The Hindu Business Line : Sunoil imports may turn cheaper on duty cut

Effects
The special additional duty makes up Rs 1,500-1,600 a tonne. But price disparity will prevent benefits percolating to consumer.
Duty cut in sunoil will make its landed price cheaper by Rs 4,500 a tonne.

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Mumbai Feb. 28

By removing the irksome special additional duty (SAD), the Finance Minister, Mr P. Chidambaram, has made vegetable oil importers glad. In order to make edible oil more affordable, the Budget has proposed to exempt imported oils from 4 per cent SAD. The levy translates to roughly Rs 1,500-1,600 a tonne. The move involves a revenue sacrifice of Rs 600-700 core. The country imports about 45 lakh tonnes of various oils comprising mainly palm oil and soyabean oil.

Duty cut Benefit

Logically, exemption from SAD should make imported edible oils cheaper by about Rs 1.50 a kg. But the benefit of duty cut is most unlikely to be passed on to the consumers. Traders cited the extant price disparity in imported oils as the reason. Currently, port-based imported oil stocks are rather low. In recent weeks, importers had been wary of contracting because of uncertainties relating to the Budget proposals. Thin order-book means tight stocks and firm prices.

Even the futures market has ignored the proposal to exempt imported oils from SAD. Futures market participants were widely expecting a reduction in rate of customs duty. The Finance Minister did not oblige them. Till late afternoon on Wednesday, at least two of Mumbai-based large importers had not reduced their selling price.

Sunflower oil

A sharp cut of 15 percentage points in basic customs duty on crude and 10 percentage points in refined sunflower oil has been announced. The duty is down from 65 per cent to 50 per cent ad valorem on crude and from 75 per cent to 60 per cent on refined oil. The move has been widely welcomed because of the increase in choice of imported oils.

Sunoil used to be under a tariff rate quota (TRQ) of 1.5 lakh tonnes at 50 per cent duty. Now, there is no quantitative ceiling on import at 50 per cent duty. The move should make landed cost of imported sunoil (including customs duty) lower by about Rs 4,500 a tonne. Major branded players such as ITC (Sundrop) and Kaleesuwari (Goldwinner) will benefit from the move.

Major suppliers of sunoil are Argentina and Ukraine. Current prices are around $620 a tonne free-on-board equivalent to about $680-690 a tonne cost and freight, India.

India has not been a major importer of sunoil because of high duty and high prices in addition to somewhat sluggish offtake in the domestic market.

Market intermediaries have welcomed the move as over-dependence on just two oils may be reduced, albeit by a small measure.

While sunoil imports totalled a mere one lakh tonne during the whole of oil year 2005-06 (November to October), arrivals in the first three months of the current year are already close to 50,000 tonnes.

Imports may be expected to gather further momentum; but sunoil is unlikely to pose any serious competition to palm and soya oils anytime soon.

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