The Hindu Business Line : `Duty cut on edible oil cannot rein in prices'

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`Duty cut on edible oil cannot rein in prices'

M.R. Subramani

Move may send wrong signal to farmers: Industry

Chennai June 4 The Food Ministry's move to cut Customs duty on edible oil further is being viewed by the edible oil industry as a temporary measure, one that cannot counter the problem of rising prices in the global market.

"Since June 2006, the Centre has been reducing Customs duty or opting for other measures to cool down the effect of rise in global edible oil prices. But whenever such measures were introduced, prices only increased," said Mr Rajesh Agrawal, spokesman of the Soyabean Processors Association of India.

"A further cut in duty is not necessary at this juncture. Sowing of kharif oilseeds is set to begin in 10-15 days and such a move could discourage farmers," said Mr B.V. Mehta, Executive Director of the Solvent Extractors Association of India.

Pointing out that the effective Customs duty on edible oils is around 30 per cent (see table), Mr Mehta and Mr Agrawal said that prices in the global market are driven by demand-supply scenario.

"Prices have increased in the global market because edible oil is now being used more for non-food uses, putting pressure on supply," Mr Mehta said.

"While global prices have increased by over 60 per cent since June 2006, rise in domestic prices has been less than 20 per cent," he added. (See table.)

"Even if the duty is brought down to zero, we don't think global prices can be controlled."

Mr Agrawal said that though Customs duty, on paper, is 50 per cent for palm oil and 45 per cent soyabean oil, the effective duty is less.

"The Centre has not changed the tariff values (the base price on which Customs duty is calculated) since August last. Therefore, the effective duty works out much less."

Mr Mehta said that the minimum support price announced by the Centre for kharif oilseed was encouraging and could help farmers to go in for sowing of oilseeds.

"However, if prices decline sharply, they could shift to some other crop," he added.

Mr Agrawal also said that any fall in domestic prices could be short-lived, adding that the proposed cut may not have any effect on kharif oilseed sowing.

Besides the rise in global prices, the oil and oilseed market in the country has been affected by a 45-lakh-tonne fall in production.

"Last season (November 2005-October 2006), production was 270 lakh tonnes, but this season it is projected at 225 lakh tonnes," said Mr Mehta.

"Compared to other commodities, the increase in prices of edible oil has been less."

However, both Mr Agrawal and Mr Mehta said that they appreciated the Centre's concern over rising prices but added that it should not panic.

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