Re-opening of the Indo-China Oilmeal Trade to Boost Indian Farmer’s Interest in Rapeseed

Revoking the ban on Indian rapeseed meal imports is just one of the results of China’s ongoing search for alternate trade routes to meet its domestic oilmeal demand. Rabobank expects that the re-opening of this trade route will prove beneficial for both countries, helping China partially meet its meal requirements and boosting India’s agricultural exports in 2019. However, the net positive impact on China will remain limited, given that India’s rapeseed meal exports will only be able to meet a small portion of China’s huge total oilmeal demand.

With the ongoing trade war with the US, China is in a tight spot when it comes to meeting its oilmeal requirements. China introduced a 25% import tariff on US soybeans in July this year, a retaliation of the US tariffs on imported Chinese goods. But oilseed and oilmeal imports remain crucial to China, which relies on imports to meet 90% of its domestic demand and accounts for nearly one third of global rapeseed trade and two thirds of global soybean trade.

Rapeseed meal export volumes from India could remain relatively low in marketing year (MY) 2018/19 (March 2018 to February 2019), although Rabobank expects net volumes to pick up in 2019/20. We believe India could export 130,000 to 150,000 tonnes of rapeseed meal to China in MY 2018/19 – representing around 15 percent of India’s total rapeseed meal exports – because of the limited window in the current season and the partial lack of clarity among exporters on trade terms. However, for MY 2019/20, India’s rapeseed meal exports to China could reach between 350,000 to 400,000 tonnes, equivalent to more than 25 percent of India’s rapeseed meal exports (see Figure 1).

Domestic rapeseed prices in India have improved because of added export demand from China. Also, rainfall distribution has been poor in parts of North-West India, where rapeseed is predominantly grown. Both developments will prompt Indian farmers to plant more rapeseed for MY 2019/20. More importantly, Rabobank expects the Indo-China oilmeal trade route to fuel a continued farmer interest in rapeseed cultivation in India. India’s rapeseed acreage is expected to increase by 5% and cross the 7m-hectare treshold coming winter. The majority of the acreage shift will come from chickpeas and wheat, because of better farm margins and return on investment (ROI) in rapeseed compared to both competing crops (see Figure 2).

This acreage shift from cereal crops to oilseed crops also fits well with the Indian government’s current policy reforms. These reforms focus on improving farm incomes and at the same time increasing domestic oilseed production in the coming years in order to narrow the supply-demand gap for oilseeds in the sub-continent to some extent. However, domestic price volatility and ensuring farmers can realise margins could be hurdles for the government here.

The Indo-China rapeseed meal trade route isn’t new. India is the world’s fourth-largest producer of rapeseed meal in the world after the EU, China, and Canada. It has been an important exporter of rapeseed meal to Asian destinations, including China – amounting to around 400,000 to 500,000 tonnes per season in recent years. However, China had placed a ban on rapeseed meal imports from India in 2012, objecting to contamination with malachite green in imported meal. Since then, South Korea, Vietnam, and Thailand have emerged as top importers of Indian rapeseed meal, and Canada, the UAE, and Pakistan have replaced Indian rapeseed meal exports to China. Rabobank expects that with the recent re-opening of this old trade route, India’s net rapeseed meal export volumes could reach levels similar to 2010/11 over the next two to three years, between 1m to 1.5m tonnes yearly.