Veg oil import: Domestic refiners plead for protection

The rising share of refined oil in overall vegetable oil import reached a five-year high in November, due to a narrowing spread between crude and refined oil in global markets.

Data compiled by the Solvent Extractors' Association showed the share of refined oil (refined, bleached and deodorised or RBD) jumped to 22 per cent of the total in November as compared to 11 per cent in the same month of 2012. In the November-October oil year, the RBD share in overall import of vegetable oil was 11-16 per cent.

"The spread between crude palm oil (CPO) and RBD is currently $10 a tonne. Considering the premium, the import duty levied by India and export duty by Indonesia, from where most of the CPO gets imported, import of RBD works out to at least $30 a tonne cheaper than CPO. On top of that, import of CPO requires refining and packing in local units, which makes edible oil sale through imported CPO costly. Hence, for the Indian processing industry, import of RBD makes more business sense than import of CPO," said Pradeep Choudhry, managing director of Gemini Edibles & Fats, a Hyderabad-based subsidiary of Ruchi Soya Industries.

The average price of RBD was $880 a tonne as against $881 a tonne for CPO in November, resulting in the spread becoming negative by $1 a tonne. In November 2012, the spread was $69 a tonne, with the price of RBD and CPO at $840 and $771 a tonne, respectively.

"The increasing import of RBD has been disastrous for the domestic processing industry. Since the government reduced the duty differential between RBD and CPO to five 5 per cent by levying 2.5 per cent import duty on the latter, import of the former has increased significantly. Consequently, the domestic refining industry has reduced its operational capacity to less than 30 per cent from over 40 per cent about six months ago," said Atul Chaturvedi, chief executive officer of Adani Wilmar, one of the largest refiners and producer of the 'Fortune' brand edible oil.

By contrast, the government of Indonesia is promoting its refining industry by keeping the duty differential at six per cent (nine per cent on CPO and three per cent on RBD), helping build enormous capacity in recent years.

India's overall veg oil import in November surged by 35 per cent over year to 944,309 tonnes, as compared to 700,371 tonnes in the same month of last year.

"The refining industry in India is bleeding and urgent intervention of the government is needed to save it. The industry provides direct and indirect employment to 500,000 citizens," said Dinesh Shahra, founder and managing director, Ruchi Soya Industries.

Choudhry says import of RBD will continue to rise until the government brings the duty differential to at least 7.5 per cent, as recommended earlier by the Ashok Lahiri committee on the subject.