The Indian edible oil industry, which is dependent on import to fulfil its native requirement, has witnessed a lot of policy changes to reduce dependency on overseas buying of vegetable oils.
The government has increased import duty on edible oil thrice in the past one year, but failed to get favourable results as overall import of veg oil in 2017-18 rose by 1 per cent year-on-year. As per data compiled by Solvent Extractors' Association of India, total import of vegetable oils during November 2017 to May 2018 stood at 8,604,535 tonnes compared with 8,522,704 tonnes in the corresponding period of the previous year. Indian oil importers have shown more interest in importing soft oils (soya, sunflower & rape) in the recent past due to lower duty compared to crude palm oil, which led to a rise in share of soft oil import in total import to 60 per cent in May from 43 per cent. Largest change in import value was seen in sunflower import, which has grown by 8 per cent in the last 7 months and reached 3,30,985 tonnes, the highest level in a single month since India started importing edible oils in 1994. During Nov.'17-May'18, overall palm oil import decreased to 5,070,576 tonnes from 5,105,481 tonnes, while soft oils import increased to 3,322,637 tonnes from 3,216,700 tonnes during the same period last year.
Despite rise in overall production of oil seeds in India during year 2017-18, total edible oil import has been higher due to cheaper availability of global veg oil stocks. Increased import not only pressurised domestic edible oil and oil seed prices but also raised worries for Indian policy makers who failed to provide minimum support prices (MSP) to farmers. Despite persistent rise in MSP of edible oil seeds in recent years, most of the oil seeds like mustard and soybean ruled much lower to its MSP due to subdued demand from crushers and stockiest.
Post several farmers’ agitations in different states, the government is looking to ensure maximum benefits to farmers. After levying heavy duty on wheat and pulses, the Centre increased the import duty on crude and refined soft edible oils to cap the downfall in oil seed prices. Considering the annual consumption of edible oils in India hovers near 23 -25 lakh tonnes yearly, the government has taken efforts to increase domestic production and minimise demand and supply gap. Oil imports in India are highly regulated as government changes its tariff structure every fortnight to provide a uniform platform to all importers.
In a recent step, import duty on crude soft edible oils has been hiked to 35 per cent and soft oils to 45 per cent. Import duty on crude soy oil was increased from 30 per cent to 35 per cent wherein duty on crude form of sunflower and rapeseed oils has been raised from 25 per cent to 35 per cent. At the same time, import duty on refined variants of all these three edible oils was increased up to 45 per cent. Although, Indian oil industry is running with huge stocks and easy availability of oils could restrict excessive gains in edible oil prices. Meanwhile, the government has removed stocks limits on edible oil which may generate some fresh buying from stockiest and retailers and positive impact on prices could be seen in coming months. In a nutshell, the latest duty hike, coinciding with the start of the kharif sowing season, could be a master stroke of the government to ensure better prices to farmers and in turn they may increase area under oils seeds in the upcoming season.
The author is a fundamental analyst at Karvy Comtrade