The Hindu Business Line : Vegoil tariff policy rankles producers

India is the focus of attention of the global vegetable oil industry and trade that has converged in this city during the last four days to discuss what the future has in store for the market and how prices would behave.

No doubt, bio-diesel is the hot topic of discussion and all sorts of estimates of vegetable oil usage in bio-diesel, and more specifically usage of palm oil, are floating around.

Palm oil producers apparently are not happy with the current price of 1500 Malaysian ringgit (MYR) a tonne for crude palm oil (CPO).

They are baying for higher prices and the bio-diesel issue has come in handy. How the much-talked about bio-diesel demand would unfold in the coming months remains to be seen.

Tariff policy

India's tariff policy - WTO-bound highest rate of customs duty on soyabean oil at 45 per cent, and currently, 80 per cent on CPO (substantially lower than WTO-bound peak of 300 percent) - still rankles producers and suppliers.

There are desperate attempts to narrow the duty differential. The Malaysian Minister for Plantation Industries and Commodities, Dr Peter Chin, has scheduled a visit to New Delhi during March second week to seek parity in treatment of palm and soya oils.

The Indian industry is clearly divided over the issue of differential duties on the two rival oils. Apparently, the Indian lobby supporting palm is keen to find some way or other to restrict soyabean oil imports and has begun to spread information of doubtful authenticity which was echoed at the conference.

Almost everyone is eager to know what the ensuing Union Budget - scheduled for February 28 - will hold for the vegetable oil market. Many are willing to bet on a reduction in customs duty on CPO. The Prime Minister, Dr Manmohan Singh's visit to Malaysia some time ago and more recently, the Lahiri Committee's recommendations have rekindled hopes of a duty cut.

Whether the Lahiri Committee exposed the widely anticipated Budget proposal in advance remain to be seen. But, looking at the domestic conditions, it may not be in India's interest to cut palm oil duty at this point of time, despite industry and other (read, political) pressures. A huge rapeseed/mustard crop - estimated at about 65 lakh tonnes - is staring at the market. In addition is the 15 lakh tonnes inventory with government agency.

Wrong signals

A duty cut at this point of time would send wrong signals to the market. Already weak rapeseed/mustard prices will weaken further, increasing the magnitude of government intervention and associated costs. At the same time, palm oil market is expected to continue to remain firm.

By cutting the duty India will face a double or even triple jeopardy. It would weaken domestic oilseed prices, lead to loss of revenue for the exchequer and willy-nilly encourage palm prices to rise further.

Mid-July would be a more appropriate time to consider a duty reduction primarily because the summer crop of oilseeds would have been marketed, Kharif planting would have been substantially completed and the country would go into the traditional lean season when domestic prices generally spike. Lower duty would help meet expanded demand for cooking oils during August-October months.

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