Renewed pressure on govt to levy duty on vegetable oils

Given falling domestic production of edible oils and rising imports to meet increasing local demand, the government is considering a customs levy to protect domestic producers.

According to industry sources, Union agriculture secretary T Nanda Kumar has called for statistical information to justify the need to levy import duty, on which the government is moving cautiously due to a renewed threat of inflation. Effective April 1, 2008, import duty on crude and refined edible oils was reduced to nil and 7.5 per cent, respectively, to control inflation, then hovering around 13 per cent.

If levied, edible oil prices would be costlier by almost half the duty rate. B V Mehta, executive director of the premier industry body, the Solvent Extractors’ Association (SEA), has been demanding the levy since last year.
 

FACT SHEET (in Rs/tonne)
Particulars	Mustardseed	Soybean	Groundnut
Market price	25,800.00	20,000	22,300
Additional expenses	2,200.00	2,600	2,000
Total (1)	28,000.00	22,600	24,300.00
Oil recovery*	15,400.00	6,900	17,800.00
Oilcake recovery#	8,050	14,600	6,700
Total (2)	23,450	21,500	24,500
Difference (1-2)	(-) 4550	(-) 1100	(+) 200
* Oil recovery - 33% in mustardseed, 18% in soybean, 28% in groundnut, # Oilcake recovery - 66% in mustardseed, 81% in soybean, 40% in groundnut

Analysts believe at least 10 per cent duty is required to stop import by fly-by-night operators for mixing beyond the permissible level of 20 per cent with local oils, and selling these in loose form. More than domestic refineries, small packers have been importing cheap palm oil. Imports were a record 900,000 tonnes last month, compared to the average monthly imports of 640,000 tonnes.

Till last year, domestic production of edible oils remained stagnant between 6.5-7 million tonnes (MT), despite rising consumption. India’s edible oil imports have been growing to reach an estimated 8.5 MT this year, from 5.6 MT two years earlier.

More than the rise in edible oil prices, the duty will help, say its defenders, farmers to bring more area under oilseeds. Crushing of oilseeds has become loss-making for domestic crushers because of the squeeze in margins between high seed and low oil prices. The duty will protect their margin. It will, in turn, empower mills to pay a premium for oilseed, thereby encouraging farmers to bring additional area which has been diverted to cotton, wheat and other remunerative crops, said Mehta.

The oilseed sowing area had declined 5.17 per cent to 17.49 million hectares (ha) as on October 15, as compared to 18.44 million ha around the same time last year.

Alka Sirohi, additional secretary in the Union ministry of consumer affairs, had in her recent visit here said that unless oilseed prices fall below the minimum support price (MSP), no import duty would be considered.

“The seed price will never fall below MSP. By not levying import duty, we are simply promoting Malaysian and Indonesian oil industries at the cost of our own farmers. Instead of importing finished products, we should focus on bringing raw material to India, as China has been doing for years,” argues Mehta.

The tariff for edible oil was introduced to bring parity between domestic and global prices, says Mehta. But, there is a huge disparity in these today, which needs to be bridged, he added.