In a major worry for farmers, oilseed prices are set to decline due to lower demand from the domestic crushing and processing industry, following dumping of edible oil from Malaysia, the country sitting on a massive stockpile and looking for a duty cut to boost its shipment.
The government of India had signed the Malaysia–India Comprehensive Economic Cooperation Agreement (MICECA) in October 2010, under which the effective duty on all products to be imported from Malaysia in to India would not be more than a mutually agreed threshold limit. In the case of crude palm oil (CPO) and refined edible oil, of which India is a big importer, the duty would not be more than 40 per cent and 45 per cent respectively. The provisions of this agreement are set to become effective January 1, 2019.
This necessarily means that the effective import duty on CPO and refined oil would be automatically cut by four per cent and nine per cent from the existing 44 per cent and 54 per cent respectively. Even at the current duty rates, India imports nearly 65 per cent or crude and refined oil from Malaysia, Indonesia and Argentina to meet its annual demand of around 25 million tonnes.
“The reduction in import duty would be a major blow for Indian farmers. The move would see more edible oil from Malaysia coming into India, making it a dumping ground as Malaysia is sitting on a massive stockpile. Increasing imports would mean lower domestic edible oil and oilseed prices,” said B V Mehta, Executive Director, The Solvent Extractors’ Association (SEA), the premier industry body representing the entire edible oil and oilseeds sector in India.
Interestingly, Indian importers have already started taking precautions in the wake of the potential duty cut. India’s import of vegetable oil (crude and refined) declined by nine per cent to 1.13 million tonnes in November 2018, from 1.25 million tonnes in the corresponding month last year.
“In anticipation of a likely reduction in import duty, India’s import of edible oils has slowed down for the time being, but is likely to pick up from January 2019 with lower import duty. Also, palm oil prices are hovering at 10-year lows and the spread between palm and soft oil has increased, making palm oil more attractive to import by India,” said Mehta.
Interestingly, edible oilseed prices remained subdued for over two years with most seeds hovering below their respective minimum support price (MSP) levels. Mustard seed, for example, in the benchmark Alwar (Rajasthan) market was trading at Rs 4,180 a quintal, below its MSP of Rs 4,200. Similarly, soybean in Akola, Maharashtra, was trading at Rs 3,396 a quintal, marginally below the MSP of Rs 3,399 a quintal.
“It is certainly a negative for Indian farmers. The MICECA would escalate import of crude and refined oil into India from Malaysia and bring down prices of *domestic) edible oil. A decline in edible oil price would bring down seed prices proportionately,” said Siraj Choudhary, former chairman, Cargill India, the producer of Cargill brand edible oils.
Meanwhile, the edible oil industry, which has been facing margin squeeze due to low prices, has urged the government to impose a non-tariff barrier with possible quantitative restrictions and other such measures to restrict dumping.
“Under South Asian Free Trade Agreement (SAFTA), there used to be huge edible oil imports into India through Bangladesh. The government successfully restricted this without violating SAFTA regulations. We have recommended the government to adopt similar measure in this case also,” said a top industry official on condition of anonymity.
The stockpile in Malaysia is hitting at multi-year high on favourable climatic condition. Latest data released by the Malaysian Palm Oil Board showed that Malaysian palm oil stocks rose 10.5 per cent to three million tonnes in November -— the highest in at least 18 years -— due to steeper seasonal decline in exports that outpaced the decline in production. Including Indonesia’s stocks of more than 4.4 million tonnes in October, the world’s two largest palm oil producers have a combined stockpile of nearly eight million tonnes.