Informist, Saturday, Sep 28, 2024

By Afra Abubacker and Anjali Lavania

NEW DELHI/MUMBAI – Indian consumers have been pampered with cheap cooking oil for some time now as the government had allowed edible oil imports at nil or low duty. However, with the recent hike in import duties on key edible oils, the government has finally struck the right balance between the interests of farmers and consumers, Sunvin Group's Chief Executive Officer Sandeep Bajoria told Informist in an interview.

Asked if Indonesia's export levy cut on crude palm oil, effective from Sep 22, will offset the impact of India's import duty hike on the commodity, Bajoria said, "See, the Indian government increased (effective) import duty by 22%. And 22% duty at $1,000 per tn becomes $220 (per tn). But the Indonesian levy reduction was only $27 (per tn). So it's very small compared to what the Indian government has done." Indonesia accounts for 57% of India's palm oil imports.

To check excess edible oil imports and promote domestic oilseed cultivation, India on Sep 14 increased basic customs duty on crude varieties of palm oil, soyoil, and sunflower oil to 20% from 0%, which effectively increases the total import duty on the above-mentioned oils to 27.5% from 5.5%. The increase in import duties came after more than two years.

However, amid limited cargo availability, the market absorbed not only the Indian import duty hike but also the Indonesian export duty reduction and went up, Bajoria said. "However, in the last day or two, it's cooling off a little bit," he added.

Bajoria attributed the fall in palm oil futures to concerns over Indian demand post-Diwali and seasonally low consumption of palm oil in winter as the oil solidifies in cold temperatures. "So assessing all these things, I believe the market will cool off slightly in November and December. Also, you saw the Indian importers cancel and wash out the deals of 100,000 tn as they are not sure whether the consumer will buy at these (high) prices after Diwali or not," he said. Diwali falls on Nov 1 this year.

On Tuesday, Reuters reported that Indian refiners cancelled 100,000 tn of palm oil purchases for delivery between October and December as they booked profits amid a rally in palm oil futures. "They (Indian refiners) said, let us wash out right now and maybe when the prices come down, they will buy again," the Sunvin Group CEO said. He added that palm oil prices are most likely to soften after Nov 1 as the availability of new oilseed crops in Indian markets will slow down imports.

Bajoria said he appreciated the import duty hike on cooking oils as the move aims to support domestic farmers. But at the same time, the government is yet to cater to the demand of the domestic industry to increase the duty difference between crude and refined edible oils, he added. "As far as industry is concerned, our interest is still not taken care of, because the duty difference between crude and the refined (edible oil) still continues to be the same (8.25%)," Bajoria said. The edible oil industry has been urging the government to raise the duty differential between crude and refined edible oils to at least 15% to protect the domestic refining industry.

Following are the edited excerpts from an interview with Bajoria:

Q. Indonesia has cut palm oil export duty to make their oil more competitive for overseas buyers. Does this nullify the Indian government's import duty hike?

A. The Indian government has increased effective import duty (on edible oils) by 22%. And 22% at $1,000 per tn becomes $220. While the Indonesian levy reduction was only $27 (per tn). It's very small compared to what the Indian government has done. However, the market was moving at such a speed and the nearby cargo availability was very less. That's the reason the market absorbed not only the Indian duty hike but also the Indonesian duty reduction, and it continued to go up.

However, since the last day or two, it's cooling off a little bit because Indian demand will slow down after Diwali. Also, local oilseed crops will come to the market. Secondly, the cold season will start in November, which is not very favourable for palm oil as it solidifies a little bit in winter and consumption decreases. Also, palm oil shipments from Indonesia, which are now limited, will increase in November and December.

So, assessing all these things, I believe the market will cool off slightly in November and December. Also, you saw Indian importers cancel and wash down the deals of 100,000 tn of palm oil delivery contracts. They feel prices are high and are not sure whether consumers will buy at these prices after Diwali or not. Maybe when prices come down by $50, they will buy again. That was the idea of washing out.

Q. How do you read India's policies on edible oils when compared with those of Indonesia or Malaysia?

A. They (Indonesia and Malaysia) are supporting their industry proactively. That is why they have put a higher export duty and levy on the raw material, which is crude palm oil, and lower duty on refined palm oil.

Our government's job is to protect our industry. We have to understand what they're doing, and we have to be one step ahead of them. Otherwise, their industry will flourish, while ours will struggle.

As far as the industry is concerned, our interest is still not taken care of because the duty difference between crude and refined (edible oil) still continues to be the same (8.25%). This difference is not enough because Malaysia and Indonesia are selling refined palm oil cheaper than crude, which is a raw material. So it has been difficult for Indian refiners to process and make a decent return on that.

If only the duty difference between crude and refined oil is at least 15% can the domestic refining industry work at a full capacity. Also, it will be a good salute to the Make in India campaign as well as give some life to the domestic industry.

Q. Do you think government policies have started to shift from being consumer-centric to being more farmer-oriented?

A. Now the government has realised that the right balance is important, and they have taken the decision to raise edible oil import duty in that direction. They need to do something more now for the Indian industry. I think that shift (towards farmers), as you are saying, is taking place.

Q. How do you see edible oil prices in the domestic market with the recent import duty hike ahead of Diwali?

A. Supply situation is comfortable. There are comfortable stocks in Indian ports for consumers. And the government has got 25 lakh (2.5 mln) tn of mustard seeds in stock procured through NAFED (National Agricultural Cooperative Marketing Federation of India Ltd).

On Monday, they auctioned about 105,000-200,000 tn of mustard seed, which was a good move. The moment they started auctioning, the mustard oil prices fell by more than 10 rupees a kg in the (spot) market.

I urge the government to continuously sell 50,000 tn (mustard seed) every day till Diwali to check prices. The government can offload another 18-20 lakh (1.8-2.0 mln) tn and make good profits on the price they have procured.

At the same time, during festivals, prices will remain under check because of this selling by the government. So, I think that will balance the whole thing.

After Diwali, I think the farmer will bring his goods to the market. And he should get a good price. All this while consumers were pampered. If you take the average prices of edible oil in the last 10 years, cooking oil prices were not causing inflation, they were causing deflation. And this was creating problems for farmers as they were not getting the minimum support price.

To support farmers, the governments of Maharashtra, Madhya Pradesh, and Karnataka are getting ready to buy soybean at MSP (minimum support price). So, there's going to be a good and equitable balance formed between the interests of the consumer and the farmer.

Q. With palm oil production seen lower this year, where do you see palm oil futures prices going forward ?

A. As I said, palm oil prices look soft in Oct-Dec. But next year, Jan-Mar and Ap-Jun quarters should be better than what we are seeing right now. Prices can go a further 5-10% up from the levels we are seeing.

Q. India allows edible oil imports at zero duty from Nepal and Bangladesh through the South Asian Free Trade Area agreement. Can you give a sense of the quantum? What can help check any excess imports from these countries?

A. Nepal and Bangladesh can push at least maybe 60,000-100,000 tn of edible oil every month to India. This would definitely cause stress on Indian processors because they will be exporting at 0% duty under the treaty. Meanwhile, we have to import crude palm oil at 27.5% duty and refined palm oil at 35.75% duty. This penetration by them is definitely going to create problems.

The government should have discussions with these countries and work out a quota system under the treaty. We need to have a quota every month, that you can export only 10,000 tn per month to India. This will give some justice to them and to us.

Q. Sunflower oil prices have been higher than soyoil and crude palm oil prices. In the near term, where do you see prices of these three?

A. This year, sunflower oil prices are high because of the dry weather and moisture stress in the Black Sea region, and Europe (Sunflower oil price for October shipment is around $1,090 per tn, the crude palm oil price is also $1,090 per tn. Soyoil is around $1,080 per tn, including cost, insurance and freight).

Last year, sunflower oil sold cheaper than palm and soyoil by $50-$60 because there was big production in the world. Last year, sunflower seeds production was 55 mln tn globally, but this year it doesn't look more than 49-50 mln tn. Going forward, in Jan-Jun, sunflower oil will command a $50-$100 premium over palm and soyoil.

Q. The global outlook for soymeal prices is bearish. How will this affect India's export and prices of soymeals?

A. See, when you make ethanol out of corn, we get a by-product known as DDGS (distiller's dried grains with solubles). This DDGS competes with oilmeals. In the US, Argentina, and Brazil, DDGS production is like an additional supply of a material which is competing with oilmeal and depressing oilmeal prices. That is the reality now and processors will have to face the fact that oilmeal prices will remain under pressure. End

US$1 = 83.70 rupees

Edited by Tanima Banerjee

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