Indian industry fears local demand for palm oil will drop as tariff change favors sweet oils

Over the past two years and through the COVID-19 outbreak, the palm oil sector in India has undergone multiple changes in its tax structure due to inflation and prices reaching record highs.

The local oils and fats sector saw its inflation rate drop from 14% to 35% between February and June 2021, forcing the government to act after public outrage at the situation.

Palm oil has also been one of the hardest hit sectors in the country, as the majority of palm oil in India is used in the HORECA and foodservice sectors, most of which have been closed due to downturns. COVID-19 lockdowns resulting in significant demand restrictions.

“Demand for palm oil in India was hit hard in 2020 by around 2.5 million tonnes due to COVID-19 [and] the sector has also undergone numerous revisions to the fee structure ”, The Vice President of the Indian Association of Vegetable Oil Producers (IVPA), Vipin Gupta, said at a recent Malaysian Palm Oil Council (MPOC) virtual event.

“It started from August 2019, when the government imposed a 5% safeguard duty and banned imports of refined oleins, then removed the safeguard duty a few months later, then reduced overall tariffs. for all oils, then increased tariffs again once prices appeared positive, allowing refining olein imports, then three more tariff cuts were applied on crude palm oil (CPO) to combat against inflation.

“Overall, this has now reached a point where the duty on CPO imports is historically low at 7.5%. The risk that this entails, however, is that the government does not have many controls left to control inflation further, as any further reduction from now on, even down to 0%, would not make a big difference to rates. inflation – so if market prices are still not brought under control by these measures, a great challenge awaits us.

In addition to inflation concerns, the local industry also faces the additional concern of fierce competition from sweet oils such as soybeans and sunflowers, especially after a recent government announcement revealed lower levies. on imports of sweet oil compared to palm oil.

“The Indian government has taken a very bold move to reduce import tariffs by around 18% on all oils [to bring inflation under control] in October 2021 “,Gupta said.

“Surprisingly, this included a larger reduction for sweet oils compared to palm oil – the tariff on sweet oils is 5% compared to the current 7.5% for palm oil, even in the middle. of the current peak of the soybean harvest in India when the local supply of soybean oil is [likely to not be lacking].

“The government probably has its reasons for this decision, having to consider all stakeholders, from consumers to industry to producers, and soft oils certainly have higher household demand, so it probably is to help them, but we think a lot of the demand will start to shift from palm oil to sweet oils thanks to these tariff differences.

“The implications are huge for the industry, and we are already seeing the first signs of this change, so expect demand for palm oil. [to dip] immediately, especially over the next three to four months.

“The IVPA believes this will likely be the government’s last step in reducing tariffs and we hope inflation will be brought under control as a result – but we also believe it will be difficult to ensure that prices do not fall. do not fly away after that. Daring step. “

Call for a ban on refined palm oil

Gupta also said the palm oil industry is calling on the government to reinstate restrictions on imports of refined palm oil, saying the current situation where refined palm oil is allowed to enter “freely” in the country is detrimental to the local industry./

“Indian palm oil imports have fallen by around 14% market share, from 64% in 2018-19 to 52% in 2019-2020 due to COVID-19, but have since rebounded to levels of ‘before COVID-19 of 62% market share in 2020-2021 “,he said.

“What has happened, however, is that the percentage of imported crude palm oil has increased dramatically from 71% before COVID to 94% currently – this is severely affecting the capacity utilization of local Indian refineries.

“As such, the IVPA calls on the government not to expand free imports of [refined] olein beyond the planned end date of December 2021, as this has been detrimental to the Indian refining industry. “

In addition, the IVPA also calls on the government to ensure that the gaps between crude and refined palm oil imports are kept above 15% in order to prevent importers from turning to the market again. refining.

“Our figures show that when the import duty differential between the CPO and [refined] the olein drops below 10%, this results in a sharp increase in olein imports, which seriously harms the established local industry, in particular the refineries ”,he said.

“We are also asking that this tariff differential be kept at a minimum of 15% – ideally 20% – but certainly not below, as any lower tariff differential severely affects the industry in terms of capacity utilization and structure. margins. “

The industry is also asking for a pricing and fee system that allows them more visibility so as not to be caught off guard.

“[We need a system that] gives more visibility to the industry on any impending changes, so that we can maintain a constant palm oil supply chain, instead of being skewed due to rumors and leading to shortage or excess inventory in the country “,Gupta added.

“[More] stability and transparency must be ensured [to the industry] in order to act faster and stop rumors whenever prices seem ready to go up or down.

Steve R. Hansen