Russia-Ukraine war: India eyes Mercosur deal to import crude sunflower oil

May have to reduce import duty, scrap strict requirements for S. American bloc

India is looking to sign long-term contracts with Mercosur countries to import crude sunflower oil as Russia’s invasion of Ukraine has disrupted imports from Europe's second-largest nation, leading to skyrocketing edible oil prices, official sources said.
 

For this, India may need to reduce the import duty on sunflower oil originating from Mercosur countries and do away with the stringent testing requirements under the existing preferential tariff agreement (PTA) with the grouping, they said.

India signed in 2004 a PTA with Mercosur, the Latin American trading bloc with Argentina, Brazil, Paraguay, and Uruguay as its members.
 

Last year, India’s exports to Mercosur countries jumped 67.4 per cent year on year to $7.8 billion, and imports grew 51.7 per cent to $9.1 billion. 

“We have had two-three rounds of discussions with Mercosur countries. We need to sign long-term contracts because in agriculture, you need to plan well ahead to meet demands. So far, Mercosur was targeting only China for sunflower oil exports since India has export restrictions. We have tariff quota restrictions as well as plant quarantine restrictions. We have to open the existing PTA with Mercosur and include the tariff reduction on sunflower oil under the trade deal,” a government official said on condition of anonymity.
 

The official said India was also exploring reviving sunflower plantations in South India to be able to partially meet domestic demand in the long run.  
 

India imports 60 per cent of its edible oil requirements, and sunflower oil constitutes around 14 per cent of such imports. In 2021, India imported 90 per cent of the $2.4 billion worth of crude sunflower oil from Ukraine and Russia, and only $233 million worth of sunflower oil from Argentina.
 

Since Russia’s invasion of Ukraine almost a month ago, the domestic price of sunflower oil has spiked to Rs 190 per litre from Rs 140-150 earlier.
 

“Edible oil prices have already been rising and have fed their way through the food processing industry with prices of bakery products and processed foods going up, besides restaurant bills. This is a serious issue as it has also been responsible for keeping CPI (consumer price index) inflation elevated,” Madan Sabnavis, chief economist at Bank of Baroda, said.
 

The geopolitical tension has led to a spike in commodity prices such as fertilisers, crude oil, and metals that India imports from Russia and Ukraine. It is also affecting exports to Ukraine and Russia, as global shipping lines have suspended cargo shipments to and from Russia. Ports are being shut down because of the rising freight rates. Exporters fear their payments getting stuck, with western nations deciding to block many Russian banks from accessing the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.
 

Exporters are currently exploring three routes for shipments to Russia. The first is the China route, using Qingdao port. The second is the International North-South Transport Corridor (INSTC) route that connects Mumbai to Moscow via Iran and Azerbaijan. The other is the one between Hamburg in Germany and Poti port in Georgia.
 

Rating agencies Fitch and Moody’s have also downgraded their growth forecasts for India owing to rising commodity prices. Fitch Ratings on Tuesday slashed its growth forecast for India by 180 basis points to 8.5 per cent for FY23, while Moody’s earlier this month pared it down to 9.1 per cent from 9.5 per cent earlier for the same period.