Edible oil refinery capacity rises on import duty hike

Indonesia seeks trade pact to protect interest of palm oil intermediaries

The average operating capacity of domestic edible oil refineries has increased by 15 per cent in the past two months following an increase in the import duty on crude and refined oil.

The average operating capacity of domestic edible oil refineries had declined to 30 per cent in August, rendering their operations unviable. With the increase in the import duty on crude palm oil (CPO) and refined, bleached and diodised (RBD) palmolein to 15 per cent and 25 per cent from 7.5 per cent and 15 per cent, respectively, the average operating capacity of domestic edible oil refineries has risen to 45 per cent.

Imported crude oil is refined in local refineries and creates jobs here. By contrast, imported refined oil is packed without value addition, which leads to idling of refining capacity.

“The import of crude edible oil has increased by 15 per cent in September. This means the average refining capacity utilisation of edible oil mills has risen by 15 per cent after the increase in import duty on CPO and RBD in August,” said an industry executive.

The Solvent Extractors’ Association (SEA) estimates India’s import of crude edible oil in September at 1.24 million tonnes, 15.88 per cent higher than the 1.07 million tonnes in August. By contrast, import of RBD declined marginally to 261,907 tonnes in September from 264,125 tonnes in August. The share of crude edible oil in India’s vegetable oil imports, at 1.5 million tonnes, in September increased by 3 percentage points to 83 per cent from 80 per cent in August.

Indonesia is planning to raise its CPO exports to India, in addition to other commodities, to compensate for the estimated decline in its exports to other countries. While announcing Indonesia Connecting Business, a three-day trade fair scheduled to be held at the World Trade Centre here from November 3, Saut Siringoringo, Indonesian consul-general in Mumbai, said, “While we want to diversify our bilateral trade with India in favour of tourism, traditional handicraft, jewellery, wooden and rattan furniture, we would like to increase palm oil exports to India, the world’s largest buyer of cooking oil.”

With around 32 million tonnes of annual output, Indonesia is the world’s largest producer of palm oil, of which the country exports around 84 per cent. In $10 billion of annual bilateral trade, to which crude oil comprises 30 per cent, Indonesia’s share stands at 75 per cent and India’s at 25 per cent. India imports around 8 million tonnes, half of its annual vegetable oil imports, largely as CPO from Indonesia.

“The government will take appropriate actions to avert a negative impact of India’s higher import duties on Indonesian palm oil shipments. But the actions will not lead us to jeopardise our good trade relations with India,” said Enggartiasto Lukita, Indonesian trade minister, without specifying the types of action being contemplated.

Sahat Sinaga, executive director of the Indonesian Vegetable Oil Refiners Association (GIMNI), has urged the local government to retaliate against India’s import duty hike with an increase in export duty. He further said Indonesia could decide not to purchase palm production machines from India. Indonesia is seeking a preferential trade agreement with India to protect the interest of local palm oil intermediaries.

Cheap imports of both CPO and RBD have led to around 2.5 million tonnes, nearly 20 per cent of India’s annual output, of soybean remaining uncrushed. This year, farmers have shifted to more remunerative crops, resulting in estimates of a lower soybean output.