All kinds of motives can be attributed as to why the trade went all out to import 3.434 million tonnes of edible oil in the first five months of the 2008-09 oil year (November to October). Imports jumped by 1.5 million tonnes over the same period last year, confounding all the stakeholders.
The setback in kharif oilseeds production to 15.07 million tonnes from 16.49 million tonnes in 2007-08, triggered by contraction in both groundnut and soybean crops and the consequent rise in oil prices would apparently justify big imports. December saw a spectacular rise of 442,000 tonnes in oil imports, January a nearly 400,000 tonnes and February another 300,000 tonnes.
However, import growth was somewhat down in March. Did this happen because of the rising inventory of oil here, the financing of which is costing the trade a good amount of money? The nil import duty on crude palm oil (CPO) and also the more recent fiat removing the 20 per cent customs duty on crude soybean oil were part of the government strategy to bring down edible oil prices.
True, edible oil prices are down 30 per cent from the year-ago level. Had oil imports started inviting duties once again, farmers stood a chance to get a decent premium over the minimum support price of Rs 1,830 a quintal of rapeseed-mustard seeds.
According to Solvent Extractors Association, the rabi mustard crop this time has risen to 6.55 million tonnes against 4.59 million tonnes during the previous rabi season. The crop is big. What is, however, proving hurtful for farmers, as SEA President Ashok Sethia points out, is the lower oil content of 38-39 per cent against the benchmark level of 42 per cent. Oil content in seeds has a bearing on their prices. As for sunflower, despite a smaller crop, the ruling prices of its seeds are proving to be a disappointment for farmers. The size of market arrivals of mustard and sunflower seeds show the reluctance of farmers to part with their produce at current prices.
This way, farmers are seeking a temporary reprieve. But they may remain in the lurch in the event the government stays committed to the duty-free oil import regime. As our edible oil imports of over 5.6 million tonnes during 2007-08 will prove, India cannot do without remaining a big buyer of oils in the world market.
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In fact, it is the buying by India and China which makes the most profound impact on world oil prices. Our large-scale buying of crude palm oil and Malaysian palm oil inventory hitting a 20-month low have boosted CPO prices. China’s record import of rapeseed so far this year despite a bumper local crop is proving good for the market.
No one is against imports as our per capita oil consumption at below 11.5 kg is nothing to write home about. At the same time, speculative imports, happening since November, will cause damage to our farm sector as also to overburdened oilseed crushing mills, says Sethia.
Traders, making unjustifiably large imports, are now caught in a trap of their own making. While the caretaker administration is not to subject edible oil to import duty once again, the new government will take its time to address the issue. With summer setting in, liquidation of stocks of imported oil will also become difficult.
India grows oilseeds on over 26 million hectares (Kharif and rabi combined) with productivity of around 1,000 kg a hectare. It is a long journey before reaching anywhere close to self-reliance in edible oil. And self-reliance has got to be at a much higher level of per capita consumption.
The new government will have to see that speculative imports do not prove to be a disincentive for farmers to pursue the goal of raising productivity to at least 1,300 kg a hectare within five years. Let a large enough oilseeds development fund be created for the purpose.
Till a few months ago, inflation was a big concern for the government. It, therefore, was ready to forego revenue by doing away with import duty on edible oil. Many will suspect that the trade thought that the duty exemption was a temporary move giving it an opportunity to make a killing when customs duty was reintroduced.