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POINTERS 2014 MPOC
Palm Oil Internet Seminar
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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.
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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.


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Questions & Answers (5) :
POINTERS SECRETARIAT
1 month ago
There is a speaker who presented the scene that El Nino is feared to be forming around September. This could affect India’s rainfall scenario and kharif crop. On India’s weather and oilseed cultivation, appreciate if you could the latest scene.
sudhakar desai :
It seems , the probability has increased for EL Nino in September to over 60%. This would be the pre harvest or almost last stage of rains that crops require . As per the latest season to date, most parts of country especially oilseed growing states have received normal rains with exception of Ground nut crop. There could be some impact in soya crop but overall , may not be a very big factor. we will wait for the intensity and timing of early withdrawal.
1 month ago
Farah
2 months ago
There are 2 facts in your presentation that is interesting. 1) Your S&D for in India painted a very bullish picture for oils and fats imports post 2017/18. Your expected India’s import to rise sharply from 138 Mn MT from 2017/18 to 155.6 Mn MT in 2018/19. Outlook appear even rosier for 2019/2020 season as the year-end stock level is so low that it register only 4.95 Mn MT for 2018/19. Kindly explain the drastic change in outlook from 2017/18 to 2018/19 and beyond. 2) On per capita consumption, palm oil rank the highest according to your slide. It deviates from the global norms where indigenous oil will have the highest per capita consumption. Appreciate your explanation.
sudhakar desai :
WE have to fine tune basis the current monsoon progress and plantings before we can do better projections for 18/19 oil year. In 17/18 due to steep increasein duties from about 9% to over 48% and rupee devaluation , GST , Banking and working capital issues, imports have have fallen and domestic production is being consumed faster than normal pace as the prices of palm and other oil narrowed down as you can see from the price charts. next year will be different . Currently palm is well priced, soya is costlier and domestic prices like mustard etc are even higher there by paving way for imports to achieve normalcy again. Since we are largely import dependent , i feel per capita consumption of imported oils is also higher lead by cheaper palm with largest consumption base both house holds and institutional demand. The pipeline is getting dry especially for palm and we see some normal rate of palm imports soon.
1 month ago
Anthony Yap
2 months ago
Hi Sudhakar Desai; a) When you foresee India going to revise down Import Duty on Palm? End Year or Next Year? b) How India going to plug the hole of Import palm oils via SAFTA country?
sudhakar desai :
Government seems committed to continue to support oilseed farmers as the domestic production has been stagnant due to unremunerative prices. One has to watch the global price table and its impact on consumer price inflation in India , for the policy focus to change from farmers to consumers. Unless food or edible oil consumer prices becomes an over riding priority in future there is not much pressure to reduce duties atleast rest of this year. Regarding SAFTA if government wants , they may be introduce quota system or strengthen the safta provisions /norms or they might restrict imports like it was done in case of imports from srilanka.
1 month ago
sudhakar desai
2 months ago
Stearine and PFAD prices have also gone up in India consequent to duty hike of CPO. For example today stearine ex factories in India is equivalent of US $ 730 where as FOB indonesia is about US $ 575 . PFAD in India ex factories is selling at US$ 550 ex. So I dont think exports from India is a viable option for stearine and PFAD or fractions. For all palm based products sourcing from malaysia and Indonesia is cheaper due to high import duties in India. thanks
sudhakar desai :
this was the reply to a question below.
1 month ago
Amy
2 months ago
India’s duty change has led India to shift towards CPO import. With rising refining, there is a lot more palm fractions e.g. stearin, PFAD etc. now available in India. Has the price for the palm fraction crash? Can you advise? I am looking at it from the possibility of sourcing some palm based raw materials from India to trade.
sudhakar desai :
Stearine and PFAD prices have also gone up in India consequent to duty hike of CPO. For example today stearine ex factories in India is equivalent of US $ 730 where as FOB indonesia is about US $ 575 . PFAD in India ex factories is selling at US$ 550 ex. So I dont think exports from India is a viable option for stearine and PFAD or fractions. For all palm based products sourcing from malaysia and Indonesia is cheaper due to high import duties in India. thanks
1 month ago
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