Govt may cut import duty on palm oil

In yet another step aimed at controlling inflation and easing high edible oil prices, the government on Wednesday said a cut in customs duties on palm oils was in the offing but the industry dubbed it as a measure that would largely benefit exporters in Malaysia and Indonesia rather than domestic consumers.

Palm oil constitutes 50 per cent of India's annual oil imports of around 5 million tonnes.

It also buys soyoil from Argentina and Brazil and small quantities of sunflower oil from South America. Commerce and Industry Minister Kamal Nath has said the country plans to cut customs duty on palm oil soon and a notification on it would be issued in the next couple of days.

Finance Minister P Chidambaram declined to comment when asked if the government was planning to cut duties.

Nath's remarks sent the domestic soyoil futures market into a tailspin. But, on Bursa Malaysia, palm oil prices that were expected to rise after the news, surprisingly declined.

Soybean and refined soyoil futures on Indian bourses fell 3 per cent and 1.5 per cent respectively. The benchmark June crude palm oil futures on Bursa Malaysia was at 3,247 ringgits a tonne, down 203 ringgits from Tuesday's close.

Little benefits
"I think the benefit of duty cut may not accrue to domestic consumers as the market is so volatile," said B V Mehta, executive director of the Solvent Extractors' Association of India. "It may not help much since whenever India reduces duties, prices are jacked up in the international market."

In the domestic market, over the past one year, prices of groundnut oil have risen 15 per cent, rapeseed oil 43 per cent, RBD palmolein 38 per cent and refined soyoil by 40 per cent.

"The international prices of palm and soyoils have gone up by over 100 per cent while in the domestic market, these have risen by only 40 per cent mainly because of freezing of tariff value on oils, cut in duties and appreciation of the rupee," said Mehta.

Palm and soy oil have been trading weak since Monday over a global liquidity crunch. But the prices of the two oils have been at record highs this year, riding on high crude prices and diversion for bio-fuel usage.

Govindhbhai Patel, member of the crop committee of the Central Organisation of Oil Industry and Trade, said there could be a 12.5 per cent cut in customs duties of crude palm oil from the current 45 per cent.

"Only those exporting oil will benefit from it and will jack up their prices. We may benefit 2-3 per cent by way of price reduction because of it," he said.

Patel said domestic prices of oil were down Rs 7-8 a kg in the last two weeks because of a fall in global prices. A cut in duty might bring it down nominally, he said.

Desperate moves
On Tuesday, the government banned export of edible oils to control inflation and stabilise oil prices. But traders said it was more of a panic reaction and would not help in holding the price line as the country exports only about 70,000 tonnes of all oils put together.

The government, concerned over rising prices of food articles and inflation, has in recent weeks taken a series of steps to stem the spiral and build stocks of food grains, pulses and edible oils.

It raised the export prices of non-basmati rice and imposed for the first time a minimum export price on aromatic basmati rice, which commands a premium in West Asia and Europe.

The government is also mulling call options to buy wheat in the global markets despite prospects of a sizeable domestic crop.

On Monday, it left unchanged the base import prices of edible oils, which is used to calculate the tariff that importers pay irrespective of the price at which the oils were purchased.

Oilseed productivity
The country's headline inflation rate, based on the Wholesale Price Index, has risen to close to a 10-month-high of 5.11 per cent for the week ended February 10, prompting the finance ministry to take steps to control the price line of essential items.

In July, India had cut import duty on refined palm oil and palmolein to 52.5 per cent from 57.5 per cent, and crude palm oil to 45 per cent from 50 per cent. It had also cut duty on crude soybean oil to 40 per cent from 45 per cent.

India has not changed the tariff values of oils since mid-2006.

But prices of domestic oils have been rising on virtually stagnant oilseeds production, rising consumption due to changing food habits and better incomes in the hands of people.

The oilseeds crop this year has not added any joy to the government that has found that steps taken to control inflation so far have been elusive.

It is expected to harvest a lower mustard crop this year, with yields shrinking on the back of cold weather and frost damaging the standing crop in the largest growing desert state of Rajasthan.

This was expected to push up oil imports this year, analysts said.

Ashok Sethia, president of the Solvent Extractors' Association of India said the long-term solution to control prices was increasing domestic output and productivity and not successive cuts in customs duties.