The Hindu Business Line : Beware the palm oil cartel

A RECENT REPORT that the world's top three rubber producers — Malaysia, Indonesia and Thailand — plan to set up a joint venture to strengthen cooperation in the palm oil industry must make India's policy-makers sit up. A consortium of palm oil producers in Asia, as thatfor rubber, will impact India, which imports 40-50 per cent of its edible oil requirement. Palm oil forms close to 70 per cent of India's total oil imports of 4.5-5 million tonnes annually, valued at Rs 10,000 crore.

Demographic pressures and income growth are driving consumption demand for this essential food product. The per capita consumption of cooking oils has risen the last 10 years following liberalisation of imports, yet, at about 11 kg the per capita availability is still below the world average of 16 kg and considerably short of the 22 kg recommended by nutritionists. Given the constraints to raising domestic oilseeds production (monsoon-dependence, cultivation in marginal lands, low level of input usage, no breakthrough in seed technology, all resulting in low yields), the supply shortfall is projected to worsen, making Indian oilseed growers and the processing industry increasingly more vulnerable to the vicissitudes of the international marketplace.

Why should India be concerned about a consortium of palm oil producers? The market structure of palm oil is unlike that of other oils. To be sure, the global palm oil market is largely controlled by the largest producer/exporter, Malaysia, which also exercises much influence on the palm oil business of Indonesia, the second largest producer/exporter. This virtual duopoly services nearly 90 per cent of the global palm oil market. Thailand, a new entrant, can also emerge as a palm oil producer of some substance, given its low production costs. In a market that is both volatile and competitive, a consortium of a small number of producers can well turn into a cartel. One of the objectives of the rubber consortium is to purchase and stockpile the produce to arrest price fall. An intervention in the palm oil market to keep prices at the comfort level of producers is sure to hurt the interests of major consumers such as India, China, Pakistan, Bangladesh, Egypt and Iran. Therefore, India must fashion a response to the emerging situation.

As far as India is concerned, the WTO-bound rate of Customs duty for palm oil is as high as 300 per cent. The current effective rate, however, is low at 70 per cent for refined and 65 per cent for crude palm oil. New Delhi is under pressure from Kuala Lumpur to bring it to the level of soyabean oil (45 per cent WTO-bound); there is no need to succumb, though. India must leverage its import power so that producers do not manipulate palm oil prices. The high price of crude palm oil, at Malaysian ringgit (RM) 2,000 a tonne, is hardly justified when the cost of production is RM 600-700 a tonne. As the largest importer — and one most likely to continue to be so — India must secure its position. Counter-trade arrangements with Indonesia should be explored. The adverse trade balance with that country can be set right by negotiating a barter deal of Indian wheat, rice and sugar for palm oil.

More Stories on : Editorial | Oilseeds & Edible Oil

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Beware the palm oil cartel

Protection of Plant Varieties and Farmers' Rights Act, 2001 — Just leave the seed alone

IMF on State finances

SAFTA can do a NAFTA

RBI's dilemma on sterilising forex inflows

PDS supply of kerosene — A burning issue

Fractal evolution and the digital age

Open sky policy

CAS trouble