Edible oil refineries cry for protection

Say price of crude palm oil import higher than refined product, leading to raising inflows

Refined palm oil import is available for $13.4 a tonne less than crude palm oil (CPO). The vegetable refining industry has called for government intervention to reverse this.

The spread between the import prices of CPO and refined, bleached and deodorised (RBD) oil was the other way round only a while before — as much as $92.6 a tonne costlier for the latter at Indian ports, complains the refining industry.

They say the main exporting nations of Malaysia and Indon-esia have ensured a higher export duty on crude and a lower one on refined oil. Meanwhile, the Indian government has kept the import levy unchanged at 7.5 per cent on RBD. As a result, complains the industry, the share of refined oil in the overall edible oil import basket has jumped to 40 per cent since April. It was about 15 per cent some months earlier.

“The share of RBD will climb to 60-70 per cent by the end of the current oil year (October) and to 80 per cent by December if the Government of India does not raise import duty,” said Dorab Mistry, director of Godrej International.

Refineries in India have invested around Rs 10,000 crore for creating 15 million tonnes of annual refining capacity and employ hundreds of thousands directly and indirectly, urges the segment.

  It says we should note the way the two major producers protect their refining industry. Malaysia allows CPO export only under a quota. As for Indonesia, since October 2011, its export tax on CPO is much higher than on refined oil. The export duty rates are changed each month, in line with market prices — if palm oil prices increase, the export duty will go up. Thus, the differential duty works out to be higher on export of CPO than on RBD.

“While Malaysia and Indonesia, the two biggest exporters of palm oil, have subsidised their refiners, the Indian government has moved in the opposite direction. In January this year, it imposed a duty of 2.5 per cent on CPO, thereby lowering the duty differential between imported and refined oil to five per cent from the earlier 7.5 per cent. This despite the fact that a committee headed by former chief economic advisor Ashok Lahiri had recommended in 2006 that the duty differential be maintained at 13.5 per cent,” said Dinesh Shahra, managing director of Ruchi Soya Industries.

India imports 55 per cent of its 16.5 million tonnes of annual edible oil consumption. Since domestic oilseed output has been almost unchanged for several years, import reliance has risen with a sustained increase in domestic consumption.

The government should raise import duty on both refined and crude palm oil to keep the difference at a minimum of 20-25 per cent, according to B V Mehta, executive director of the Solvent Extractors’ Association.