The futility of customs duty hikes on agri-commodities

In a desperate bid to shore up prices of oilseeds and pulses, the Union government last month sharply increased the customs duty on various imported edible oils (palm, soya, sun, rapeseed oils) and slapped a 50 per cent customs duty on imported yellow peas.

In addition, customs duty on imported wheat was raised from 10 per cent to 20 per cent to encourage wheat growers. Wheat prices have been languishing around the procurement price for an extended period of time much to the disappointment of growers.

Has the tariff hike helped growers? The answer is an emphatic no. The tariff hike has not imparted any perceptible improvement in the farm-gate prices of oilseeds, pulses and wheat. Soyabean continues to rule below the minimum support price of ₹3,050 a quintal, while groundnut in-shell sells well below ₹4,000 a quintal when the MSP is ₹4,450.

Prices of various pulses — tur/arhar or pigeonpea, moong and urad — continue to languish below MSP. Although yellow pea is a chana substitute, a 50 per cent customs duty has had no impact on domestic chana prices which continue to rule at around ₹4,500 a quintal, contrary to expectation.

The case of wheat is no different. Market rates have not moved much despite imports becoming more expensive. If anything, progress of wheat planting may become a cause for concern. Acreage has slipped vis-à-vis this time last year.

In other words, the fiscal imposts have not had the desired effect on prices and therefore have not fulfilled the objective of support to growers. So, who then has benefited from the duty hike imposed by the government? Traders and stockists, for sure.

Even as oilseed prices have remained largely unmoved following the duty hike, edible oil prices have certainly increased sharply. In case of palm oil and soya oil, two principal oils of import into the country, the price escalation is anything between ₹4,000 and ₹5,000 a tonne. Same is the case with other oils such as sunoil and rapeoil.

The duty hike has delivered windfall gains to large importers and edible oil stockists. At any point of time, port-based and pipeline stocks of various oils are an estimated 20 lakh tonnes. An increase of ₹5,000/tonne on 20 lakh tonnes translates to a whopping ₹1,000 crore profit for the edible oil industry with no tangible benefit to growers.

This an utterly perverse way of policymaking and effecting tariff changes, and the purpose stands defeated. It also raises serious questions about the government’s ability to understand the market and whether this government succumbs to lobby pressure.

Growers in our country need and deserve affirmative action. Tariff and trade policy changes are best a quick fix. Indeed, Indian agriculture needs non-trade, non-price initiatives. There are structural problems that have not been addressed for decades. The sooner the government gets into genuine reform mode in the agriculture sector, the better it is for all — socially and politically.

The writer is a global agri-business and commodities market specialist. Views are personal.

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