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Edible oil import duty relief not fully passed on to consumers

However, the pan-India average retail price of palm oil increased 3% to Rs 133.77/kg between June 30 and September 10, according to consumer affairs ministry data.However, the pan-India average retail price of palm oil increased 3% to Rs 133.77/kg between June 30 and September 10, according to consumer affairs ministry data.

By Pradbhudatta Mishra

Retail prices of edible oils continued to rise after the recent cuts in import duty, indicating the benefits have not been fully received by consumers and may have been appropriated by palm oil sellers in Indonesia and Malaysia. This is even as the government claims that revenue of as much as Rs 4,600 crore will be foregone in FY22 due to the duty reductions.

Along with the agri cress and social welfare cess, the effective duty on crude palm oil was cut by 5.5% to 30.5% effective from June 30 and was in force until September 10 when it was further reduced. However, the pan-India average retail price of palm oil increased 3% to Rs 133.77/kg between June 30 and September 10, according to consumer affairs ministry data.

Similarly, the effective duty on crude soyabean oil and crude sunflower oil was cut by 8.5% to 30.5% from August 20 and was in force until September 10. However, average retail prices of both soyabean oil and sunflower oil marginally increased after the reduction. Out of 9.37 million tonne (MT) of edible oil imported until July 31 of 2020-21 oil year (November-October), the share of crude varieties was 99.5% and refined oils 0.5%.

“The duty cuts already made (before September 10) amount to an estimated Rs 3,500 crore in a full year. With the latest reduced import duty worth Rs 1,100 crore in a full year, the total direct value of benefits expected to be passed on to the consumers, in terms of duties given up by the government, is Rs 4,600 crore,” the food ministry’s statement said September 11.

While retail prices in the domestic market have inched up, there is also a marginal increase in landed rates of imported crude palm oil after the duty cut, which means the purported benefits of reduction in basic customs duty have been neutralized. Palm group of oils has over 60% share in overall import of edible oils and is imported mainly from Indonesia and Malaysia.

The cost, insurance and freight (CIF) price of crude palm oil increased 20.4% to $1,240/tonne on September 9 from $1,030/tonne on June 30 in Mumbai. On the other hand, imported crude soybean oil and sunflower oil declined 1-2% to $1,365 a tonne (same for both) as on September 9 from $1,390 and $1,380, respectively on August 20, according to industry data.

The government has been reducing import duty in phases since June 29, first with a cut on crude palm oil to ḥ10% from 15% and on RBD palmolein to 37.5% from 45%. On August 19, the standard rate of duty on crude soyabean oil and crude sunflower oil was cut to 7.5% from 15% and on refined varieties of these two oils to 37.5% from 45%. Last week, again there was a further reduction on crude palm oil, crude soyabean oil and crude sunflower oil to 2.5% while duty on RBD palmolein, refined soyabean oil and refined sunflower oil was cut to 32.5%.

The retail inflation in oils and fats, which has a share of 7.76% in the consumer price index (CPI) entire food basket, increased 34.78% and 32.53% in June and July, respectively.

The Union food ministry last week urged states to enforce stock disclosure norms on millers and bulk traders of edible oils to check “hoarding” and check any further price rise as rates of major edible oils have increased in the range of 20-48% from the year-ago levels in the retail markets.

The country’s import dependence on edible oils is as high as 60%, with the annual import bill hovering around Rs 75,000 crore. Imports are seen surging 65% on year to $17 billion in the 2020-21 oil year due to a spike in global prices. In FY21, domestic production of edible oils was 12.47 MT and import 13.35 MT, official data show.

Cabinet last month approved the National Mission on Edible Oils Oil Palm (NMEO-OP) with a financial outlay of Rs 11,040 crore to increase the area under oil palm to 10 lakh hectares over the next five years from the current 3.75 lakh hectare to reduce the country’s dependence on imports.

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