Import duty cut may dent oilseeds output

Another round of duty cut on edible oil imports may prompt farmers to shift to other crops, leading to a further decline in the domestic oilseeds output, according to analysts and traders.

A food ministry official said on Monday that another duty cut was on the cards to help counter high international prices.

The proposed duty cut would have an adverse impact on farmers, who are already reeling under a slow rise in domestic edible oil prices, due to several duty cuts in the past, compared with a sharp increase in international prices, said traders.

The edible oil prices are still higher compared with the last season. The rupee appreciation brought down the cost of imports. The monsoon is expected to be normal and sowing should begin in the next few weeks. The industry thus wants the prices to be kept benign, to ensure that farmers are not discouraged from sowing oil seeds.

The import duty on crude palm oil (CPO) was brought down to 29 per cent in June 2006 from the earlier 90 per cent. The government reduced the duty in similar proportion on all other edible oil varieties, insulating the domestic prices from the surging global rates.

The import price of crude palm oil in Mumbai is $840 a tonne, double the price in June 2006 at $422. Similarly, RBD (refined, bleached and deodorised) palmolein appreciated by 90 per cent to $850 from $448 a tonne and soybean by 60 per cent to $835 from $521 a tonne during the same period.

However, domestic prices rose between 15 and 37 per cent across the categories during the same period, thanks to frequent import duty cut. RBD palmolein appreciated by a mere 15 per cent to Rs 46,000 a tonne from Rs 40,000 a tonne last June, while groundnut oil prices shot up by 37 per cent to Rs 66,500 from Rs 48,350 a tonne.

Any further duty cut would discourage farmers in Rajasthan, Haryana and Madhya Pradesh to switch over to other crops from their traditional oilseeds farming, warned B V Mehta, executive director of the Solvent Extractors' Association of India (SEA).

This would result in further lower oilseeds production in the country, which, according to the third crop estimates of the ministry of agriculture, slumped 16.8 per cent in 2006-07 to 23.26 million tonnes from the last year's final estimates of 27.97 million tonnes, Mehta added.

Sowing of oilseeds was likely to take place in the next 25 days from now and any policy decision leading to a price decline would have an adverse impact on farmers' enthusiasm, said Mehta.

Farmers in Rajasthan, Haryana and Madhya Pradesh have already shifted large tracts of land from oilseeds to wheat and pulses, owing to bullish prices of the latter commodities.

"Instead of focusing on duty cut, the government should act fast on raising the output. Duty reduction is a short-term measure. But what after it (import duty) touches zero?" asked Mehta.

Whenever the government rationalised import duty, the prices of all varieties of edible oils slipped by Rs 2-3 a kg, he said. The country is one of the largest importers of edible oils, buying around 5 million tonnes annually, of which palm oil and its derivatives constitute 2.1-2.4 million tonnes.