Duty cut pushes up edible oil prices; up to 8% surge across all varieties

Prices of edible oils and oilseeds have jumped by upto 8 per cent across all varieties following the government's decision to raise import duty on crude palm oil (CPO) and refined edible oil to reduce India's dependence on imported oil.

With the current hike, the CPO for delivery in spot at Kandla was quoted at Rs 638 per 10 kgs on Monday, a rise of 8 per cent from its level of Rs 592 per 10 kgs on prior to duty hike. Similarly, RBD (refined, bleached and deodorized) palmolein is sold now at Rs 700 per 10 kgs at Kandla port today as compared to Rs 654 per 10 kgs.

The government on Friday raised import duty on CPO and RBD palmolein to 44 per cent and 54 per cent from the 30 per cent and 40 per cent earlier respectively. With this third such increase in the last seven months, the basic import duty has increased by almost six-fold on CPO and four-fold on RBD palmolein. Before first such increase in August 2017, the basic import duty on CPO and RBD palmolein stood at 7.5 per cent and 15 per cent respectively. Over and above, 10 per cent social welfare cess is also levied on the basic import tax.

The effective import duty on edible oil, however, is much lower than the one demanded by the industry of 70 per cent on CPO and 55 per cent on RBD palmolein with 15 per cent of differential duty.

"While palm derivatives have already seen an increase in their prices, other variants including soft oil prices have also started moving up. The quantum of increase, however, cannot be immediately ascertained," said Atul Chaturvedi, Chief Executive Officer, Adani Wilmar Ltd, the producer of Fortune brand edible oils.

Meanwhile, branded edible oil players have already raised their product prices by 10 per cent across all variants with their new batch of production in factories. With this, edible oil packs with revised price are set to hit the retail kirana shops or hypermarkets in a couple of days.

"The duty increase will force importers and refiners who had refrained from increasing the consumer price of this sensitive commodity to pass on the increased cost of import and revise retail prices upwards by around 10 per cent," said a spokesperson at Rushi Soya Industries Ltd, the producer of Mahakosh, Ruchi Gold, Sunrich etc. brand edible oils.

Through increase in import duty, the government aims to help domestic oilseed crushers and edible oil producers who suffered badly last year due to cheap imports. Oilseed farmers and stockists held large quantity of soybean uncrushed due to less viability. Soybean farmers' realisation, therefore, remained lower in kharif harvesting season 2016 which reflected into its sowing in 2017.

Soybean output declined by nearly 25 per cent in 2017 kharif harvesting season to over 8 million tonnes compared to around 10 million tonnes in the previous year. At the same time, India's dependence on imported edible oil had increased to an alarming level of 70 per cent towards the end of calendar 2017.

Thus, the government perhaps wants to help farmers increase their income as promised to double by 2022. Although, India produces a very little quantity of nearly 10 million tonnes of CPO imports annually, comprises two-third of India's total import, yet a sharp increase in its import duty would help increase prices of other edible oil variants like refined soya oil, mustard oil etc.