An exponential growth in the import of refined edible oil has forced domestic refineries to cut operating capacity by half in recent months, rendering thereby multitudes of daily wagers jobless.
The import of refined oil almost trebled to 304,000 tonnes in February 2012 from 110,000 tonnes in November last year. The share of refined oil in overall import of vegetable (veg) oil rose to 35 per cent in February from 13 per cent in November.
Import of refined oil makes business sense as the government of Indonesia has levied nine per cent export duty on it, as compared to 18 per cent on crude palm oil. The import duty on crude palm in India is nil and on refined oil is nominally 7.5 per cent but given the way it is calculated, it effectively works out to 2.5 per cent. The tariff values were fixed seven years ago, when prices were a third of today’s.
“Import of crude palm oil for processing and refining in domestic market offers a negative parity of almost Rs 1,000 a tonne. Hence, domestic refineries are not inclined to import it. They simply import refined oil and re-pack into small sizes and retail it,” said Satyanarayan Agarwal, president of the Central Organisation for Oil Industry & Trade (COOIT).
Since, refined edible oil does not require further processing, refineries need not be brought in; these can be packed and sold directly to stockists and retailers. “While a few port-based refineries are operating with a marginal capacity of 15-20 per cent, a majority of others have almost shut shop or are doing packaging jobs,” said Laxmi Chandra Agarwal, chairman of COOIT.
According to Siraj Choudhary, chief executive officer (CEO) of Cargill India, “Activities in refineries have taken a hit due to a spurt in refined oil imports. But, the industry also requires a huge labour force for packing jobs.”
For Indian importers, procurement of refined edible oil makes sense as the price difference with crude oil narrowed to $30 a tonne in Indonesia in February as compared to $70-80 a tonne earlier. Considering Rs 3,000 a tonne of refining charges locally, the edible oil processed in domestic refineries becomes costlier as compared to imported oil. Hence, direct import of refined oil makes more sense, said an official with one of India’s largest refineries.
Dorab Mistry, director of London-based Godrej Internati-onal Ltd, has forecast India’s veg oil import to set a new record this year, at 9.4 million tonnes, to bridge the widening gap between lower domestic output and rising consumption. India’s annual edible oil demand is estimated at 16.5 mt. India has developed 18-20 mt of overall refining capacity across all major ports over the past several years.
To promote local refineries, the government of Indonesia had levied 16 per cent and eight per cent export duty on crude palm and RBD (refined, bleached and diodised) oil, later raised to 18 per cent and nine per cent, respectively.
The COOIT chairman said there were two solutions. First, the government must revise the tariff value, the base price for calculating import duty, fixed seven years earlier at $484 a tonne for crude palm oil, and make it market-linked. Since, the crude palm oil price has risen to $1,250 a tonne, the tariff must be revised accordingly. This will raise the price of edible oil marginally but protect the interest of domestic refineries.
Second, an increase in customs duty would help. The import duty was fixed at nil on crude palm oil and 7.5 per cent on refined oil some years before, to help check general inflation. Since inflation has come under control and prices of other agri commodities have also risen sharply since, the duty must be raised.
“This would not impact consumers at all. The upward revision will only increase the import of crude oil, which will benefit domestic refineries,” said B V Mehta, executive director of the Solvent Extractors’ Association.
In case, adequate measures are not taken, lots of permanent workers also would have to opt for alternative means of livelihood, he added.
