Palm Oil Internet Seminar

Section 1: CPO Price Trend:
Historical Impact of India's Duty Hike on Edible Oil Imports
By: Mr. Desai Sudhakar Rao

• Joined EAL in 2013 as CEO and has anchored a four- fold growth in the company . • Management Graduate from IRMA, Gujarat he has over 25 years of experience in edible oils He is an active member of Industry Trade Bodies like SEA , (Solvent Extractors Association) , teflas and has served as the Director of Bombay Commodity Exchange. He is also a Product Committee member of NCDEX/MCX. He is task force member in CII eastern India . • Prior to joining Emami Agrotech Limited as the CEO/Director, Mr. Desai worked with: (1) Bunge India Pvt. Ltd as Director/Vice President. – 13 years (2) Worked as Chief Trader, with ITC Agrotech/ConAgra- 7 years etc.
India’s total edible oil consumption has reached about 22 million tons per annum of which imports constitute about 15 million tons. Traditionally palm oil used to be about 60% of the imports depending on the global oil price spreads with soy and sun and import duties used to be more or less same for all oils.

With the aim of expanding the domestic oilseed production, India in the last 12 months has increased the duties about 5 times. Cpo duty which used to be about 7.5% a year back currently is hiked to about 48 per cent. More importantly duty on palm has been increased about 15% more compared to other oils on 1st march 18. With further correction on the 14th June 18 , now cpo and soya duty differential is about 10% in favor of soya.

This has led to decrease in palm imports steeply in may 18. Palm import which used to be about 800 k per month has reduced to about 450 k in may 17. This would mean, India needs to import more soya, sun and also consume domestic produce more rapidly. With such high duties, most of edible oil prices in India are operating in a very narrow band with huge implications of potential demand shifts in a Price sensitive markets. Now is the time to assess the core demand of each of the oils and the real challenge to estimate the core demand of each of the oils correlating it to its consumption vs price elasticity. We have never seen such a narrowed price gap between olein and other oils like soya and mustard in the domestic markets in the last one decade. This would impact consumption in various segments ie house-hold consumption , HORECA, sweet making , Institutional demand in biscuit etc. industry and vanaspathi and bakery fats industry. The duty differential impacts the global farm incomes also as the India is a major price discovery factor even for the soya oil originations like Argentina which exports about 40% of marketable surplus to India . It has impacts on Ukrainian imports of sun oil and the pace of domestic oilseed crushing.

With the poor offtakes of palm oil and demand shift, the refining margins in India have been quite unviable whereas the capacity majorly in India is that of palm. Adding to the troubles. stearin imports for oleo and soap and bio fuel industry attract zero percent duty for non-edible stearin imports and hence stearine prices are unable to go up in India in tandem with duty increase in cpo and hence refineries are under stress in processing palm. With the steep duty increase, Import for finished goods from SAARC countries has become viable and is expected to add to the stress of the Indian refineries there by affecting the palm imports too.

The paper “Historical duty changes and its impacts “attempts to unravel some of these dynamics and make an estimate of consumption basket shifts and there by imports, for the rest of the year.

The full report will only be available from Aug 06, 2018 onwards.
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