Edible oil industry shaken on news of oil-for-sugar deal with Indonesia

Units are miffed at the move as there is a lot of idle capacity in the country; sugar industry, on the other hand, has welcomed the development

Edible oil refinery capacity rises on import duty hike

India’s edible oil industry was shaken after reports said that the government has accepted a proposal to lower the import duty on refined, bleached and deodorised (RBD) palmolein oil from Indonesia to accommodate the export of high-quality raw sugar from India to that country.

Reports appearing in a section of the Indonesian media, quoting its trade minister Enggartiasto Lukota, said India has agreed to lower import duty on RBD palmolein oil from that country against an assurance that Indonesia will import high-quality raw sugar from India.

When contacted, Indian commerce ministry declined to comment.

India is struggling to manage surplus sugar, with opening stock estimated to hit a record high of 14 million tonnes the next season. Such a large quantity is enough to feed six months of India’s sugar consumption, even as cane arrears soar a month ahead of the beginning of new sugar season.

The news has gladdened the sugar industry which has been looking at several avenues to ship out surplus stocks from the country, as the government has asked them to export six million tonnes next season.

The Centre imposed an import duty of 45 per cent on Malaysian RBD palmolein oil, and 50 per cent on while imports from Indonesia. Last week, however, in order to support Indian farmers ahead of the harvesting season, the government imposed 5 per cent safeguard duty on import of refined palm oil from Malaysia, to bring the overall duty on par with Indonesia.

While the sugar industry is upbeat about this development, the edible oil industry is miffed. An edible industry source said that at a time when India imposed safeguard duty on Malaysia in the name of farmer support, import duty cut on refined oil from Indonesia is unlikely to happen at least for the next six months.

Atul Chaturvedi, President, Solvent Extractors’ Association (SEA) said in a statement that his organisation would request the Commerce Ministry to issue a suitable clarification to dispel any doubt in the matter. SEA represents crushing and refining units and the move hurts them if refined oil is directly imported, when India has enough palm oil refining capacity.

Since earlier Malaysia was enjoying 5 per cent lower import duty than Indonesia, RBD palmolein oil imports from Malaysia spiked by a staggering 727 per cent in the first half of 2019.

Indonesia, on the other hand, imports raw sugar but Indian sugar mills were not able to export there as the International Commission for Uniform Methods of Sugar Analysis (ICUMSA) level of Indian raw sugar is 500-600 against global standard of 1200 ICUMSA. If India cuts import duty on refined oil favouring Indonesia, the latter is ready to allow import sub-1200 ICUMSA in order to grant access to Indian raw sugar. Indonesia is one of the biggest importers of sugar and its annual requirement is almost 3.5-4.5 million tonnes, which it gets mostly from Brazil and neighbouring Thailand.

If India manages to penetrate the market, it could sell a significant chunk of the surplus in 2019-20.

“One area where we have an edge over Thailand and Brazil is that Indian sugar is dextron-free as it is crushed from freshly cut sugarcane, while Thai and Brazilian sugar varieties are produced from cane that has been lying in the fields for quite a while after being cut,” said Prakash Naiknavare, Managing Director of National Federation of Cooperative Sugar Factories.

Indian raw sugar is also superior with sucrose content above 99 per cent against global average of 97 per cent.

Nainkavare, who was part of a high-level delegation of Indian sugar industry to explore new exports markets earlier this year, said Indian sugar is produced within 36 hours of cutting the sugarcane, while the cane holding period is longer in Thailand and Brazil.

“Moreover, we are also closer to Indonesia geographically, than Brazil,” he added.