Centre's decisions to lower import duty on edible oil sector raises questions

Two decisions of the Central government taken back-to-back on the edible oil and oil seeds sector has raised several questions.

First the Centre lowered the import duty on crude and refined palm oil by 5 percentage points each to 7.5 per cent and 10 per cent.

The move was meant to bring down prices of edible oils in the retail markets which had indeed shown a rising trend in the last few months and needed to cooled down during the festivals

Though as of now it is unclear how much it actually had an impact on the retail rates of edible oils, but on the whole it seemed justified.

What was slightly baffling was that import duty was cut in September just weeks before the bumper oilseed crop was about to be harvested.

According to the Centre’s own estimate oil seeds production in the 2016-17 kharif season was estimated to be around 23.3 million tonnes, a record output, which was almost 6.8 million tonnes more than last year.

Leading this record was soybean, whose production was estimated to be 14.22 million tonnes, as against 8.59 million tonnes of last year, while groundnut production was estimated to be around 6.49 million tonnes as against 5.34 million tonnes last year.

Though, trade and industry sources have strongly disputed the figures and their estimate is much lower than the government’s but no one denies the fact that both the oil seeds this year is poised for a bumper harvest, something which has been unheard off so far.

Industry estimate for soybean is around 9-11 million tonnes, while that for groundnut is around 5.5 million tonnes.

Among oil seeds soybean has around 20 per cent oil content, while groundnut has around 50-55 per cent of the same. The rest is residue used for cattle feed and protein.

If at all the Centre was concerned about inflation in edible oils it should have lowered the import duty only on crude palm oils and that too much in advance and not weeks before harvesting, so that domestic refining industry would have not have suffered, while crushers would have some appetite for the huge soybean and groundnut crop.

Knowing fully well, that oil meal exports have slumped well below 40 per cent in the first six months of 2016-17 financial year, a cut in import duties meant that the huge domestic oilseed crop is not finding any takers.

The result is soybean prices in several markets of Maharashtra and groundnut rates in Gujarat have dropped below their Minimum Support Price (MSP) of Rs 2,775 per quintal and Rs 4,220 per quintal respectively, compelling Centre and state agencies to buy the commodities directly from farmers at MSP rates to prevent them from distress.

If the Centre was aware that a bumper oilseed crop was coming into the market what was the need to lower the import duty on refined palm oils and if at the duty has been lowered why like wheat and potato it has not been for a fixed tenure.

These are questions which needs to be answered now that there a possibility of Centre spending a good amount of public funds in purchasing oil seeds from farmers.

Unless, these issues are clearly addressed, a cloud of doubt will continue to hang over the Centre’s September decision to lower import duties and there would be questions on its production estimate.

The best the government can do is to re-impose the duties after Diwali so that the domestic oil seeds are crushed urgently to meet the large winter demand for edible oils even at the expense of slight upward movement in retail rates.

By this, at least the farmer would be saved and compensated for its labour.