The Hindu Business Line : Global edible oil prices crash; farmers may switch crops

THE crash in international edible oil prices could not have come at a worse time than now when domestic oilseed growers are in the process of planting for the kharif season, following the south-west monsoon's early onset.

If the bearishness continues for long, there is every possibility that farmers may not go in for large-scale sowing of groundnut or soyabean this time and, instead, opt for castor, cotton, pulses, coarse grains or even sugarcane.

But worse could follow if the fall in domestic edible oil prices — currently not as pronounced as the global decline — takes place at harvest-time, when farmers bring their crop to the market.

The accompanying table shows the extent to which global prices have plummeted in less than three months — over $ 150 per tonne in crude soyabean oil and $ 120-$130 per tonne for the palm complex.

Domestic prices, too, have fallen, though not as much, one reason for which is said to be the non-revision in tariff values, particularly for palm oils.

The tariff values for crude palm oil (CPO) and refined, bleached, de-odourised (RBD) palmolein have been left unchanged since November 14, 2003 at $ 504 per tonne and $ 552 per tonne, respectively, which are way above the ruling international prices. Even for crude soya, the present tariff value of $ 628 per tonne (slashed from $ 710 per tonne on May 31) is much higher than the prevailing landed price of about $ 540 per tonne.

And since the tariff value forms the base price on which the Customs duty is levied, it means that the effective tariffs being coughed up by importers now are much more than the nominal 65 per cent on CPO and 45 per cent on soya oil.

Ironically, tariff values on edible oils were imposed originally to check under-invoicing by importers!

The Government, on its part, appears reluctant to bring down the tariff values in line with global prices, fearing probably that it would lead to a crash in domestic prices during the crucial sowing season. The trade, on the other hand, believes that a tariff value cut is around the corner and for this reason — and also in anticipation of a further decline in international prices — it is not undertaking any imports. The country imported just 1.9 lakh tonnes (lt) of edible oil in April and 2.5 lt in May, this year, compared to the corresponding 2003 levels of 5.1 lt and seven lt, respectively.

The main cause of the present international bearishness is China — the country that has been responsible for driving up world prices of steel, metals and many other commodities over the last year. China is the world's biggest soyabean importer, most of which is crushed to yield oil meal/cake for use as chicken feed. The avian influenza outbreak during March has provoked `protective slaughter' of birds throughout China, alongside a vast dip in chicken consumption.

This, in turn, has translated into a huge slump in poultry feed demand, leaving the entire world soya trade in turmoil and impacting other oils as well. Moreover, global oilseeds production during 2004-05 (October-September), according to the US Department of Agriculture (USDA), is projected at a record 378 million tonnes (m.t.), an increase of 42 m.t. from the current year.

Malaysian palm oil stocks, too, are expected to hit a three-year high by end-June.

All this means that the Finance Minister, Mr P. Chidambaran and the Agriculture Minister, Mr Sharad Pawar, will have to soon take a call on how best to insulate Indian oilseed growers from the bearish global markets. Whether this would involve higher duties or maintaining tariff values at current levels remains to be seen.

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