India Taxes Crude Palm Oil Imports to Shield Oilseed Growers

India, the world’s biggest cooking oil consumer after China, will tax crude palm oil imports for the first time since 2008 after a slump in prices spurred record shipments, hurting domestic oilseed growers.

Crude palm and soybean oil imports will be taxed at 2.5 percent, while the tariff on purchases of refined cooking oils will be maintained at 7.5 percent, the Agriculture Ministry said in a statement yesterday. The benchmark price for calculating the tariff will be changed for the first time since 2006 on all cooking oils on a fortnightly basis, the government said in another statement on its website.

The taxes may cut Indian imports, boosting palm oil inventories in Indonesia and Malaysia, the world’s largest producers, and pressure futures in Kuala Lumpur. Futures will trade between 2,300 ringgit ($763) and 2,600 ringgit a metric ton until February, keeping inventories high, Dorab Mistry, director at Godrej International Ltd., said Nov. 30.

“Crude palm oil demand from Indian refiners are probably going to decline and the extent may not be significant because palm oil is still far cheaper than alternatives,” said Ben Santoso, an analyst at DBS Group Holdings Ltd. in Singapore. “We expect prices to remain range-bound until at least May, when demand normally picks up again.”

Futures Rebound

The contract for delivery in April rose 0.9 percent to close at 2,400 ringgit a ton on the Malaysia Derivatives Exchange, rebounding from a 2.1 percent loss yesterday. The most-active contract has rallied 8.3 percent after slumping to a three-year low of 2,217 ringgit on Dec. 13.

Stockpiles in Indonesia, the biggest supplier of palm oil to India, may gain to 3.5 million tons in January from 3.25 million tons in December, according to a Bloomberg survey. That may prompt the Southeast Asian nation to cut its export tax to compete with Malaysia, which set the tariff on shipments at zero this month to drain record reserves and the government has said the rate will be unchanged in February. Stockpiles in Malaysia jumped to an all-time high of 2.63 million tons in December, according to the nation’s palm oil board.

“It’s going to be more difficult for us to reduce stockpiles with this tax, and eventually it will be harder for prices to recover,” Susanto, head of marketing at the Indonesian Palm Oil Association, said in an e-mail today. “It will definitely hit our exports, we will lose our market share in India to Malaysia.”

Record Imports

Palm oil represents almost 80 percent of India’s cooking oil imports. Purchases were a record 10.2 million tons in 2011-2012, according to the the Solvent Extractors’ Association of India. The country buys palm from Indonesia and Malaysia and soybean oil from Brazil and Argentina. The government scrapped the tax on crude palm oil in April 2008 to rein in inflation.

“The duty difference between crude oil and refined oils has been reduced and this will encourage large import of refined oils, hurting refiners,” B.V. Mehta, executive director of the extractors’ association, said by phone from Bangkok. “Capacity utilization of the refiners will drop.”

The benchmark price to calculate tax on imports will be aligned to prevailing global prices to “provide an even-field to the domestic refining industry,” the government said. The taxable value of crude palm oil imports in India has been $447 a ton since 2006, well below international prices now, while it was set at $580 a ton for crude soybean oil.

Revenue Collection

“The freeze has led to a significant variation between the notified tariff values and the computed landed prices based on international prices of the edible oils, adversely affecting the revenue collection and also the domestic refining industry,” the government said.

The increase in tax on crude edible oils may increase the price paid to domestic oil palm growers by 150 rupees ($2.77) per ton as the rate is linked to the landed cost of the oil, the Agriculture Ministry said. The impact of higher duty will be negligible in the local market as Malaysia and Indonesia may be forced to lower export duty to clear stockpiles, it said.

The extractors’ association, representing 875 processors and refiners, had sought a 10 percent duty on crude palm oil imports and 20 percent on refined palm oil to protect oilseed farmers. Cooking oil imports surged 35 percent to 901,092 tons in December when palm oil prices slumped.

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