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G. Chandrashekhar

It is widely suspected that importers actually bring in refined palmolein mixed with 5-10 per cent palm fatty acid distillate. They then palm it off as refined palmolein to unsuspecting buyers.

MUMBAI, March 14

SERIOUS apprehensions of revenue leakage in edible oil imports and health risk for unwary consumers have once again surfaced in recent weeks. The source of concern this time is a product described as "crude olein''. Currently, the domestic market is flooded with imported crude olein.

Ironically, major suppliers Malaysia and Indonesia are not known to produce this product in large quantities. As per Indian food law, it is mandatory for imported crude oils to be refined so as to conform to specified minimum quality standards and only then sold for human consumption.

A spurt in import of crude olein follows the Government's policy of fixing higher rate of customs duty on refined oils and lower rate on unrefined oils. On refined palmolein, the rate of duty is 91.2 per cent while on crude olein it is lower at 75 per cent.

Over the last four months, nearly two lakh tonnes of crude olein have arrived in the country; more than 80 per cent of which came in through Chennai (97,000 tonnes) and Kakinada (66,000 tonnes). On the other hand, during the 12 months of oil year 2000-01 (November/October) crude olein arrivals aggregated less than 33,000 tonnes; and earlier Indian importers had not heard of crude olein!

What is crude olein? The fleshy mesocarp of palm fruit is crushed to produce crude palm oil that has two fractions, solid (known as stearin) and liquid (known as olein). These two fractions can be separated by a process called fractionation or fractional crystallisation.

However, in practice, crude palm oil is not fractionated for reasons of both economics and market conditions. Crude palm oil is refined, bleached and deodourised to produce RBD palm oil, which then is fractionated to separate stearin and olein, both refined products. The liquid portion of refined palm oil is refined palmolein.

What's wrong with crude olein? Eventhough crude olein is not known to be commercially produced in significant volumes, some resourceful importers here have discovered a loophole in the policy and are bringing a material described as such into the country merely with a view to beating the tariff structure and save on customs duty.

It is widely suspected that importers actually bring in refined palmolein mixed with 5-10 per cent palm fatty acid distillate (a cheap downstream industrial product). This blend helps raise the free fatty acid (FFA) content of refined palmolein to a level above 0.25 per cent (maximum FFA level for refined oils specified under Prevention of Food Adulteration Rules).

Upon import (that is at the time of customs and port health clearance) the product shows more than 0.25 per cent FFA and, thereby, does not qualify to be categorised as refined oil and subjected to higher duty, but is categorised as unrefined oil (as FFA is more than maximum permissible 0.25 per cent) and charged lower rate of duty.

Under the law, this so-called crude oil has got to be refined so as to bring the FFA level below 0.25 per cent before being sold for human consumption. However, in practice, this is not done. As the FFA level is only marginally higher, importers often palm it off as refined palmolein to unsuspecting buyers, be they wholesalers or institutional consumers.

There is thus a double jeopardy for the economy— evasion of customs duty leading to loss of revenue and health risk for consumers. Some in the trade assert the possibility of collusion between statutory authorities (customs collectorates and port health officers functioning under the Ministry of Health) and importers that is leading to such imports.

It should be a matter of interest for revenue intelligence officials that there has been a continuous disparity between international and domestic prices over the last three months or so. In particular, domestic prices of imported olein have been anything between Rs 1,000-1500 a tonne lower than their landed cost. It would make no commercial sense for importers to continue to import at a price higher than they can get in the local market and continue to sustain losses.

Indeed, there is reason to believe, the differential represents the cost of refining. By not refining the imported material, the importer is able to save Rs 1,500 a tonne and stay in business which should explain why the volume of import of such material is expanding.

While bringing windfall gains for importers, large-scale inflow of crude palmolein and its sale without refining has now started to hurt the domestic refining industry. In the South, where such material has been arriving in considerable volume, refiners are complaining of idle capacity.

It is unfortunate, the Centre blundered in recognising crude olein as a commercial product and gave it legitimacy by fixing a tariff value for such as description. No doubt, production of crude olein is possible theoretically. Malaysian literature on palm lists crude olein as one of products in the palm complex. However, commercial statistics do not show any significant volume of production.

While the Government's policy of differential duty on crude and refined oils is sensible, too many categories of oil and too many levels of duty are creating conditions ripe for unscrupulous players to take advantage. Ideally, there should be only two levels of duty, a lower duty on crude oil and a higher one on refined.

More importantly, customs and health officials must discharge their duties more responsibly. Testing laboratories are often ill-equipped and manned not by those professionally competent. Imports are coming in through more than a dozen ports many of which are not equipped to handle sensitive food products.

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