import-duty-on-edible-oils

Import Duty on Edible Oils – A Rift or Connect for Global India?

The Indian Import export market is highly volatile in the recent times due to the changing government reforms. The GOI (Government of India) recently increased the import duties on various edible oils (Sesame, Flax, Soybeans, Mustard, Amaranth etc.) ranging between 60% to 100%. This initiative by the GOI was with a motive to help the Indian farmers & encourage more sowing of the Kharif crops.

The Indian market imports oil of approximately 15 Million Tonne, whereas the consumption being 25 Million Tonne. This is because the oil import is a cheaper option as compared to local production of the oils. Many reasons contribute to that & the main reason being the high production cost in India. Majority of the oil is purchased from Malaysia, Indonesia, Brazil & Argentina. The low oil costs prompted Indian suppliers to import oil rather than local production. The GOI recognized that if this trend continues this is a threat to the oilseeds market of India. It was a collective decision of the ministry of agriculture as well as all the other ministers that unless the Indian farmer was not supported against the cheap oil imports, the oilseed economy will badly suffer & even collapse in case of Soybeans.

Every year the government decides on the MSP (Minimum Selling price) & the Procurement price of the goods. The MSP on the oilseeds was increased recently to almost 8%-10% as compared to the last year of 2016-17, after the government noticed that the Indian farmer is unable to enough profits to sustain. The major reason for the implementation of increased import duty was that the Indian oilseeds were selling below the MSP levels for the year 2016-17.

MSP:

Minimum Selling price is decided by the GOI every year in order to protect the farmer’s interest & secure their profits. This price is decided on the basis of various parameters like the crop cultivation cost, the global market trends, the demand for the product etc. Last year the MSP was increased for the oilseeds due to increased cultivation cost & to protect the interest of the farmers in further production of the oilseeds (Sesame, Flax, Soybeans, Mustard, Amaranth seeds etc.). But it was noticed that the farmers were selling way below the MSP due to less domestic demand, this also prompted lesser cultivation for the year 2017-18. The stockists were the only ones benefiting out of this situation & would analyse the trend time to time to earn good profits. However, the root cause of the situation was the reduced domestic demand & to tackle this situation an immediate action was required. The GOI in association with SOPA (Soyabean Processors’ Association of India) took the collective decision of increasing the MSP & help protect the interests of the Indian farmers.

Current import duty:

The GOI hence collectively took the decision to levy the import duty on oils imported & also the oilseeds imported, so as to boost the domestic consumption. The strategy aims at increased domestic demand for the oilseeds, thus securing the farmer’s interests in more production of oilseeds. The aim was also to increase the efficiency of oil production in the domestic market. The expected result also included increased exports in the long run. The increased duty is temporarily a success as it has made the oil making companies in India to revise their import strategies & look for a conducive option. Though this has led to the increased pressure in the domestic market; it will boost the domestic cultivation for the coming year & increase the farming profits.

Market Overview:

The government implemented a policy with a larger picture, but the current market scenario has become very volatile. The increased import duty has prompted the local oil refineries to review their import policy & turn towards the local purchase for the moment. However, there was sudden increase in the demand for the oil seeds in the domestic market, which the market was not ready for & so this raised the prices for the commodities. Also, the production for the year 2017-18 was expected to be more, but the yield is not much as compared to 2016-17 (as per the IOPEPC report 2017-18) due the floods & heavy rains in the regions for Gujarat, Rajasthan & Madhya Pradesh. The export market however, is facing a bad time & the GOI will have to make some reforms to maintain the exports. In addition, the constantly fluctuating USD against the INR has led to a more difficult situation for the exporters. The Global Sesame trend is showing increased yield in China, Sudan, Nigeria & many other regions, owing to reduced price per quintal as compared to 2016-17. India is ranked as the 2nd largest exporter of the sesame seeds after Myanmar & the Sesame market of India is suffering the most due to the new reform.

Much cannot be anticipated about the GOI’s further moves, but hopefully the market will stabilize soon. Only the further reforms can decide where the Indian oil seed market is heading towards & if it can sustain & compete with the global market trends.