Edible Oil Imports by India
Prof. C Kameswara Rao
Foundation for Biotechnology Awareness and Education,
Bangalore, India krao@vsnl.com, www.fbae.org, www.fbaeblog.org

Mr. Dorab Mistry, London based Director of the Godrej group, pleaded for a level field on Indian import tariffs on edible oils (Reuters, February 24, 2006).   His case in point is that the import tariff on the South American soyoil is unfairly lower than that of the Malaysian palm oil.  

The scenario of import and export of edible oils in India fluctuates, being subject to variations in demand and supply, based on the quantum of indigenous production.  
There is the policy of ‘Seasonally variable import duty’ to control oil prices during the lean period, but this has affected the farmer and edible oil industry during the glut season (Hegde, 2002).

According to the Uruguay Round (UR) of the WTO Agreement, India has removed all quantitative restrictions on imports of edible oils in the new EXIM policy of 2001.  Under the ‘bound tariffs’ of UR, India can impose a maximum import tariff of 300 per cent on palm oil, 100 per cent on other vegetable oils, but only 45 per cent soyoil (Hegde, 2004) .  

In 1985, the basic tariff on soyoil was 200 per cent, but for the most favoured nations (MFN) it was 190 per cent.   In 1995 the rates were 35 per cent basic and 25 per cent for MFN, in 2000 and 2001, 45 per cent basic and 25 per cent for MFN. 

The basic tariff on palm oil was 200 per cent and for MFN it was 190 per cent in 1985.   In 1995, the rates were 50 per cent basic and 40 per cent for MFN, and in 2000 and 2001, basic 100 per cent and 25 per cent for MFN. 

Depending upon the indigenous production, export and import balance, tariff was cut in 1995 but raised in 2000. Though the UR bound tariffs were not required to be reduced till 2004, by the year 2001 the import tariffs on soyoil and palm oil were far below the bound rates.  

Mistry’s suggested that India should rework its duty structure to reflect GM- and non-GM soyoil, applying 45 per cent duty to non-GM soyoil, while the GM soyoil be placed on par with crude palm oil.   Unless the exporter declares that the oil is from a GM source, there is no way of proving the origin of an oil, since expressed oil does not contain any protein or nucleic acids to determine if it is a GM product.   An importing country can insist on such a declaration under the Cartagena Protocol, but in practice it is difficult to segregate a GM oil from a non-GM oil.   Mistry’s suggestion is also risky since once a product is branded GM, the Indian anti-tech lobbies would work for a ban on such imports.   Banning soyoil import for the reason that it is a GM product will invoke WTO provisions, as has happened to the EU recently, where the WTO ruled against the EU, on a complaint against it by the US, Canada and Argentina, for banning imports of GM corn and soybean, in the face of a de facto moratorium since 1998. 

In India the consumer does not take any marketed edible oil, as edible oil preferences vary from household to household.   Mustard oil is widely used in the north Indian States.   In South India groundnut oil, safflower oil and corn oil are preferred, while those who can afford it use the more expensive sesame oil.  Both palm oil and soyoil are alien to the Indian psyche, more so the soyoil and it is difficult to make people to consume these oils as easily as other familiar oils.   The marketing strategy on soyoil and palm oil was not very effective in enhancing household usage. 

The palm oil is put on the Public Distribution System (PDS), the means of providing subsidized commodities to people who cannot afford the open market prices.   If it were not the cheapest edible oil, on account of being on the PDS, there would not be many takers for palm oil in India.   The undesirable side of putting anything on the PDS is that people, who are eligible to buy commodities at PDS rates, sell them at a far higher price than the PDS rates. 
Importing 2.2 million tonnes of soyoil from South America in 2005 is a little surprising, given the poor preference status of soyoil with the individual consumer.   A mixture of vegetable oils is used in the process of hydrogenation, which converts liquid oils into solid fats with increased shelf life.   Hydrogenated oils are used in commercial food processing but are not preferred by the health conscious, as hydrogenated fats contain trans fatty acids  that enhance the risk of heart disease and stroke.
Crushing industry often delays extraction of oil from seeds for the fear of a) the oil becoming rancid if not lifted in time and b) the fall local prices in the post-harvest glut, which would push up import tariffs.   The crushers seem to phase their operation depending upon the ground realities. 

What Malaysia should seek is a MFN status, to place Malaysian palm oil on par with the South American soyoil.   Actually there was a charge that many times import duties are slashed to get a favour in another sector, such as railway contracts from Malaysia (Hegde, 2002).   Since the Indian production of soyoil and palm oil is not substantial, the quantum of imports are not affected greatly, barring policy decisions based on other considerations. 

February 27, 2006