October 28, 2021

Prime Team News

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Centre scraps customs obligation on crude edible oils, lowers agri cess

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The Centre on Wednesday cut the Customs duty on crude edible oils to zero and the Agriculture Infrastructure and Development Cess (AIDC) on all oils – crude and refined to contain surging cooking oil prices and control the rates, inflation during the festive season.  

The Department of Revenue under the Ministry of Finance issued two notifications that will bring the duty cut – ranging from 16.5 to 19.25 per cent – into force from Thursday. The revised duty will remain in effect till March 31. This is the third time the Centre has reduced Customs duty on edible oils over the past three-and-a-half months and first time the AIDC has been revised.  

According to these notifications, the import duty on crude palm oil (CPO), crude soyabean oil and crude sunflower oil has been reduced to zero from 2.5 per cent fixed last month. The import duty on RBD palmolein, RBD palm oil, refined soyabean oil and refined sunflower oil has been reduced from 32.5 per cent to 17.5 per cent.

Also read: Palm oil imports skyrocket to record 12.62 lakh tonnes in September

In addition, the Centre has cut AIDC on CPO to 7.5 per cent from 20 per cent and on crude soyabean oil and crude sunflower oil to 5 per cent from 20 per cent.  

Duty cut impact 

Post revision, the effective customs duty on crude palm, soyabean and sunflower oils will be 8.25 per cent, 5.5 per cent and 5.5 per cent respectively.  The effective duty on RBD palmolein, refined soyabean oil, and refined sunflower oil will be 19.25 per cent. The Centre had last reduced the import duty on the above commodities on September 11 

Solvent Extractors Association of India (SEA) President Atul Chaturvedi said the duty cut will help reduce cooking oil prices by ₹6-8 a kg. 

The duty cut had an immediate impact in the domestic and global market. On MCX, October crude palm oil contract dropped by 3.5 per cent, while November contract slipped by 2.8 per cent.   

Chaturvedi said the Malaysian palm oil market went up by about 150-170 ringgits (₹2,700-3,075) a tonne after the duty cut announcement. Palm oil futures on Bursa Malaysia topped 5,000 ringgits ( (₹90,550) a tonne after a week’s gap. 

The Centre’s move to reduce the edible oils duty is to check the rising trend in prices. It is also aimed at controlling inflation with retail inflation based on Consumer Price Index rising. Retail inflation rate for “Oils & Fats comprising edible oils surged to 34.19 per cent in September against 33 per cent in August and 27.83 per cent in September last year.  

Reasons for global uptrend

Globally, edible oils prices are up on lower palm oil production in Malaysia due to labour shortage, Chinese power crunch and diversion of palm oil for biodiesel in Indonesia due to a firm trend in crude oil prices that are ruling above $80 a barrel.   

BV Mehta, SEA Executive Director, said the Government might have taken the decision to due to reasons such as festivals and high price of edible oil in the interest of the consumers, but the timing is not correct. 

Chaturvedi said farmers are harvesting kharif oilseeds crops -soyabean, sunflower and groundnut – and the duty cut may affect them, particularly when a record soya and groundnut harvest has been forecast. 

“Normally we have seen in the past that whenever there is a reduction in duty, the price at the destination goes up. We don’t accrue 100 per cent benefit,” he said, adding, exporters in the exporting countries get around 30-40 per cent of the benefit. 

He pointed out that crude palm oil contract for November delivery, which opened at 4,923 MYR a tonne, reached a high of 5,153 MYR a tonne during the day. 

To a query on the impact on processors, he said: “We may have to pay less duty, but the price has gone up. Landed cost for us is not much of a difference.” 

He said the processors always wanted that the duty difference should be more than 10 per cent between the crude and the refined oils. That difference has been maintained at 11 per cent now. “We will be comfortable if the difference is about 12-15 per cent between refined and crude oil,” he added. 

A Chennai-based trade analyst said some traders could have ended up with a lost of at least ₹1 lakh per load they would have bought mid-sea in the past couple of days.  

In a statement, SEA said: “The impact of the duty reduction on crude palm oil is about ₹14,000, while on crude soyabean oil and crude sunflower seed oil is about ₹20,000 a tonne. The total benefit of duty reduction may not fully accrue to the Indian consumer.” 

(With inputs from AJ Vinayak, Mangaluru)

 

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