Case for duty-free import of refined oils

The tariff values for various imported edible oils announced from time to time are a big joke. The latest notification is dated January 14, 2011 issued by the Central Board of Excise and Customs, Department of Revenue. The tariff values insofar as crude or unrefined oils are concerned are no longer relevant as import of such oils was declared duty-free two years ago. Currently, refined oils alone bear customs duty and the rate is 7.5 per cent ad valorem.

However, the rate of duty is not levied on the invoice price but on the specified tariff value, which is substantially lower than the market price. This has been the case for a long time now. For instance, the current market price for refined palmolein is about $1,260 a tonne cost and freight India. But the rate of duty (7.5 per cent) will be levied not on the invoice price but on the tariff value which has been fixed and has remained unchanged for a long time at $484 a tonne.

In other words, although the rate of customs duty on refined palmolein is 7.5 per cent, the effective duty is just about 3 per cent.

Inflation effect

Now, with the Government under intense pressure to contain high levels of food inflation, New Delhi is examining various possibilities to augment supplies and reduce prices. There is a strong case for permitting refined oils also at zero-duty on par with unrefined oils.

Duty-free import of refined oils will encourage traders to import the readily marketable oil and dispose off in the domestic market without any time lag.

Currently, the market for imported edible oils is tightly controlled by a handful of large refiners who are in a position to dictate prices and influence market trends. There is a time lag between arrival of crude oil and disposal of the imported oil after refining. This time lag creates a window of opportunity for taking speculative trading positions in the market.

Bull run

At the same time, global vegetable oil market is facing a bull run. Weather aberrations in important origins have affected oilseeds and oils production while demand has remained strong.

Genuine relief from high vegetable oil prices is unlikely to be available anytime soon. Edible oils have a high weightage in the consumer price index. Even a modest reduction in price will bring relief to consumers.

If refined oils are permitted duty-free it will have a salutary effect on the domestic market. Importers holding large stocks in anticipation of further rise in prices will be forced to quickly liquidate stocks.

While refiners will continue to import crude oil for refining domestically, traders will import refined oils and market directly. This will bring about healthy competition in the marketplace.

A major issue with large-scale import of crude palm oil for refining domestically is the disposal of palm stearine. There are restrictions on use of palm stearine, but it is common knowledge within the industry that the material – the solid fraction of palm oil and not easily digested – is used in vanaspati production and also mixed with cooking oils.

With so much price volatility in the vegetable oil market, there is large-scale adulteration of various cooking oils which in the long run hurts consumer health and well being. So, in addition to augmenting edible oil supplies through duty-free import of refined oils, the Government must crack down on adulteration of cooking oils.

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