The Hindu Business Line : Cooking oil may turn costlier if customs duty is hiked

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Cooking oil may turn costlier if customs duty is hiked

Palm oil slipping into lean production season.

G. Chandrashekhar

Mumbai, Nov. 17 Despite the Government’s recent rejection of the vegetable oil industry’s demand for re-imposition of customs duty on imported oils, efforts have once again begun to lobby for the same cause. At the all-India kharif oilseeds convention held in Ahmedabad earlier this month, several industry representatives demanded a hike in duty rates. A concerted move by the associations concerned is evident, although the ground reality hardly warrants a review of the fiscal impost at this point of time. Oilseed prices are still ruling above the minimum support prices (MSP) fixed by the Government. For groundnut in-shell it is Rs 2,100 a quintal, while market prices are about 10 per cent higher. Representatives of large corporates, tracking soyabean, assert that prices are unlikely to decline to the MSP level (Rs 1,390 a quintal) as compared with the current price of about Rs 1,550 a quintal.

No glut, no price crash

While the crushing industry is crying hoarse, there has been no protest from the farm lobby over the current oilseed price levels. Indeed, soyabean growers in Madhya Pradesh and groundnut growers in Gujarat have developed sufficient financial resilience to be in a position to wait for the market prices to improve. Unlike in the past, not all of them are rushing to the marketing yards (mandis) with the harvested produce. There is no glut and therefore, no crash in prices. It is only the industry that is protesting on behalf of growers; and in some sense the country’s vegoil industry is using oilseed growers as a front to advance its own interest.

Hidden agenda

A hike in duty now will only bring windfall profits to importers and traders holding large stocks. It is unlikely to have any impact on oilseed prices because of continuing steady arrivals and ability of growers to stagger their sales.

If proof was needed that in seeking a hike in customs duty, importers have a hidden agenda it is provided by the latest circular from India’s premier association of vegetable oil industry and trade. According to the industry body, October witnessed record import of vegetable oil (7.9 lakh tonnes) following lean crushing season coupled with two-year low prices in the international market. In anticipation of an increase in import duty on edible oils, importers rushed to import, the circular said. Having rushed to import record volumes in anticipation of a duty hike, importers are now forced to nurse large stocks. Offtake in the local market is limited because of seasonal factors and availability of freshly produced indigenous oils.

Retail prices unchanged

Retail consumers have had limited relief. Although the industry continues to lobby the Government over steep fall in overseas prices, there is no marked decline in domestic retail prices of edible oils. Decline, if any, in retail prices in the last two months is much less than in the wholesale prices, suggesting that consumers have not really and fully benefited from the international price fall, and the industry may be pocketing the profits.

On the other hand, there surely would be an upside risk to cooking oil prices at the wholesale and retail levels if the government succumbs to lobby pressure. Palm oil is now slowly slipping out of the peak production season into the lean season. From here on, the downside potential of palm oil prices is rather limited. On the other hand, the risks to the upside have not gone away. Therefore, it would be inadvisable to tinker with the present duty structure for imported vegetable oils.