India imports palm oil from Indonesia and Malaysia, soyabean oil from Argentina and Brazil, sunflower oil from Ukraine and Russia and canola oil from Canada.
Since edible oil is an exported commodity, its price in the domestic market drives mainly on international prices and the dollar value. The tariff value declared by the government on fortnightly basis and policy regarding import duty of edible oil also have an impact on edible oil prices.
Import duty Hike
Last year, the government hiked import duty on edible oil to help farmers realise higher price for their oilseeds viz, soyabean and mustard. Currently import duty on various edible oil is highest in over a decade in the range of 44-54% an increase of more than 200 per cent compared with import duty in January 2018.
Last year, in March 2018, import duty on crude palm oil was hiked to 44 per cent while the tax on refined palm oil to 54 per cent. Then in June, the government increased the import duty on crude and refined soft edible oils such as soya oil, sunflower oil and rapeseed to 35 per cent and 45 per cent respectively.
Despite substantial hike in import duty last year, the prices of palm oil in the country is still down by about 20 per cent on year while soya oil prices are at the same levels as last year. This is due to lower prices of edible oil in international markets. In last one year, prices of edible oil in international have fallen in the range of 10-20 per cent.
Currently, the import price of crude and refined palm oil is down by about 18-21% (Rs 13,000-14,000 per tonne) at Rs 50,700 and Rs 58,500, respectively.
High palm oil imports
From January 1, the duty difference between refined and crude palm oil (CPO) reduced from 10 per cent earlier to 5 per cent, if imported form Malaysia under the Comprehensive Economic Cooperation Agreement (CECA) signed in February 2011.
As per Solvent Extractors Association of India, India’s import of refined palm oil rose from 130,000 tonnes in December 2018 to 371,060 tonnes in May 2019, the highest in any single month since May 2013. Refine palm oil share thus increased form 16 per cent last year to 46 per cent in May 2019.
Overall, palm oil imports increased by 6.5 per cent in first seven months of oil year 2018/19 (Nov-Jun) to 54 lakh tonnes against 50.7 lakh tonnes last year same time.
Domestic oilseed production is expected to pick up this year. Soyabean and Groundnut are major kharif oilseed produced in the country. While cottonseed is also a major source of edible oil.
With forecast of normal rains, country is expected to produce over 400 lakh tonnes of oilseeds including cottonseed in FY2019/20.
With that quantity, country is likely to produce only about 70-75 lakh tonnes of edible oil domestically against the requirement of more than 235 lakh tonnes.
At present, edible oil prices have been trading in a range, tracking weak prices of both CPO and soya oil in the international markets. Moreover, prospects of higher oilseed production in the country and world in 2019/20 is also pressurising prices.
Market expects that with lower tariff values and cheap imports available for refined palm oil due to duty difference, there will be ample supplies of palm oil in the country in the coming months. If we see the import seasonality, edible oil import in the country will gradually increase after March.
For the first week of July, the government tariff value on palm oil is down by about 20 per cent while for crude soy oil it is lower by 7 per cent on year. Tariff value is declared by the government every fortnight based on currency fluctuations and international prices for invoicing purpose for the importers.
Therefore going forward, the prices are likely to remain under pressure due to sufficient supplies from the domestic crushing and constant increase in imports due to lowering tariff values. However, reports of hike in import duty for palm oil may support prices of edible oil in the country.
(Riteshkumar Sahu, is Research Analyst – Agri Commodities at Angel Broking)