Scrapped import duty on soya oil to reduce premium over palm oil

NEW DELHI: The government is doing away with Customs duty on soya oil to narrow its premium over imported palm oil, the world���s cheapest cooking oil and India���s favourite fat, in a highly price-conscious market. Eight out of 10 cans of imported vegetable oil in India now contain palm oil.

A notification will be issued shortly by the finance ministry, said an official who did not wish to be named.
Crude soya oil is the only vegetable oil that had been saddled with an import duty of 20%. All other crude oils, such as palm and sunflower, can be imported duty-free. This makes each kilo of soya oil Rs 11.70 more expensive than crude palm oil. With both oils at zero duty, the difference will whittle down to Rs 6.60/kg. ���By putting a duty on soya oil, a costly oil was made even more costly. It was an aberration,������ said a market watcher here.

Due to this price disparity, soya oil imports have plummeted. According to data collected by industry body Solvent Extractors Association, in the last four months, the share of soya oil in India���s vegetable oil imports has dropped below 20%. The bulk comprises import of crude palm oil. However, soya oil imports began picking up in February to grab a 30% share of the import basket.

Although the duty reduction was anticipated, traders say it is unlikely to significantly change soybean oil���s prospects any time soon. ���The price difference is still too large to make it worthwhile to import bean oil in a price-conscious market like India,��� said the CEO of an MNC trading firm here, who did not wish to be named.

Soybean oil has always been sold at a premium to palm oil. The price difference between the two in the international market usually hovers around $90/tonne fob.

This difference shot up to more than $400/tonne in the last six months mainly because the economic downturn took its toll on farmer plantings, and bad weather played havoc on the South American crop. Palm oil supply, however, remained unaffected by the economic crisis because it is a perennial crop. As a result, while soya oil supply was squeezed, palm oil continued to be available. This created a wide gap between the two oils. By removing the duty, India is now restoring soya���s premium to more normal levels.