Coconut oil prices decline on fears of cheap imports

BUDGET IMPACT

In a jittery reaction to the Budget proposal of exempting imports of edible oils from the 4 per cent additional customs duty, coconut oil prices today fell over 1 per cent to Rs 4,800 a quintal, from the Rs 4,850 level yesterday in the domestic market. Copra prices too dropped by Rs 25, on an average, to Rs 3,190-3,225.

The finance minister proposed to reduce the duty on sunflower oil, both crude and refined, by 15 percentage points, as well.

The customs duty cut is aimed at making edible oils more affordable to customers. Although this is a welcome measure from the customer viewpoint, it will have serious effects on the domestic edible oils market, especially on coconut oil.

Incidentally, the announcement came at the start of production season of copra and coconut oil, so market sources expect a steep fall in prices by the middle of this month.

Arrivals of imported edible oils, particularly palmolein, will be stronger in the domestic market and this may cause a further drop in prices. And, as the production season is on in all the four states of south India, especially in Tamil Nadu, and supply is expected to increase considerably over the next 10-15 days, the sources predict a sharp drop in coconut oil and copra prices. Production in Tamil Nadu is estimated to rise 20-30 per cent during the current season and a major chunk of the production will be pumped into the Kerala market.

M J Kuriakose, president, Cochin Oil Merchants Association (COMA), said the prices might drop to Rs 4,000 as the duty cut would boost palmolein imports.

A leading city-based trader said the fall in prices of palmolein and sunflower oil, courtesy the duty cut, would cause a shift in consumption towards these oils from coconut oil, which in turn might cause a crash in the market.

He said, at this juncture, a Nafed intervention in the market was inevitable, but so far no initiative from the Nafed was visible.

The uncertainty over the announcement of fresh support price for copra has also made the market panicky, and this triggered offloading of stocks. The delay has slowed down the procurement operations in the state. Last season, the copra support price was Rs 3,590 a quintal.

Meanwhile, the Kerala government announced that it would distribute palmolein at lower tariffs via the outlets of State Civil Supplies Corporation in order to arrest the price spike. The decision, if implemented, will put the coconut oil market in a tight spot.

Kuriakose said Kerala had the highest rate of VAT at 4 per cent for coconut oil, while Tamil Nadu has the least VAT at 0 per cent. The high VAT has already thrown the trade in troubled waters and the Budget proposal will further aggravate the situation.

COMA put up the issue with the state's finance minister and is hopeful of a reduction in the next Budget.

All political parties including the Congress have raised objections against the reduction in the customs duty and opposition leader Oommen Chandy said his pary would pressure the Centre to withdraw the proposal.