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G. Chandrashekhar

Mumbai , Sept 20

IN the ongoing battle between palm oil and soyabean oil for market share, the latter has scored a convincing victory insofar as India is concerned this year. India has generally been a strong votary for palm oil and perceived as virtually a captive market for this oil from the Asian region.

However, the last several months have seen soyabean oil make significant gains here, denting the palm stronghold. Palm has clearly lost its grip on India at least for now, for sure.

Is the balance tilting against palm? Has the Indian market share of soya oil come to stay? How far has the differential in Customs between the two oils contributed to changes in relative share of the Indian market? These are questions nagging the minds of various players in the edible oil market, both domestic and international.

Facts first. India's imports during the first 10 months (November 2004-August 2005) of the current oil year expanded by a hefty 27 per cent to 41.7 lakh tonnes (lt), up from 32.9 lt in the same previous period, as per data compiled by Solvent Extractors' Association of India.

In actual volume terms, import of soyabean oil has jumped 150 per cent this year to a record 15.6 lt (six lt). As percentage of India's total imports, soyabean oil so far this year accounts for 37 per cent, doubling from 18 per cent last year.

At 25.9 lt during November 2004-August 2005, the palm group of oils has lost a good share of the lucrative Indian market this year, a development unthinkable until recently.

Indeed, in volume terms, imports are marginally lower this year compared with 26.3 lt during the same period last year, while palm's share in India' total imports is now down to 62 per cent from a hefty 80 per cent last year.

Notable quantities of soya oil are expected to continue to arrive in the current month and the next. Aggregate soya oil arrivals are threatening to touch the watershed figure of 20 lt by October.

India's vegetable oil imports are projected to total slightly over 50 lt during the oil year ending October 2005, up from 44 lt in 2003-04.

Palm oil is priced on an average $100-120 a tonne lower than soyabean oil, yet India this year has gone in for soya oil. According to a reputed trade intermediary, while soya oil ensures better net margins for processors, in case of palm oil, disposal of stearine has become a major hassle. Huge quantities of stearin are occupying costly space in storage tanks and locking up working capital.

Of course, there are several dimensions to the changing composition of India' s edible oil import basket. From the viewpoint of foreign exchange outgo and revenue generation, soya oil is seen as far from ideal for the country, on current reckoning.

For one, soya oil's price is about $100 a tonne higher than palm oil, entailing higher foreign exchange expenditure. In other words, India has so far spent about $156 million or close to Rs 700 crore `additional' foreign exchange on import of 15.6 lt of soyabean oil this year.

In terms of revenue, the realisation is lower because the bound rate of Customs duty on imported soya oil is 45 per cent. The Government is unable to, and possibly unwilling to, explore the possibility of raising the low level of duty on imported soya oil.

On every tonne of soyabean oil, Customs duty collected is a little less than Rs 10,000, calculated at the rate of 45 per cent on an average price of $500 a tonne (ignoring tariff values, for the time being).

However, on palm oil for instance, assuming an average price of $400 a tonne, with the levy of 80 per cent Customs duty, revenue generation is over Rs 14,000.

India is the world's fifth largest producer of soyabean. Obviously, rising soya oil imports will have an implication for domestic soyabean prices. Any possibility of upside for soyabean prices is capped by large bean oil imports.

Growers' interests are compromised in the process. Also, the competitiveness of soyabean extraction export is largely dependent on the margin extractors receive on soya oil.

All this is not to suggest that India should stop importing soyabean oil or go all out for palm oil. Confining the import basket to one type of oil could be potentially risky. A well-diversified basket is most desirable.

However, the objective should be to maximise revenue earning from oil imports and minimise foreign exchange outgo. Customs duties will have to rationalised from this perspective.

There are far too many categories of oils and equally many rates of Customs duty. Tariff values and changes therein (untimely on occasions) are also to be looked into. The latest steep reduction in tariff value for soya oil has come at a time when the domestic crop is getting ready for harvest.

It is strange that no one in the Central Government seems to be concerned about the oilseeds-based sector, which is gradually turning moribund, despite being a Rs 75,000-crore sector generating huge revenue and employment.

Growers are unhappy with unsteady output and unremunerative prices; a large part of processing industry is upset with having to carry huge idle capacity and sub-optimal employment of resources, while consumer health is compromised because of large-scale adulteration and poor food law enforcement. The only area of growth seems to be import and import dependence.

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