Turnaround to get stronger in 2004

MARKET REVIEW: Domestic/ EDIBLE OIL

In the edible oils sector, the year 2003 was marked by a turnaround, having begun with the country grappling with drought and oilseeds production dipping low but thanks to the rain gods, there was a bumper harvest later in the kharif season and things changed for the better.

A good harvest now will ensure not only a significant increase in oilmeal exports but also for the first time in four decades, export of groundnut oil, not a mean achievement considering the fact that India is the world's largest importer of edible oils.

However, as a devastating drought hit the country in 2002, all time high imports, which for the first time crossed 50 lakh tonnes, will ensure that 2003 will be remembered more for this embarrassing record and also for the differences over the import duty regime amongst various constituents of the edible oils and oilseeds sector.

Because of domestic shortage vis-i-vis demand and consequent large scale imports, if there is one factor which governs edible oils industry, it is the import duty. Varying viewpoints on this issue ensured that the sector always remained in news for one reason or the other.

There was a cascading effect of the worst drought in more than 100 years with oilseeds output in 2002-03 falling to 157.5 lakh tonnes from 204.6 lakh tonnes in the previous year.

Net availability of edible oils from all domestic sources slipped to 49 lakh tonnes against a demand of nearly 100 lakh tonnes.

With such a huge gap in demand and supply, imports were the obvious option to bridge the gap. It was not surprising that the prices were on the rise and government, to ensure cheaper availability at the retail level, tinkered with import duties but only in the refined and not the crude category.

The duties were left untouched initially during the annual budget but in the finance minister's reply to the debate on the Finance Bill, the tariff on refined, bleached and deodorised (RBD) palmolein and palm oil was slashed to 70 per cent from 92.4 per cent. With this began what in trade parlance is called the "tariff struggle".

The solvent extractors and oil refiners felt the slash would affect their business due to cheap refined oil imports as now only a five per cent differential was left between the tariff on crude palm oil (CPO) and that of RBD palmolein.

Agriculture minister Rajnath Singh too called for an increase in this duty differential and in a missive to finance minister of cheap refined oil from abroad.

When there was no perceptible change in wholesale prices of edible oils, even the consumer affairs department sat up to take notice and during a meeting of the high powered price monitoring board it said cheaper imports of the crude variety will be a more viable option to contain the spiralling prices.