Oilseed, edible oil prices surge on import duty hike

Prices of oilseeds and edible oils jumped by up to 3.5 per cent in spot and futures markets on Monday, due to apprehension of lower supply after an increase in the Customs duty, to curb cheaper import.

Cotton seed oilcake futures for delivery in September jumped by 3.5 per cent on the National Commodity & Derivatives Exchange, to trade at Rs 1,499 a quintal. Soybean in the spot Indore mandi jumped 1.5 per cent to Rs 3,021 a qtl, compared to Rs 2,971 a qtl on Friday. All other oilseeds moved up, albeit marginally.

The Union ministry of finance on Friday announced an increase in import duty on both crude and refined edible oil, a demand the seed crushing and refining industry had been making for months. The duty on crude and refined oil was raised to 15 per cent and 25 per cent, respectively, from the earlier 7.5 per cent and 15 per cent.

"Edible oilseed and oil prices have jumped over the past few days to surpass the benchmark minimum support price (MSP). Even today, these firmed up in major mandis," said B V Mehta, executive director, the Solvent Extractors' Association.

The government's duty hike aims to support farmers from low realisation, which left around 2.5 million tonnes of soybean uncrushed, resulting in a million hectares of less sowing this kharif season. To meet growing demand, India imported 34 per cent more vegetable (edible and non-edible) oil in July froma year before, at 1.52 mt.

"Following the goods and services tax, which is positive for organised edible oil players, the increase in import duty on edible oils is a welcome step by the government. The strengthening rupee and low international edible oil prices, combined with a duty differential favouring import of refined edible oils, had led to immense pressure on the domestic industry, with many crushing and refining facilities on the verge of closure. This will make domestic edible oilseed extraction and refining competitive, and give a boost to Indian production of edible oils. It will also help refiners to import more of crude oils, as against refined oils earlier, for refining locally," said Dinesh Shahra, managing director, Ruchi Soya Industries.

This revision, however, continues with the duty differential on crude and refined oil at 10 per cent, which the industry had urged at 15 per cent to make crushing of domestic seeds viable. It had said the low duty differential at 7.5 per cent had discouraged domestic crushing of seed, resulting in many oilseed prices going below the MSP, leading farmers to switch to crops such as cotton this kharif.

Encouraged by the increase in duty, Ruchi Soya has decided to restart operations at its three plants in Washim, Baran and Kota, closed for years.

"Until farmers get remunerative price for their seeds, they would continue to switch to other crops. To make the price remunerative, the government needs to draw a long-term policy to make India a step closer to self reliance," said Atul Chaturvedi, chief executive, Adani Wilmar, producer of the Fortune brand.

India imports around 15 mt a year of edible oil; consumption is about 25 mt.