Govt's edible oil duty cut to have little impact on prices, say traders

Edible oil prices in the domestic market, which have been on the boil since the last few months, may not climb down much despite the Centre’s decision on Thursday night to lower import duties.

This is because corresponding prices in the international markets have moved up, nullifying the impact of duty cut.

Traders and market watchers, however, were critical of the decision to allow import of refined palm oil without any restrictions. This is on the grounds that it will lead to a flood of cheap edible oils from Malaysia and Indonesia and sound the death knell for the domestic industry.

“It (Centre) talks about making India Atmanirbhar, but at the same time, allows unrestricted entry of cheap refined oils. This will kill domestic refining and in six months all port-based palm oil refiners will shut shop,” B V Mehta, director general of Solvent Extractors Association of India (SEAI) told Business Standard.

Mehta said the decision to lower import duties on crude palm oil (CPO) by 5.5 per cent and on refined palm oil and palmolein oil by 18.15 per cent and 8.25 per cent, respectively — announced this week by the Centre — will also have limited impact on domestic prices. Malaysian palm oil futures jumped as much as 4.5 per cent to a near three-week high on Thursday, driven by prospects of stronger demand after top buyer India allowed imports of refined palm oil and cut tax on the commodity.

The Centre, in its order, said duty reduction is applicable only till September 2021 to protect the interest of farmers as domestic kharif oilseeds crop will start hitting the market from October. The duty was reduced to control domestic edible oil prices which have risen as compared to last year.

“The net effect of the duty reduction on CPO, largely from Malaysia and Indonesia, is around $50/60 per tonne or Rs 4,600-5,000 per tonne. However, traders in Indonesia and Malaysia jacked up their rates, thus nullifying the impact of duty cut,” Mehta said.

He said that in the end neither the consumer stands to gain nor the government as the latter will lose revenue while for the former prices won’t go down as the international markets have hardened.

“The same thing had  happened in November 2020, when duty reduction did not have any impact on retail prices as international traders jacked up their rates. The same is happening now as well,” Mehta said.

“Amid muted institutional demand for palm oil within the country due to the recent increase in Covid-19 cases and state-wise imposition of restrictions from April 2021, it will be interesting to see how the demand-supply dynamics play out within the country and impact prices in the remaining months of the current oil year,” CARE Ratings said in a research note on Friday. 

Traders and edible oil industry players said the decision to lower the import duty and allow unrestricted entry has come at a time when global palm oil prices have already softened by 15-20 per cent from their peak. This, in turn, has also facilitated a drop in domestic rates.

“I think it is a decision which has come at least two months late. The decision to lower import duties should have been taken in April when prices were at their peak. Now, the markets are already on the downhill. But, if the monsoon situation goes for a toss, then everything will change,” another trader said.

India is heavily dependent on imports for meeting its edible oil requirements as domestic oilseeds production is not enough to meet even half of its annual edible oil demand.