The Hindu Business Line : Conflicting stands of vegoil industry bodies

Mumbai, Oct 26 It is now an intra-industry war out in the open; and no effort is spared by the warring groups. The country’s oils and fats industry is split wide open with pro and anti duty-hike groups lobbying hard with the Government to obtain a decision in their favour.

Earlier this year, the Finance Ministry reduced customs duty on refined vegetable oils to 7.5 per cent and on crude vegetable oils to zero. After reaching record highs, international vegoil prices have seen a sharp downward correction since July, with palm oil prices declining by as much as 50 per cent from their peak. No wonder, the domestic market too moved down sharply, several oils losing values by around Rs 10,000-15,000 a tonne. A large number of importers and local dealers were caught unawares by the market behaviour and sustained heavy losses. It was a sudden shock that came after two years of windfall profits in a rising market. It is of course another matter that a number of Indian importers defaulted on their import commitment, unwilling to face potentially huge losses.

Be that as it may, with kharif oilseed crops under harvest and market prices back to more realistic levels, there is demand from one section of the industry to re-impose customs duty on crude oils and raise the duty on refined oils. This section, representing importers and domestic producers of liquid oils, wants the customs duty hiked to a level that would protect oilseed growers.

DUTY STRUCTURE

Another section, the manufacturers of vanaspati – hydrogenated oil – for whom low priced palm oil is a major raw material want the zero-duty regime to continue in the interest of consumers. The Ministries of Finance, Commerce, Food and Agriculture are now being bombarded with memoranda arguing for or against a duty change. New Delhi seems to be in a quandary over the seemingly conflicting stance of two sections of the industry.

Pointing out that kharif oilseed (soyabean and groundnut in-shell) prices have recently fallen to levels close to the minimum support price, the Mumbai-based Solvent Extractors Association of India, in its latest representation on October 24, has asked the Government to save the oilseed farmers and the industry by imposing duty on imported palm and soyoils. It has also recommended lifting of ban on export of edible oils, removal of storage controls and ban on soyoil futures trading.

Arguing against any tinkering with the extant duty regime, the vanaspati industry (the combine of Vanaspati Manufacturers Association of India and Indian Vanaspati Producers Association, both New Delhi-based) has recommended that no change in the duty structure is warranted as edible oil prices continue to remain high enough for the comfort of oilseed growers, yet largely affordable to poor consumers.

HIKE IN MSP

The Government too has confounded the situation. Without realising that world vegoil market was on a free fall since July, the Ministry of Agriculture as late as September announced sharp increase in the minimum support price for various kharif oilseeds. The steep hike of between 35 and 48 per cent may itself act as a support system for growers. In addition is the rapid depreciation of the rupee, by as much as 20-25 per cent in matter of weeks, which makes imports so much more expensive and acts as a tariff wall.

Reports from New Delhi suggest that the Government is unlikely to take a decision until the end of Diwali festivities. In other words, if at all any decision is taken, it would come not before week beginning November 3. Whether or not duty is hiked, administrative measure in the form of storage control should be done away with immediately. Allowing export of edible oils in small packs may also be considered favourably as it would not impact domestic prices.

RESTARTING FUTURES

Recommencing futures trading in soybean oil alone may create an awkward situation for New Delhi when many other commodities are still in suspension. The prospect of the ban being lifted is remote as inflation is still in double-digit. An interesting battle is on the cards. It is not the first time that liquid oil and vanaspati segments of the industry have been at loggerheads. How New Delhi will respond remains to be seen.

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