Edible oil duty cuts good for importers, consumers, but farmers may suffer

The government has set a high MSP for soybean, but the near-collapse of the domestic market for oil meal, a key byproduct of soybeans, means farmers may look at alternative crops

In a surprise move late last week, the union government cut by half import duties on all crude edible oils, from 20 percent to 10 percent in a bid to reduce domestic prices and also support the local refining industry.

 

The decision that came just weeks ahead of the sowing of the new oilseeds crop for the 2025-26 kharif season raised eyebrows in several farmers’ groups even as oilseeds refiners and importers welcomed the step.

 

In April 2025, food inflation as measured by the Consumer Price Index (CPI) dropped to just 1.78 per cent, down from 2.69 per cent in March 2025. Within the food basket, however, oils and fats and fruits were the only two items that showed double digit inflation.

 

Edible oil inflation in April 2025 as measured by the CPI, had soared to 17.4 per cent, marking the sixth successive month of double-digit inflation - a pace not seen since March 2022, when the Russia-Ukraine conflict had just begun.

 

The high prices were also starting to pinch households’ budgets, considering edible oil is an essential in almost all Indian kitchens.

 

In fact, India’s edible oils stocks in ports and pipelines dropped to a five-year low of 1.35 million tonnes (MT) as on May 1, 2025, due to a sharp drop in palm oil imports in April that fell to their lowest in four years, data from the Solvent Extractors Association of India (SEA) showed. SEA is a premier industry body of edible oil refiners and oilseed processors.

 

The last time India had lower stocks was on May 1, 2020, when it had around 0.91 million MT in ports and pipelines.

 

India's palm oil imports in April fell by 24.29 per cent from March to 321,446 metric tonnes, the SEA data showed. The reason that importers were not buying was the high landed prices; to be fair, these had softened in comparison to February and March, but were still more than the landed price at the same time the previous year.

 

“The high edible oil prices is due to the fact that landed price of crude palm oil in Mumbai ports is still at around $1,100 per tonne though it has softened since March, on top of which duties are levied,” BV Mehta, executive director of SEA, had said a few weeks back.

 

Last year, in May 2024, the landed price of crude palm oil in ports was less than $1,000 per tonne.

 

Not only that, because of the narrowing duty differential between crude and refined edible oils, in 2023-24 edible oil marketing year (November-October), refined palm olein oil accounted for over 20 per cent of total palm oil imports, and in the first half of oil year 2024–25 (November 2024 – April 2025), its share rose to nearly 27 per cent against 6 per cent share in 2019-20.

 

After last week’s cut in import duties on crude edible oils, the duty differential between the two has risen from 8.25 per cent to 19.25 per cent.

 

SEA pointed out in a statement that the current landed price of Refined, Bleached and Deodorised palm olein is around $45–50 per metric tonnes lower than crude palm oil, further encouraging refined imports at the cost of domestic value addition.

 

“This trend has been exacerbated by the export policies of supplier countries, which impose higher export duties on CPO (raw material) and lower duties on refined palm olein (finished goods), thereby incentivising exports of refined oil. The earlier 8.25 per cent import duty differential was inadequate to counteract these measures and protect our domestic industry, which was operating at low capacity and being reduced to merely packaging operations, thus undermining the significant investments made in the sector,” it said in its statement.

 

It added that the decision to increase the duty differential from 8.25 per cent to 19.25 percent is a bold and timely move. It will discourage imports of refined palm olein and shift demand back to crude palm oil, thereby revitalising the domestic refining sector.

 

“This move will not impact the overall volume of edible oil imports and is unlikely to cause any upward pressure on edible oil prices. On the contrary, the reduction in duty on crude oil will help reduce domestic prices, benefiting consumers in imports of refined palm oil at the expense of the domestic refining industry,” the SEA said.

 

Other industry bodies such as Indian Vegetable Oil Producers’ Association (IVPA) also welcomed the move. It said widening of the duty differential would also discourage inflow of refined edible oils from neighbouring Nepal, estimated to be around 60,000-70,000 tonnes of total monthly imports of 1.1-1.3 MT. Imports had surged from Nepal as it attracted zero provision under the South-Asian Free Trade Agreement (SAFTA).

 

Consumer Gain

 

The reduction in import duties on edible oils is expected to provide relief to consumers.

 

Already, as per some news reports, edible oil companies are looking to lower their prices by 5–6 per cent at the retail level over the next two weeks following the central government's decision to reduce import duty on crude edible oils by 10 per cent.

 

"The edible oil prices that had surged by nearly 17 per cent in recent months are finally showing signs of cooling. We expect it to ease into single digits very soon," Emami Agrotech director and chief executive officer Sudhakar Rao Desai told news agency PTI.

 

The PTI report said that while the benefit is expected to reflect in retail prices in about a fortnight, the wholesale markets are already showing early signs of softening prices, an executive from a leading branded edible oil manufacturer in eastern India said.

 

The price correction will not be limited to imported oils alone. "Even mustard oil, which is not dependent on imports, could see a 3–4 per cent reduction due to the overall downward pressure in the edible oil market," Desai added. 

 

Farmers Suffer

 

However, not all are sharing the optimism. The Indore-based Soybean Processors Association of India (Sopa) said in a statement that duty reduction on edible oils is a step against local crushing and farmers.

 

It said the move would help the import lobby at the cost of industry, and will be a huge setback for the goal of self-sufficiency in edible oils. "What made the government take such a step just a day after increasing MSP is surprising," Sopa added.

 

Soybean is a major oilseed grown in India, sowing of which will start in the next two weeks. Last year, soybean prices and in fact that of most oilseeds grown in India were selling below their state-mandated Minimum Support Price (MSP) or were barely able to touch the benchmark.

 

As a result of low prices, the Central government had to intervene in the market and purchase around 2 MT of soybeans at an MSP of Rs 4,892 per quintal. At present, soybean prices are about Rs 3,800-4,200 per quintal, well below the MSP.

 

In other words, the Central government will have to incur a loss of around Rs 800-1,000 per quintal if it wants to liquidate inventories because it might find it difficult to get buyers at its purchase price.

 

“Instead of direct purchase, the Centre should have gone for a price deficiency-like payment system,” a senior industry official said.

 

The Alliance for Sustainable and Holistic Agriculture (ASHA) said that while this policy shift may temporarily benefit port-based edible oil refineries by lowering input costs, it poses serious risks to India's domestic oilseed producers, small and mid-sized refiners. It also threatens the long-term goal of self-sufficiency in edible oils.

 

It said it appears that this downward revision of the import duties and edible oil import liberalisation is related to the ongoing trade negotiations with the United States and the arm-twisting that the American government is subjecting India to. 

 

Other reasons for high edible oil prices

 

A section of the industry feels that, more than lower imports or high price of imports, edible oil prices are high in the retail markets due to the near-collapse of the domestic soymeal market.

 

Soymeal is the residue that is left after extraction of edible oils from oilseeds and is a rich source of protein that is used extensively as a major ingredient in livestock feed manufacturing.

 

Soymeal prices have largely remained flat at around Rs 27,000-31,000 per tonne so far in the 2024-25 oil marketing year (November to October) because of a massive cut in demand.

 

When seeds of soybeans is processed, it generates around 18 per cent edible oil while the balance is oil meals.

 

In the 2024-25 oil year, actual consumption of soymeal is estimated to be around only 6.6 MT, against an expected demand of 7.3-7.4 MT, a drop of almost 700,000-800,000 tonnes. The demand for domestic soymeal has come down as it has been replaced by the cheaper alternative called Distiller's Dried Grains with Soluble or DDGS.

 

DDGS is a nutrient-rich by-product of ethanol production, primarily from maize, that is used as a feed ingredient for livestock.

 

It's a valuable source of protein, fibre, and other essential nutrients, making it a popular alternative to traditional feeds like soybean meal.

 

As ethanol produced from maize rises exponentially across the country to meet the Centre’s blending target of 20 per cent by 2025, DDGS output has also grown simultaneously. In 2024-25 Ethanol Supply Year (November to October), around 6.50 billion litres of ethanol will be produced from grains, of which maize is a major component while that from sugarcane will be just around 2.50 billion litres.

 

“Traditionally, when oil meal rates are higher, edible oil prices fall and vice versa happens when oil meal rates. Now, since the last almost a year oil meal rates have not risen as there is no demand due to the massive influx of DDGS in such a situation. How can edible oil rates come down?” the industry official questioned.

 

He said as a result of replacement, oilseed farmers are getting unnecessarily squeezed despite an increase in duties in September 2024 which could reflect in their sowing decision in the coming kharif season.

 

“This would be disastrous for India’s edible oil industry if domestic oilseed growers decide to switch to some other crop fearing loss in realisation,” the official said. He also discounted the argument that duty differential between crude and refined edible oils was too narrow which impacted the processors. “If you look historically, the import duty differential between crude and refined edible oils should not be more than 10 per cent, anything more than that is pure profiteering,” he explained.