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Informist, Friday, Sep 20, 2024

 

By Afra Abubacker and Anjali Lavania

 

NEW DELHI/MUMBAI – Though the government has sharply increased duty on cooking oil imports, comfortable edible oil stocks in ports and pipelines are likely to cushion consumers from price shocks this festival season, experts said. Meanwhile, farm income is set to improve as domestic oilseed prices have climbed up, following the duty hike ahead of kharif oilseed arrival season, they added. 

 

"The announcement came before the start of the kharif marketing season, which means farmers will start getting better prices right from day one," Atul Chaturvedi, special advisor, The Solvent Extractors' Association of India, said. New crop arrivals of groundnut, soybean, and other kharif oilseeds will start picking up in a fortnight.  

 

The government's procurement plans, coupled with the import duty hike, have pulled domestic oilseed prices higher. "The government has targeted procuring 35-40% of soybean crop. It would definitely pull the soybean prices," Indrajit Paul, head of research at Agrocorp International, said. 

 

To promote domestic oilseed cultivation, last week the government sharply raised the basic import duty on crude and refined edible oils to 20% and 32.5% from nil and 12.5%, respectively. With agricultural cess and social welfare cess, the effective import duty on crude oils will increase to 27.5% from 5.5% and that on refined oils will rise to 35.75% from 13.75%.

 

India depends on imports to meet about 60-70% of its edible oil requirement. It majorly imports palm oil from Indonesia and Malaysia, and soyoil from Brazil and Argentina. In 2022-23 (Nov-Oct) India imported a record 16.5 mln tn edible oil as importers had cashed in on lower duties and falling global prices. During Nov-Aug, edible oil imports were 13.5 mln tn, a tad down from 13.9 mln tn a year ago, SEA data showed. 

 

AMPLE STOCKS 

 

Meanwhile, cooking oil prices are not likely to spike immediately amid an inventory pile-up. As of Sep 1, the port and pipeline stocks were 2.9 mln tn, 26% higher than the average of the past five years, Paul said. Hence, the supply situation is more or less adequate at this point, which means consumers may not face the price rise any time soon," he said. The stocks in ports should last for a month or more, according to experts. 

 

The government, on Tuesday, said domestic stocks were comfortable in the country and urged trade bodies not to pass the cost of the recent import duty hike to consumers for nearly two months. Even if the domestic inventories go dry, cooking oil prices need not rise sharply as global prices are likely to soften, Food Secretary Sanjeev Chopra said at a press conference on Wednesday.

 

However, experts say, expensive imports will push up prices of cooking oil, snacks, and biscuits for consumers in the near future. The industry expects prices to rise only after Oct 15, or on Diwali on Nov 1, depending on the domestic supply and demand situation and global edible oil prices, Paul said. However, sharp hikes in cooking oil rates can be checked by government intervention and market competition that forces retailers to absorb some costs, he added. 

 

Asked about the price growth outlook, Bhavna Shah, deputy chief executive officer, N.K. Proteins Pvt Ltd, said, "My best estimate is that the Indian market will absorb approximately 12-13 rupees of the 18 rupees per litre increase resulting from the higher import duty." Given this, we can expect some moderate upward pressure on both wholesale and retail prices, but not the full extent of the duty hike, she added.

 

According to experts, though Indian markets are price sensitive, they don't see any major slowdown in edible oil demand. "The combination of strong cultural consumption patterns and seasonal demand tends to offset any short-term price increases, ensuring steady consumption levels in the near term," Shah said. Experts say global cooking oil prices will largely depend on global supply dynamics, weather patterns, and policy changes across key producing countries.

 

OILSEED CULTIVATION

 

Though Finance Minister Nirmala Sitharaman stressed upon the goal of achieving self-sufficiency in edible oils by promoting domestic oilseed cultivation in her Budget speech, it missed policy support to check India's huge edible oil imports. "They should have hiked the duty then and there in the budget itself," Sunvin Group chief executive officer Sandeep Bajoria, said.

 

While the government had been considering the duty-hike proposal for some time, the decision was finally taken as a last-minute move to save crashing soybean prices. "The soybean market was going down... This decision to raise import duty was made in favour of the farmers," Union Agriculture Minister Shivraj Singh Chouhan said on Thursday. "I believe that not only soybean, but also mustard and groundnut prices will go up." Chouhan added. 

 

For more than six months, soybean prices had been trading below the minimum support price of 4,892 rupees per 100 kg. In August, soybean prices fell to a decade-low of 3,500-4,500 rupees per 100 kg in some markets of Madhya Pradesh, the top producer of the oilseed. Prices have crashed just ahead of the start of new-crop arrivals.

 

To support prices, the Centre also approved a proposal by state governments of Madhya Pradesh, Maharashtra, Karnataka, and Telangana to procure soybean at the minimum support price. "I believe that not only soybean, but also mustard and groundnut prices will go up." Chouhan said. "We will buy soybean crops at MSP (minimum support price) and make the economy such that the farmers will find oilseed cultivation profitable," he added. 

 

The Centre's support for oilseed prices comes amid upcoming polls in agriculture-heavy states like Maharashtra and Haryana. The National Democratic Alliance government has already received major electoral setbacks in rural areas in the Lok Sabha elections amid lacklustre growth in agriculture.

 

According to Bajoria, domestic oilseed prices have risen 5-6 rupees per kg after the government increased the import duty on edible oils. Before the announcement, the oilseed basket prices rose 8-9 rupees amid expectations of a duty-hike, he added. 

 

Though oilseed prices have climbed up, analysts do not see much room for further upside. "Pressure of new crop from October will restrict the major benefits of duty hike to farmers," Ravi Shankar Pandey, senior analyst, SMC Global Securities, said. As of Tuesday, farmers across the country have sown oilseeds over 19.3 mln ha, up 2% from a year ago, according to farm ministry data.

 

UPSET REFINERIES

 

Though the government has increased import duty on crude and refined edible oils to discourage excessive imports, the effective duty difference between the two oil forms remains the same at 8.25%. "We have to continue our fight with the government for a higher duty difference to counter the export duty imposed by Indonesia and Malaysia," B.V. Mehta, executive director, The Solvent Extractor's Association of India, said. The association has been urging the government to raise the duty difference to at least 15% to protect the domestic refining industry. 

 

Major palm oil-exporting countries like Indonesia and Malaysia discount tax on refined varieties over crude forms. As a result, landed prices of refined palm oil are less than those of crude palm oil. In the oil complex, the palm oil segment accounted for almost 60% of imports, and higher imports of refined varieties have hit the profitability and viability of the refining industry, with many units now functioning solely as packers, said the SEA.

 

Asked what prompted the government to keep the duty difference unchanged, Shah said, "It is difficult to fathom the government’s rationale in maintaining a low differential. The only rationale that comes to mind is to leave an avenue open for importation of cheaper refined oil."

 

To check the dumping of cheap edible oils from Nepal under the South Asian Free Trade Area, Chaturvedi recommended fixing a quota for import from Nepal or imposing an import duty on refined oil from the country. Imports from Nepal enjoy zero-duty benefits under the free trade agreement with India, incentivising importers to reroute their edible oils through Nepal to take advantage of the tariff arbitrage opportunity. 

 

"Under SAFTA, certain commodities are allowed duty-free trade. And edible oil is one of them. Now that India has to import (crude) edible oil with about 27% or thereabouts duty, Nepal has a competitive advantage, and they start pushing exports into India, even though the product is not of their origin," Chaturvedi said. End

 

Edited by Deepshikha Bhardwaj

 

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