Why is India importing vegetable oils like nobodys business? At a time when rabi oilseed crops have fared much better than they did last year and summer season (when seasonally cooking oil use declines) is upon us, inflows of various oils into the country have been staggering, to say the least.
Import data compiled by Solvent Extractors Association of India (SEA) show an unusual expansion in import volumes in the first four months of the new crop year 2008-09 beginning November 2008. Inflows aggregated a whopping 28.25 lakh tonnes till February, close to 90 per cent increase from the corresponding previous periods 15.12 lakh tonnes.
For March, the estimate of arrivals is about 6.0 lakh tonnes versus 4.2 lakh tonnes in March 2008. Thus, the total arrivals of imported oils in the first five months of the new year (usually characterised by lower volume of import because of domestic crop marketing season) are an estimated 34 lakh tonnes, almost 80 per cent higher than the corresponding period in the previous year.
Indeed, if anyone is responsible for the so-called fall in oilseed prices in India, it is the vegetable oil importers lobby. They flooded the market with cheap imported oil, with speculative intentions and allowed indigenous oilseed market to decline.
To be sure, despite such large unwarranted imports, domestic oilseed prices have continued to rule well above the minimum support price fixed by the Government, but surely below the record levels of 2008.
A substantial expansion of imports during December, January and February was understandable. There was a concerted move by the importers lobby to pressure the Government into imposing customs duty on crude palm oil which stood at zero then (and continues till now). The lobbyists had built huge inventory and hoped to make a killing.
Speculation on duty
A steady fall in the overall rate of inflation had encouraged them to speculate on duty change. They also used the by-now worn out ruse of oilseed growers interest. Fortunately, the Government did not succumb and justifiably so.
It is well known that cooking oil offtake during summer months is usually low. So, importers may be forced to nurse large stocks – currently estimated at over 7.0 lakh tonnes – and incur huge carrying costs over the next three months.
Indeed, unjustified and speculatively driven Indian purchases since the beginning of the calendar year have actually helped palm oil suppliers overseas. They are laughing all the way to their bank. Crude palm oil gained 20 per cent in prices in recent months primarily because of huge Indian interest. Otherwise, the market fundamentals do not justify a price of ringgit Malaysia 2,000-2,100 a tonne.
Existing stocks
Over next three months – April, May and June – fresh arrivals of imported oils may slowdown under pressure of existing burdensome stocks here. This period also coincides with general elections in the country. Obviously, no change in customs duty can be expected at least until end-May when a new Government is likely to assume office.
But there is absolutely no guarantee that the new government may want to disturb the current tariff regime of zero duty on crude oils. Of course, revenue generation may be one of the considerations. But monsoon and inflation are factors to be reckoned with. Festival demand will start kicking in not before August. Gyrations of the rupee need to be watched.
Globally it remains to be seen what happens finally to the US soyabean acreage. If it indeed expands by over 2.5 million acres, contrary to current lower expectation (there is every possibility it could turn out that way), the sentiment may change and prices can turn softer. But if the dollar weakens in the course of next three months - as widely expected - it could lift commodity prices including crude which is poised to rise to $60 a barrel sooner.
The new government should thoroughly review the country’s vegetable oil trade policy. The scope and incentive for speculative business should be curbed. The advantage of high oil prices does not flow to primary producers of oilseeds while consumers do not fully enjoy the benefit of low import prices. If neither of the two most important stakeholders benefits, there is something seriously wrong with our extant policy that simply tinkers with trade and tariff measures after succumbing to lobby pressure.
Source : Business Line