A surge in the import of vegetable oils in India has prompted the domestic oilseed crushing and refining industry to cut operating capacity to a historic low in order to sustain in the business for future.
The apex industry body, Solvent Extractors’ Association (SEA), reported 26 per cent jump in India’s import of vegetable oils (both crude palm oil or CPO and refined, bleached and deodorized or RBD) to 1.45 million tonnes in March 2019 versus 1.15 million tonnes in the corresponding month last year. In February also, import of vegetable oil had risen by 7.4 per cent to 1.24 million tonnes from 1.16 million tonnes in the comparable month a year ago.
Despite being a deficit country with around 60 per cent of India’s demand being met through imports primarily from Malaysia, Indonesia and Argentina, sustained growth in import has caused a major worry for domestic oilseed crushing and refining units. Since the imported refined oil is cheaper than the domestic counterpart, packaging units here prefer to buy refined oil from overseas suppliers and pack in local units for a safe profit margin. Consequently, domestic refineries have been forced to reduce their operating capacity to a historic low of below 30 per cent in the absence of viability.
“Rising vegetable oil imports are always a worry for both Indian refineries and oilseeds farmers who wait to fetch better prices for their produce. This will be possible only when supply is restricted through various channels,” said D N Pathak, Executive Director, Soybean Processors’ Association (SOPA).
Rising edible oil imports have serious repercussions on domestic oilseeds prices, with groundnut and rapeseed and mustard seed trading at a discount of nearly 20 to their respective minimum support prices (MSP) in the spot markets.
According to industry sources, oilseed crushing units and edible oil refineries have reduced their operating capacity steadily to below the sustainable level of 30 per cent to reduce their operating cost and make business viable.
Meanwhile, the share of refined oil in the overall import in March has sequentially risen steadily to 22 per cent in March from 20 per cent in February and 14 per cent in January this year. With profit margins narrowing for processing of CPO in domestic refineries, Indian processing units are focusing on import of more refined oil than crude oil.
Indian vegetable oil processing units are facing two major fundamental issues. First, the European Union has decided to suspend use of CPO in bio-fuel due to which major producing countries like Malaysia and Indonesia are now focusing on supply of refined oil. Eventually, the supply of both CPO and RBD has been diverted to alternate major consumers like India and China. Consequently, India is becoming a dumping ground for vegetable oils.
Under the bilateral treaty with Malaysia, the government of India reduced effective import duty on RBD and CPO to 49.50 per cent and 44 per cent effective January 1, 2019 from 59.40 per cent and 48.40 per cent earlier. Also, Import duty on CPO and RBD from Indonesia declined to 44 per cent and 55 per cent effective January 1, 2019 from 48.40 per cent and 59.40 per cent earlier. SEA had advised the government to lower import duty by 5 per cent.
“SEA’s proposal to lower import duty on CPO from the existing 40 per cent to 35 per cent is a win-win situation for the edible oil industry. Refining and packaging industry is an important industry in every country including India. India must equalize the import duty on RBD Olein between Malaysia and Indonesia,” said Dorab Mistry, Director, Godrej International.
B V Mehta, Executive Director, SEA, said, “Rising edible oil import especially RBD olein is sounding the death knell of palm refining industry in India. Needless to mention mustard harvest is nearly completed and arrivals in mandis are at peak level. This will have a huge negative impact on incomes of mustard farmers. There is an urgent need to create duty difference of 10 per cent between CPO and RBD olein to protect the interest of local farmers.”