The Hindu Business Line : Squeeze the import power

STUNG BY INDIA raising sharply the Customs duty on the palm group of oils, major producers in Asia have decided to band together to strengthen their bargaining power. World's top two producer-exporters Malaysia and Indonesia together with Thailand, a minor player, are closing ranks to ink a pact for cooperation in the production and marketing of crude palm oil with the objective of eventually dominating the rapidly growing global vegetable oil market and setting the price. They want to be price-setters, rather than remain price-takers as they imagine themselves to be at present.

Malaysia, in particular, has been critical of India's vegetable oil tariff policies in recent years and voiced its concern from time to time against the seemingly discriminatory rates of import duty — crude palm oil bears a Customs duty of 80 per cent, while soyabean oil is charged 45 per cent. The supplier-countries have been lobbying for a parity of duty on palm and soya oils, but they seem to overlook India's domestic compulsions. New Delhi has, rightly, remained largely unconcerned about such demands. The 45 per cent duty on soyabean oil is the highest India can levy as it is the WTO-bound rate agreed to as far back as 1995. On the other hand, the WTO-bound rate of duty on palm oil is a whopping 300 per cent. The effective rate levied is, of course, much lower. Not too long ago the duty on palm oil was as low as 15 per cent.

There is absolutely no need for India to succumb to any external political pressure. It is fair in business to get the best bargain from suppliers. Import of nearly 50 lakh tonnes of various edible oils — over 70 per cent of which comprises the palm group of oils — worth approximately Rs 10,000 crore per annum gives India a certain import power which should be leveraged appropriately. The adverse balance of trade between India, on the one hand, and Malaysia and Indonesia, on the other, should be set right. New Delhi must press for a healthier and a more balanced bilateral trade in the Asian region. Unfortunately, Malaysia's approach to India has been somewhat shortsighted. It refused to cooperate in the mid-1990s when India embarked on its own oil palm plantation venture and thereby lost a good long-term investment and expansion opportunity. The value of the railway project given to an Indian company was paltry vis-à-vis the value of India's palm oil imports.

Now, by using its import power, India must squeeze the best price out of producers. A long-term supply commitment at stable prices on a `cost plus' basis should be explored. While the cost of production of one tonne of crude palm oil is ringgit Malaysia 700, current market prices are more than double, giving a profit of more than 100 per cent. It would also be worthwhile examining counter-trade opportunities with Indonesia — swapping palm oil for rice, wheat, sugar, oilmeal and other commodities. New Delhi must continue to do all that it takes to protect the interests of domestic oilseed growers, even as the threat of collective bargaining by palm oil supplier countries runs the risk of collapsing, as in the case of rubber.

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