The unabated uptrend in edible oil prices due to a decline in domestic production, coupled with dwindling imports, is threatening to cause severe supply crunch of cooking oils in the coming months.
The wholesale prices of various edible oils, as also of vanaspati, are estimated to have risen by a whopping 20 per cent since January. While the groundnut oil prices in the Delhi wholesale market have shot up by 17.14 per cent (from Rs 350 per 10 kg tin on January 1 to Rs 410 on May 1), those of cottonseed oil (mill delivery) are up by 24.19 per cent in the same period (Rs 310 per tine to Rs 385). Mustard oil (expeller) rose by 18.7 per cent from Rs 310 to Rs 368).
Prices of vanaspati, a cooking medium manufactured by upgrading edible oils through hydrogenation, have registered an increase of over 28.44 per cent between January and May. The uptrend may continue unless the government takes fiscal measures to make imports cheaper, the industry sources feel.
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The bullish trend in the domestic market has come at a time when the international prices are also on the upswing due to supply constraints.
Palmolein prices, which hovered around $ 550 per tonne fob in Malaysia in mid-January, have spurted appreciably to nearly $700 a tonne at present.
Lifting of ban on palm oil exports from Indonesia has not helped ease the situation because of the simultaneous imposition of 40 per cent export tax in that country. The depreciation of rupee against the dollar has further compounded the problem of edible oil importers who have already been finding it difficult to cope with the reduced supplies in the international market. Consequently, the stocks of imported edible oils at various ports are estimated to have dwindled to a mere 30,000 to 40,000 tonnes from a normal level of around four lakh tonnes.
The flaring up of the domestic market has been triggered by the anticipated sharp decline in oilseed production in the current rabi. Rapeseed-mustard, the major rabi oilseed crop, is believed to have fallen to below five million-tonne mark for the first time since 1992-93. The shortfall is attributed to untimely rains followed by severe cold in the countrys main north-western rapeseed-mustard bowl.
The shortage of the edible oils and their high prices have adversely affected the production prospects of vanaspati as well. The industry that was so far facing the problem of paucity of demand was now up against the paucity of raw material, said Vanaspati Manufacturers Asso ciation of India (VMAI) chief executive SK Chadha.
The capacity utilisation in the vanaspati industry has plummeted down to 25 per cent from its earlier level of 37 per cent.
If the position does not improve in the domestic and international markets, vanaspati industry will face an uphill task in maintaining the current level of production and prices, Chadha said.
The VMAI has suggested to the government to reduce the custom duty on edible oils, may be only for the time being, and to permit the import of crude edible oils, notably crude palm oil, to facilitate the availability of cheaper oils for vanaspati manufacture as well as for direct consumption after refining.
The association wants the duties to be cut down from the current 25 per cent to a 15 per cent for refined edible oils and from 30 per cent to 10 per cent on crude vegetable oils.
The vanaspati industrys plea for reviewing the permission granted under the Indo-Nepal trade treaty for free flow of vanaspati without any duties and other levies has been accepted by the food ministry.
Large scale import of Napalese vanaspati into the states bordering that country has jeopardised the very existence of vanaspati units in the entire north-eastern region, especially in West Bengal, Bihar, Assam and bordering districts of UP.
The Nepalese vanaspati enjoy a price advantage of between Rs 50 and Rs 90 per tin of 15 kg because of absence of any duty on import, production and export of this material in that country.
The department of sugar and edible oils in the food ministry has now written to the commerce ministry to invoke Clause V-2(ii) of the Indo-Nepal protocol which envisages review of a facility in case it leads to an undue surge in imports.
The government also seems favourably inclined to concede the VMAIs demand for a refund to the vanaspati units of the unutilised money credit balance lying in official ledgers since the abolition of the scheme in 1996-97.
The refund may, however, be in the form of an adjustment against the excise chargeable on the inputs used in the manufacture of vanaspati or by-products produced by it.
Some other demands of the industry, such as uniformity in state level taxation and inclusion of vanaspati in the list of declared goods, are reported to be under consideration of the food ministry.