During the first five months of the oil year 2018-19, edible oil imports increased by 3.9 percent to six million tonne compared to the corresponding period a year ago. This growth was primarily on account of the 24.7 percent increase in imports of refined palm oil that stood at 0.96 million tonne during the period, while the import of crude palm oil declined by 4.1 percent to 2.9 million tonne.
The main reason for the rise in imports of refined palm oil was the cut in import duty of refined palm oil from Malaysia and Indonesia. With effect from January 1, 2019, the import duty on refined palm oil from Malaysia and Indonesia was reduced to 45 per cent and 50 percent, respectively, from 54 percent earlier.
Besides, the import duty on crude palm oil from Malaysia and Indonesia was also decreased to 40 per cent from 44 percent earlier. This, in turn, reduced the duty difference between crude and refined palm oil from Malaysia to five percent from 10 per cent earlier, while the duty difference between crude and refined palm oil imported from Indonesia was retained at 10 percent.
The reduction in duty difference for palm oil imported from Malaysia increased the share of edible oils imported from Malaysia compared to Indonesia.
Resultantly, the share of edible oil imports from Malaysia increased to 19.1 percent between November 2018 and March 2019, compared to its share of 13.8 percent in the same period last year, while the share of edible oil imports from Indonesia decreased to 40.9 percent from 45.4 percent earlier.
The reduction in duty difference between crude and refined Malaysian palm oil resulted in increased share of refined palm oil in total edible oil imports between November 2018 and March 2019. The share of refined palm oil imports grew to 16.5 percent during the first five months of current oil year compared to its share of 14.3 percent during the corresponding period last year, and the share of crude palm oil imports decreased to 47.6 percent in the ongoing oil year as against a share of 51.6 percent during the period between November 2017 and March 2018.
Lower duty difference between refined and crude edible oil encourages domestic companies to import refined oil rather than importing crude edible oil and refining it. This, in turn, hurts the capacity utilisation of the refiners in the country. Additionally, cheap edible oil imports results in lower domestic edible oil prices which, in turn, depresses domestic oilseed prices.
Movement in international and domestic edible oil prices
The international prices of soybean oil in Netherlands and palm oil prices in Malaysia declined by 13 percent to $745.6 per tonne and by 22.2 percent to RM 1,940 per tonne, respectively, during the period between November 2018 and March 2019 on a y-o-y (year-on-year) basis.
The prices of palm oil were lower due to higher supplies from Indonesia and Malaysia and the prices of soybean oil were, to an extent, impacted on account of the tariff wars between the USA and China. Besides the low duty difference, cheap prices of edible oils are also believed to have increased the imports of these varieties by India. The cheaper edible oil imports results in lower domestic edible oil prices.
The domestic prices of crude palm oil fell by nine per cent to Rs 52 per kg and that of refined palm oil declined by 4.4 percent to Rs 61.9 per kg between November 2018 and March 2019 on a y-o-y basis, while the prices of domestic refined soybean oil grew by a moderate 3.4 percent to Rs 75 per kg during the period. The higher import duty on soybean oil is believed to have aided the y-o-y growth in its domestic prices.
In June 2018, the import duty on crude soybean oil was raised to 35 per cent from 30 percent, and for refined soybean oil it was increased to 45 percent from 35 percent. Prior to this, the import duty on these varieties was increased in the month of November 2017.
Higher cheap edible oil imports and lower domestic edible oil prices also impacts the prices of oilseeds. Between November 2018 and March 2019, the prices of mustard oilseeds and groundnut oilseeds ruled lower than the announced minimum support price (MSP) of these oilseeds for the year 2018-19. The prices of mustard oilseeds averaged at Rs 3,985 per quintal, 5.1 percent lower than the MSP of Rs 4,200, and that of groundnut oilseeds averaged at Rs 4,405 per quintal, 9.9 per cent below the MSP of Rs 4,890 per quintal. The average prices of oilseeds are based on the maximum prices of these oilseeds in their respective markets. This discourages the farmers to sow oilseeds and affects the domestic production of edible oils that is already range-bound.
Concluding remarks
It becomes an urgent need to increase or rectify the duty difference, given the fact that the international palm oil prices are expected to remain weak on account of their estimated higher supplies which, in turn, can increase the supply of cheap edible oil imports in India.
The imports of edible oils by India with the current duty structure are expected to increase by about three percent to 14.9 million tonne during the year 2018-19 with availability of cheap edible oils in the global market and also on the back of the low base effect. Edible oil imports had declined by 3.9 percent y-o-y to 14.5 million tonne during the last oil year 2017-18, mainly due to consecutive import duty hike undertaken by the government during the year.
The higher imports and weak international prices are likely to keep the domestic prices of edible oils under pressure in the country, even though the import duty on variety of edible oils is as high as 35-50 per cent.
