Edible oil tariffs must balance farmer, consumer needs

Indian consumers looking to replenish their stocks of cooking oil for the festival season are likely to experience some sticker shock, with the Central government deciding to sharply hike import duties on vegetable oils. Effective September 14, the basic customs duty on crude soyabean, palm and sunflower oil has gone up from zero to 20 per cent, while that on the same refined oils will rise from 12.5 to 32.5 per cent, with additional cess applying in both cases.

The hike has already led to retail prices of these cooking oils shooting up by 5-8 per cent, despite the Government ‘advising’ the edible oil industry to maintain price-lines until old stocks run out. Farmer angst about market prices of soyabean dipping below the Minimum Support Price at harvest time in the election-bound State of Maharashtra, seems to have influenced this decision. The Centre has justified the duty hikes as an effort to help farmers. However, imports meet 50-60 per cent of India’s edible oil requirements. Low-income consumers turn to imported oils when prices of local oils turn unaffordable. Their interests cannot be ignored.

It is true that duty-free imports of edible oils, especially inexpensive palm oil, act as a disincentive to growers of indigenously produced oilseeds such as soyabean, groundnut, mustard and sunflower-seed. In recent weeks, record soyabean harvests in Brazil and the US have sent global soyabean and oil prices into a tailspin, stoking fears of imports flooding into India just as farmers are readying to market their kharif harvest. However, to bring about durable increases in domestic oilseed acreage which will benefit both farmers and consumers, predictable policies on edible oil duty and trade are critical. As things stand, the Government has been making piecemeal changes every few months, which make it difficult for farmers and the edible oil processing industry to decipher the policy direction. Sharp cuts in the basic customs duty on crude and refined edible oils were announced in 2021 to quell inflation and this dispensation was extended six months at a time. The latest such extension was announced in January 2024 when the government said that edible oil duties would be frozen at prevailing levels until March 2025 to keep prices low for consumers. Recent duty hikes reverse this stance.

If India is to reduce its import dependence for edible oils, the Centre may need to keep four factors in mind. One, customs duties must be set at levels that balance the interests of consumers with farmers. Zero duty imports must be avoided. Two, adequate duty differentials of, say, 15 per cent must be maintained between crude and refined oils, so that domestic processing capacities are encouraged. Three, duty changes if unavoidable due to global dynamics, must be announced ahead of the kharif crop. Finally, curbs on edible oil exports must be relaxed so that farmers have the freedom to capitalise on global market opportunities, just as consumers benefit from cheap imports.