Myth of excessive edible oil imports

Updated on: Jan 15, 2018

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Trade bodies must stop extracting State favours in the name of protecting farmers

Of late, India’s vegetable oil industry has been claiming that the country imports ‘excessive’ quantities of vegetable oils, hurting interests of oilseed growers here. There is demand for a hike in customs duty on imports and for a wider duty differential between unrefined and refined oils — which at present is 7.5 percentage points. Palm oil is the principal commodity in the vegetable oil basket and the share of refined oil import has been rising steadily.

How valid is the assertion that ‘excessive’ quantities are being imported and whether the recommendation of a duty hike has merit?

Import stats

India’s oil year runs from November to October. During the current oil year (November 2015 to October 2016), India imported 13.4 million tonne till September 2016, of which the share of palm oil (both crude and refined) was 7.7 million tonne.

While total import (covering all oils) has increased from 12.8 million tonne in the first 11 months of 2014-15 to 13.4 million tonne in the corresponding period this year, the share of palm oil has actually declined from 66 per cent in the previous year (8.4 million tonne) to 57 per cent in the current year. Palm oil has been substituted by higher import of soyabean oil.

Projected import for the entire oil year 2015-16 is about 14.4 million tonne, nearly unchanged from the previous year. The value of India’s vegetable oil import is really large at about $10 billion (₹65,000 crore). Palm oil continues to dominate India’s import basket. It is most economically priced and well accepted by consumers. Also, transit time from origin to destination is short.

Industry bodies have alleged that India is being used as a dumping ground for unloading the excess supplies in the world market. They claim this is putting tremendous pressure on local prices. Also, they assert that current prices are at levels where Indian oilseed growing farmers are in distress and ‘losing interest in oilseed crop’.

However, acreage data do not bear this out. According to the union agriculture ministry, oilseeds were planted to 19.0 million hectare in kharif this year, slightly higher than the 18.5 million hectare in kharif 2015. Another set of data relate to port and pipeline stocks. As of October 1 this year, such stocks were an estimated 2.1 million tonne, slightly lower than 2.2 million tonne the same date last year.

According to Solvent Extractors’ Association, India’s monthly requirement of edible oil is 1.6 million tonne which translates to total annual consumption demand of 19.2 million tonne. It is unclear how this demand estimate has been arrived at.

The apex body, Central Organisation for Oil Industry and Trade (COOIT), has estimated domestic production in 2015-16 at 7.2 million tonne, unchanged from the previous year.

Lacks rationale

In the light of these data, I find the representations for a steep hike in import duty or for creating wider duty differential between unrefined and refined oils lacking in rationale. First of all, it is unclear what constitutes ‘excessive’ import.

One is not sure if the trade bodies have any benchmark for ‘normal’ and ‘excessive’ import. Is there a cut-off point to decide if the import volume is normal? It would be interesting to hear from the trade bodies.

But I want to come from another angle. Why do these associations want the government to do everything or solve every problem of the trade and industry including the so-called excessive import? Can these bodies not put their own house in order or ‘discipline’ their members?

Come to think of it, all veg-oil importers — certainly the big boys and everyone knows who they are — are members of this association. What has prevented the association and its enlightened leadership from talking to these big boys and directing them to ‘reduce imports in order to save the Indian oilseed farmer’? Indeed, senior officials in New Delhi pose the same question to the delegations of trade bodies seeking duty hike.

The tragedy is, it stands to reason to believe that India is becoming a dumping ground for palm oil. A part of our import is merely stock transfer from origin to destination; and we have in this country a few accomplices to play along with overseas suppliers.

Importantly, there is massive amount of stock building in the country in anticipation of a duty hike, hoping that policymakers will at some stage succumb to pressure brought on by the trade bodies. If the duty is hiked, it is these speculative interests who will win and reap windfall gains as has happened many times in the past.

Import debt trap

Importantly again, one does not hear noises against some of the undesirable and wholly avoidable trade practices. Take for instance, the long credit period Indian edible oil importers enjoy. The credit period of 90 to 150 days is exploited to the hilt to create an unending chain of imports and payments. Many of the importers here are actually falling into an ‘import debt trap’.

Policymakers must take cognisance of this. Hypothetically, if edible oil import on credit is stopped today, most importers will face a deep payment crisis; some may go bust.

Last but not the least, it is sad, trade bodies try to extract favours from the government by talking about farmers or using their name. Farmers know to look after themselves and the policymakers know how to look after the farmers. Trade associations must ask themselves what they have done for farmers’ welfare or whether they have done enough.

The writer is an agribusiness and commodities specialist

Published on November 10, 2016
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