'Govt must up import duty on edible oil to save farmers'

Q&A: DORAB MISTRY

As the global financial turmoil rages on, chances of demand for oilseeds to rise seem bleak. Dorab E Mistry, director, Godrej International, and an authority on the edible oil market, warns that if demand does not pick up in the next four weeks, prices will further fall. In an interview with Business Standard, he said the Indian government must raise import duty of edible oil to protect farmers and mills in the low-price scenario. Excerpts:

What will be the impact of low oilseed prices on the crushing mills?
I believe the oncoming season in India will be difficult for crushers and traders. Meal demand is weak and prices are low. Imported oil prices are also witnessing a fall. So, crushers will not be able to pay high prices for the seed. On the other hand, farmers will refuse to sell at low prices.

What can the government do, in view of the sharp fall in prices?
The government will have no alternative but to levy higher import duty on vegetable oil and stop the import of oil by public-sector units. The only question is whether the import duty will be 10 per cent or 30 per cent. Prices of new crop oilseeds in India have collapsed and are almost at the Minimum Support Price (MSP)-level and farmers are extremely angry. Government will have to move fast to ensure that farmers are not demoralised and the rabi crop plantings come up to expectation.

What is the price outlook for edible oils?
The main factors for deciding the prices will be the state of the global economy and the demand scenario. At present, demand is low. If it does not pick up in the next four weeks, prices will decline further. The other factor will be Nymex crude oil futures. The only new demand for vegetable oil will come from the bio-diesel sector and that will depend on energy prices. The third factor will be the palm oil production cycle. We will have to see how crude palm oil (CPO) production fares and how much it declines, once the present cycle is over, possibly in November.

What is the current palm oil scenario in India?
Importers and traders have been caught at high price levels and have found that their hedges have disappeared. I cannot offer any sympathy because we have changed our way of doing business over the last 40 years. The Government of India is also responsible for this sad state of affairs because it had removed the best avenue for hedging by closing down the futures market.

In India, we succeed in business and industry despite the government and never because of it. There is no evidence to substantiate the claim that the closure of the futures market was instrumental in containing inflation. On the other hand, problems of default have arisen from the absence of futures market. A well-regulated futures market with a strong clearing house is an asset for price discovery. Playing with futures markets should never be the first choice of government policy.