, not just to react to crises but to redesign the playing field. In 2024, the government slashed the Basic Customs Duty on crude palm, soybean, and sunflower oils from 20 percent to 10 percent, creating a nearly 20 percent margin between crude and refined oil imports. For SME refiners and local processors, this has created a more level playing field, encouraging domestic value addition and supporting local packaging and distribution ecosystems.

By favouring crude imports, the policy stimulates capacity utilization within India’s refining industry while simultaneously generating jobs in packaging, distribution, and retail. To ensure that these benefits reach consumers, the Department of Food and Public Distribution mandated weekly reporting of revised MRPs from edible oil companies, linking cost adjustments to real-world relief.

The National Mission on Edible Oils – Oil Palm (NMEO-OP) aims to bring 10 lakh hectares under cultivation by 2025–26. But beyond agriculture, this move represents a major supply chain opportunity for SME-led businesses. Entrepreneurs in food processing, agri-logistics, bio-waste repurposing, packaging solutions, and even D2C cooking oil brands can plug into this expanding ecosystem.

Embedding Sustainability

As India becomes increasingly active in the international palm oil trade, sustainability is not something to tick a box, it's the minimum standard. For an industry that is under so much global scrutiny, the way palm oil is produced, sourced, and traced is just as important as the amount of palm oil available.

Knowing this, India and Indonesia took a massive step forward by renewing technical agreements beyond volumes and tariffs. These updated frameworks now focus on traceability, environmental safeguards, and quality standards. In a world where ESG norms are tightening, such cooperation helps India de-risk its supply chain and ensure that its imports stay compliant and credible.

Domestically, refiners and processors are also raising the bar. Many have invested in cleaner technologies, responsible sourcing, and better waste management. And these improvements are not just good for the planet; it’s good for business. They help lower costs, maintain consistent quality, and enhance supply consistency.

By building these standards into the system, India ensures that its edible oil economy expands on a foundation without getting derailed by reputational, environmental, or regulatory shocks.

What It Means for the Indian Edible Oil Retail Chain

Ultimately, the success of India's edible oil roadmap will be judged at the store level. The real question is whether kirana owners, wholesalers, and foodservice SMEs can count on a stable, quality supply at predictable prices. That is the standard that policy, innovation, and industry alignment must strive to meet.

In the coming years, India’s edible oil strategy should not be defined by the volume it can import but by how effectively it can empower SMEs to distribute, refine, and retail with greater efficiency. Predictability in this space is not just a consumer requirement; it is a business imperative for the entire retail ecosystem.

By combining smart trade policy, sustainable domestic production, and SME-driven distribution, India has the potential to build self-reliance and shape a future-ready edible oil economy grounded in opportunity.