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As palm oils get dumped, processors become packers

India’s edible oil security at stake as palm oil imports continue to rise unabated

Even as ‘Make in India’ slogan remains appealing, the edible oil industry is faced with the challenge of ‘Make abroad and sell in India’, a phenomenon that is rapidly spreading to hurt the crushing sector.

Citing an example, an industry source revealed that a large number of oil processors such as Adani Wilmar, which is engaged in the edible oil processing, trading and retailing business, has practically turned to packaging business by importing refined oil and selling in India.

Makers become packers

“They have to do this because of the economic unviability in processing crude oils and then selling domestically. But when they increase the imports of refined oils, their capacities remain idle causing a loss on that front too,” said a source not willing to be quoted.

As per estimates, out of the total refining capacity of about 25 million tonnes per annum, palm oil capacity is 15 million tonnes, which is currently operating at merely 40 per cent utilisation. The revenue for refiners is coming more from packaging. “Most of the palm refining units are operating in disparity because refined palmolein imports have increased. Virtually they are operating now as packaging units with their refining departments are almost shut,” said the source.

According to edible oil industry experts, India’s veg oil imports have been going up mainly due to lack of enthusiasm for oilseed cultivation. This, coupled with cheaper refined oils available in the global market, mainly Malaysia, is pushing up imports, thereby putting India’s edible oil security at risk.

Imports to go up further

Veteran edible oil expert Govindbhai Patel said India's palm oil imports will increase further this year. As against a total palm oil imports of about 87 lakh tonnes in 2017-18 (oil marketing year runs through November to October), imports will rise to about 95 lakh tonnes this year.

“India's edible oil imports will continue to rise because the consumption is rising at a pace of about 3.5 per cent per annum, but the production isn't rising at the same pace. The government is making efforts to boost oilseed cultivation but the result is taking long,” said Patel.

As per the data compiled by the Solvent Extractors’ Association of India (SEA), so far during November-May period of this year, India has already imported 5,398,508 tonnes of palm oil, which includes 15.7 lakh tonnes of refined, bleached and deodorized (RBD) palmolein, and about 37.4 lakh tonnes of crude palm oil (CPO).

“We expect RBD palmolein imports to rise from 21.5 lakh tonnes last year to about 32 lakh tonnes this year. The reduced duty difference between the refined and CPO is the main reason behind increased refined oil imports,” said Patel.

The SEA data has also revealed that the share of palm oil in the overall veg oil imports has increased to 64 per cent -- the highest so far this year since 2015-16, while soft oils' share has reduced to 36 per cent from what was earlier 42 per cent in 2015-16.

Increasing palm oil imports is primarily attributed to a sharp jump in imports of RBD Palmolein.

India as dumping ground

The duty difference between refined and CPO was reduced from 10 per cent to 5 per cent from January 1. Also, with duty advantage given to Malaysia under the Comprehensive Economic Cooperation Agreement (CECA) signed in February 2011. has allegedly chennalised all palm oil imports from other regions via Malaysia, thereby virtually making India a dumping ground for palm oils.

The duty difference has left large processing capacities idle. As against India's total installed crushing capacity of about 25 million tonnes per annum, only 40-45 per cent is operating, the rest has turned into a burden on the companies as fixed cost.

Raising this concern, SEA has written a letter to Prime Minister Narendra Modi seeking scrapping of the CECA agreement with Malaysia.

Lower import prices

Adding to the woes is the reduction in the international market prices of various edible oils due to excess supply. In the last one year, in international market prices have gone down in the range of 8-20 per cent, while the rupee has depreciated by nearly 3 per cent in the last one year.

The data suggests as on May 2019, RBD palmolein prices were quoted at $543 a tonne for CIF Indian port, while crude prices hovered at $498. Also, crude sunflower oil prices quoted at $739 a tonne, down from $806 a tonne last year. For crude soybean and crude rapeseed oils, prices quoted at $703 and $743 a tonne respectively as against $771 and $812 a tonne quoted in the same month last year.

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