In a major threat to domestic refiners, the share of refined edible oil import has almost trebled in the first four months of the current oil year (November 2011 to October 2012). Reason: A change in export duty structure by Indonesia, a major supplier of the cooking ingredient to India.
In February, the import of refined edible oil was reported at 304,048 tonnes, About 35 per cent of the overall veg oil import. The total refined oil import was recorded at 110,050 tonnes in November, 13 per cent of the overall imports during the same month. Overall, vegetable oil import, according to data compiled by the Solvent Extractors’ Association (SEA), was witnessed at 872,293 tonnes in February, compared to 827,684 tonnes in November.
Since refined edible oil does not require further processing, the commodity is directly packed for bulk and retail sales. Therefore, the rise in refined oil import would directly reduce operating capacity of domestic refiners which the Indian corporates have built over the last several years at an investment worth crores of rupees. Many refiners at various ports have started packing imported refined edible oil in small size container and are selling directly to stockists and retailers.
Many refiners, according to the SEA, have already started imports of refined edible oil for packing in their premises. “If the trend continues, the refiners’ operating capacity would reduce to 30 per cent from the existing 50 per cent until last month,” said B V Mehta, executive director of the trade body. “Since, the import of refined edible oil has escalated in February, the impact would start in March.”
In turn, import of crude edible oil has declined by a staggering 22 percentage points in overall imports of vegetable oils in the last four months. Crude edible oil import shared 87 per cent at 717,634 tonnes in the overall import of vegetable oil in November 2011, which declined to 65 per cent at 568,245 tonnes in February 2012. Overall vegetable oil imports during the first four months of the current oil year, however, has jumped four per cent to 872,293 tonnes from 827,684 tonnes.
Domestic refiners are struggling to use their full operating capacity. India has currently 18-20 million tonnes of overall refining capacity.
In order to promote domestic refiners, the government of Indonesia had, late last year, levied a 16.5 per cent export duty on crude edible oil, while it was reduced to eight per cent for refined edible oil.
Also Read
For Indian importers, procurement of refined edible oil (refined, bleached and di-odised) makes sense, as the spare (price difference between crude and refined oil) had narrowed down to $30 a tonne in Indonesia in February, compared to $70-80 a tonne earlier. Considering Rs 3,000 a tonne of refining charges locally, the edible oil processed by domestic refiners becomes costlier as compared to imported oil. Hence, direct import of refined oil makes more sense, said an official with one of India’s largest refiners.
To counter the plight of domestic refineries and reduce threat of jobless claims to be emerged in the near future, Mehta said the SEA has recommended the government to revise tariff rate in tandem with prevailing price and levy similar import duty on refined edible oil immediately. The edible oil import tariff has not been revised for the last several years. It currently works out a third of market price.
“This would not impact consumers at all,” said Mehta. “The upward revision in tariff will only increase the import of crude oil. That will benefit domestic refineries.”
London-based Godrej International Ltd has forecast India’s vegetable oil import to set a new record this year at 9.4 million tonnes. “This would be on account of reduced supply from domestic sources,” according to Dorab Mistry, its director.
Indonesia, Malaysia and Argentina are the three major source of veg oil supplies globally.