Last month, Dorab Mistry, Godrej International’s director, called for a 10 per cent Customs duty on crude palm oil imports. This, he said, would help the country protect its farmers.
Soon after, the Solvent Extractors Association (SEA), which represents oilseed crushers in the country, reiterated the demand for import duty on crude palm oil. It also sought a 20 per cent import duty on RBD palmolein. Currently, there is no duty on imports of crude palm oil, while RBD palmolein attracts 7.5 per cent duty.
The palm group of oils is a target because it makes up over 80 per cent edible oil imports into the country.
According to SEA, in the 2011-12 oil year that ended in October, a record 9.95 million tonnes of vegetable oils were imported into the country. The forex outgo on this is estimated at Rs 60,000 crore.
Though imports in November dropped 18 per cent due to harvest of kharif oilseeds, at least 1.5 million tonnes of oils are in the pipeline. Industry observers say that shipments of edible oils into the country could be around the same level this year, too.
This is despite oilseed production being pegged marginally higher at 208.9 lakh tonnes against 208.5 lakh tonnes in the last kharif season.
Uprooting, on poor yield
Two factors are pushing up vegetable oil imports: rising population and increasing affordability, especially with a teeming younger generation having a lot of cash to spend. All this will mean that soon, vegetable oils could top the import basket.
There is another angle to this. Recently, reports from southern parts of Tamil Nadu said that growers were uprooting oil palm trees. This is because they are unhappy with the price they are being offered. For the current quarter, Tamil Nadu has fixed Rs 7 for a kg of fresh fruit bunch. The price is revised every quarter at a tripartite meeting of government officials, millers and growers. Farmers in Andhra Pradesh receive an additional five per cent, since the State does not charge value-added tax on the fresh fruit bunch.
The problem with growing oil palm is that it has a gestation period of 4-5 years. Further, it takes another 2-3 years before the production starts peaking.
Though the Government spends nearly Rs 1.5 lakh per hectare of oil palm as subsidy, farmers seem to be running out of patience mid-way after switching over to the oil crop.
Also, a sense of slack in taking care of the crop during the initial stages results in poor yield, causing some farmers in Tamil Nadu uprooting their plants.
Therefore, the view in the industry is that growers should be given a fixed price for a term of at least five years. Another view is that the Government has to find a way to sustain the growers’ interest through some additional payment. How will it get funds for this purpose?
Production issues
There is also another issue of concern to the country. Palm oil production worldwide is on the rise. More area is set to come under oil palm plantation in Indonesia. In the next three years, the total area under oil palm in Indonesia is set to increase to 9.5 million hectares, from the current 6.5 million hectares.
Global palm oil production, currently 45 million tonnes, will rise by another 25 per cent in the next seven years. A major portion of this will come from Indonesia, as most of the trees there are going through their peak production period.
On the other hand, the current oil year will also see global soyabean production rising to 269.1 million tonnes from 239.9 million tonnes last year. These will put pressure on oilseeds prices and, in turn, affect Indian growers.
Already, parts of Madhya Pradesh are witnessing an agitation by farmers after soyabean prices dropped to around Rs 3,100 a quintal from a high of Rs 4,500 in August. Globally, too, prices have tapered off. Crude palm oil futures are currently quoting below $800 a tonne, against $950 a tonne in August. Similarly, soyabean oil prices that touched $1,200 a tonne in September are currently down to around $1,085 a tonne.
Better price for growers
More than these, there are a couple of interesting developments that are taking place in the global market.
First, Malaysia is saddled with a record palm oil stock of over 2.5 million tonnes, while details of stocks with Indonesia are scanty. In order to cut down its inventories, Malaysia has decided to allow export of crude palm oil without any tax. So far, it has been slapping a 23 per cent tax to encourage value-addition. It has now changed the policy setting a base price of $700 a tonne to levy a tax.
The question for the Indian Government is, should it allow duty-free tax to help Malaysia cut down its inventories? Indirectly, Malaysian growers are seen as beneficiaries, instead of Indian growers.
Indonesia will also join the race to exhaust stocks and therefore, oilseeds prices in the country are likely to come under pressure.
The other aspect is that China will bring into force a new quality norm for import of vegetable oils. Already, in the last two weeks it has wreaked havoc in the soyabean market, cancelling nearly nine million tonnes of bean deals.
The Centre has to draw a fine line between helping consumers overcome surging inflation and yet ensuring that growers are not hit. The policy of allowing duty-free import of crude vegetable oils is affecting growers.
In fact, the Centre can utilise the duty collected from imports of vegetable oils for subsidising oil palm and other oilseed growers.
The crushers may have built excess capacity, but the issue here now is to help growers get better price. This will not only ensure higher production and productivity, but also lower the outgo of precious foreign exchange.