Import duty to have little impact on domestic edible oil industry

With the current revision, the import duty on CPO and RBD works out to 7.5% and 15% respectively

The five per cent increase in import duty on vegetable oil isn’t enough, says the edible oil refining sector.

Since the announcement of an increase in import duty on Wednesday, the price of crude palm oil in the spot Kandla market shot up six per cent to Rs 449.70 per 10 kg. Similarly, refined soy oil jumped four per cent to Rs 670 per 10 kg in the benchmark Indore market.

To encourage domestic seed crushing and refining, it had urged the central government to raise the differential duty between crude and refined oil to 15 per cent. The government raised the import duty by five per cent on both crude palm oil (CPO) and refined, bleached and dioderised (RBD) oil, the differential duty is unchanged at 7.5 per cent. The current duty on CPO and RBD is 7.5 per cent and 15 per cent, respectively.

The rise in duty, say trade sources, will from February begin helping domestic crushing units, while hurting refiners importing crude edible oil to refine and sell that. This is because the current nil export duty regime by both Malaysia and Indonesia ends in January. In February, the export duty on crude oils from there will automatically be 7.5 per cent. Indonesia and Malaysia have both had a surplus in stocks, whose export they’ve been encouraging.

“The five per cent increase in import duty will translate into a maximum of Rs 1-1.50 a kg rise in edible oil prices. This is too small to make any remarkable change in the realisation for farmers and refiners,” said

B V Mehta, executive director of the Solvent Extractors’ Association. Anticipating the duty rise, Indian refiners had intensified import of crude palm oil (CPO). The rise was 40 per cent in November-December, resulting in a massive swell into the pipeline inventory at an all-time high of around two million tonnes.

  Also, oilseed prices have hit a five-year low, with lower crushing. Soybean, for example, is trading at Rs 3,180 a quintal, a decline of 16 per cent from Rs 3,790 a qtl in December 2013. In the past year, refined oil prices have declined by 18 per cent to Rs 48,000 a tonne. Crude degummed soya oil is currently down by 13 per cent to Rs 56,500 a tonne and CPO by 26 per cent to Rs 41,000 a tonne.

“The major objective of the government in raising the import duty on veg oil was to check rising imports, which could have been possible through encouraging of domestic refineries. Since there has been no change in the differential duty, import would continue unabated. Domestic refineries will continue to face a disparity, currently at Rs 1,000 a tonne on soybean oil,” said Mehta.

Of the estimated 19.5 million tonnes of overall demand, India’s import in 2014-15 (November-October) is forecast at 12.3 mt. Lower seed availability might raise our import dependence, primarily from Malaysia and Indonesia. The Central Organisation for Oil Industry & Trade has estimated the kharif oilseed output at 27.6 mt this year as compared to 29.35 mt the previous year, due to delay in sowing after a month’s delay in monsoon rain.

Output during the rabi season will also be lower. Against normal rabi oilseed sowing of 8.66 million hectares, about 7.2 mn ha has been done till now.

“India’s import of edible oil will continue to grow, as the revision in import duty will have negligible impact on availability from local sources,” said Siraj Choudhary, chairman, Cargill India.