The Hindu Business Line : High margins trigger increase in soya oil imports

Imports expanded to 18.2 lakh tonnes (lt) during the first 11 months of the current oil year from November 2004 to September 2005 compared with 7.2 lt during same period last year.

It is projected to touch a record 20 lt by October 2005, representing 40 per cent of the country's total imports for 2004-05, up from about 20 per cent, that is 9.0 lt out of total arrival of 44 lt in the previous year.

This phenomenal increase is notwithstanding the fact that soyabean oil is expensive by as much as $100-120 a tonne than substitutes such as palm oil. Many believe imports have doubled merely because the rate of customs duty on soyabean oil is at a relatively low WTO-bound rate of 45 per cent while crude palm oil bears 80 per cent.

In reality, imports have expanded because of the relatively high profitability of importing soyabean oil. Analysis of landed cost of soybean oil (including import related expenses and customs duty) and market price (ex-port) shows that import of this particular oil has been profitable vis-à-vis other oils in the last six months.

Soya oil imports have brought in assured profit of anything between Rs 2,000 and Rs 3,000 a tonne for importers, quick calculations of costs and prices of last six months show. It is high profitability that has encouraged larger imports. In addition, huge refining capacities created in the country following tax breaks given by the Government are also forcing larger imports as refineries have to remain operational.

One of the negative fallouts of large import of this oil has been the rampant adulteration of soya oil with sunflower oil, which is a premium product. Because of low import volumes, sunflower oil is about Rs 10,000 a tonne more expensive than soyabean oil. This has provided facile opportunity for adulterators to blend soyaoil with sunoil, and palm off the mix as premium sunoil.

On the other hand, palm oil group of oils are rapidly losing their market share in India because of poor profitability. Importers complain that on occasions the margins on palm oil turn negative. One of the major issues in crude palm oil import is the disposal of stearine that is produced as a by-product when the refined palm oil is fractionated to produce refined palmolein.

Concerned over shrinking share of the Indian market, palm oil producers have been seeking a level playing field with soyabean oil in terms of the rate of customs duty. Given that palm oil is cheaper than soyabean oil by about $100 a tonne, either a lowering of customs duty on palm oil or a hike in duty on soyabean oil would provide solid support to palm oil in the Indian market.

Demand for restricting soyabean oil import has already begun to do the rounds not only in industry circles, but also among government, primarily because unrestrained imports are seen hurting domestic soyabean and oil market. India is world's fifth largest producer of soyabean.

Also, not only is the foreign exchange outgo higher on soyaoil import because of high price, but also revenue generation (customs duty) is lower because of lower rate of duty.

The Government has not been able to successfully renegotiate a higher bound rate of customs duty for soyabean oil. Obviously, some non-tariff measure may be necessary to curtail its imports. Imposing restriction on soyabean oil produced out of genetically-modified (GM) soyabean could be one way to address the issue.

Business Line first raised this issue more than two years ago, but policymakers have remained unmoved. There is something for the Indian Government to learn from European Union legislation regulating import of GM products including vegetable oil.

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