Vegetable oil imports rise a marginal 2.2% in July

Narrowing differential duty makes domestic refineries unviable

After a steep 21 per cent surge in June, imports of vegetable oils rose a marginal 2.2 per cent in July. However, this year, India's vegetable oil imports are set to stand at a record 10.8-11 million tonnes (mt), against 9.88 mt last year.

Data compiled by the Solvent Extractors' Association (SEA) showed overall vegetable oil imports jumped to 8,89,493 tonnes in July from 8,70,328 tonnes in July last year. Total imports in the first nine months of the current oil year (November 2012-October 2013) rose 10.58 per cent to 8.03 mt, compared to 7.26 mt in the year-ago period. "Total imports of vegetable oil, including crude and refined, is set to hit a new record of 10.8-11 mt this year," said B V Mehta, executive director of SEA.

A 20 per cent rise in oilseed sowing area this kharif season is unlikely to hit the rising imports of vegetable oil this year, owing to lack of adequate policy support from the government. According to sources in the Ministry of Agriculture, the areas under oilseeds had risen to 17.3 million hectares till August 2 this year, compared with 14.5 million hectares in the corresponding period last year. This indicates a higher oilseed output this year.

As 15-20 per cent of last year's soybean output is still held with farmers due to low market prices, traders believe another bumper crop this year would aggravate their woes. For viability of refineries, domestic edible oil producers need a differential duty of at least 10 per cent between crude palm oil and refined oil (refined, bleached and diodised palmolein).

Recently, the government had reduced the differential import duty to 7.5 per cent. “Reduction in the duty differential between crude palm oil and refined, bleached and diodised palmolein has led to large-scale imports of refined palmolein in the past few months, resulting in further underutilisation of capacity of the refining industry. The Indian refining industry is bleeding and urgent intervention of the government is needed to save the industry that provides direct and indirect employment to about 5,00,000 citizens,” said Dinesh Shahra, founder and managing director, Ruchi Soya Industries.

The fact that the government is delaying raising import duty on both crude and refined oil to counter the substantial increase in export duty by Indonesia and Malaysia, the largest suppliers globally, has led to more imports.

The share of refined oil in vegetable oil imports plunged to 24 per cent in July from 42 per cent in May. The refining industry feels the government should increase import duty on refined oil from 10 per cent to 20 per cent and that on crude oil from 2.5 per cent to 10 per cent to ensure the survival of domestic refineries.

The impact of the rupee's depreciation was nullified by the sharp fall in vegetable oil prices globally. While the rupee declined an average 10 per cent to 59.76 against the dollar in July, against 55.42 a year earlier, the average price of refined, bleached and diodised palmolein plunged to $810 a tonne from $1036 a tonne. Similarly, crude palm and soybean oil prices fell to $806 a tonne and $955 a tonne, against $1,003 a tonne and $1,260 a tonne, respectively.

At an average price of $1,000 a tonne, India's import bill is set to hit $11 billion this year.