Centre faces Hobson's choice on edible oil issue

MARKET OUTLOOK

Edible oil prices will remain a cause for worry for the government, which is unable to take any fiscal measures as it did in the case of wheat, pulses and sugar.

Last year saw prices of wheat, pulses and sugar ruling very high forcing the government to take measures such as reduced duty on wheat imports and export ban of sugar.

The high prices of wheat and pulses led farmers to increase the acreage area for wheat and sugar at the expense of oilseeds. As a result, while prices of wheat, pulses and sugar are falling, that for oilseeds and oils are rising.

Imports of edible oil fell to 44.16 lakh tonne till October 2006 from 50.41 lakh tonne in the same period in the previous year. Imports this year (oil year is November to October) are, however, set to rise.

The dilemma of the government is to keep the prices low to control inflation while ensuring that farmers get a remunerative price and maintain the acreage.

Prices of all edible oils have gone up 5-10 per cent in last couple of months on an average and they are quite high compared with that of December 2005.

Half of India's demand is met by imports. The government can reduce duties and make import cheaper but that's proving to be difficult.

Bharat Mehta, executive director, Solvent Extractors' Association of India, says, "We do not favour import duty cut as cheap imports will ultimately affect farmers and force them to shift to another crop. We need to increase the production to feed millers as they are not able to use full capacities."

For edible oil imports, duties are calculated on tariff value which is fixed by the government. Despite increase in international prices of edible oils, the tariff values have been kept unchanged since July 31.

It is an indirect way of reducing duties as tariff values are lower compared to the import price. The government will again review tariff value on January 15.

Godrej International's Dorab Mistry, an authority on oils, said recently, "We are currently in the midst of a bull market whose termination is not yet discernible."