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Vanaspati cools after edible oil import duty cut

Economic Times, India

Vanaspati cools after edible oil import duty cut

25 March 2008

By Ratna Ganguli, TNN

KOLKATA: The government move on lowering customs duty on edible oils for pushing down its prices has started yielding positive results. On the heels of getting a huge relief from reduced import duty on crude palm oil (CPO) from 45% to 20%, which serves as raw material of vanaspati, vegetable fat producers have slashed their product prices by Rs 4-5/kg.

Concerned with spiralling edible oil price, which among others, is also responsible for driving up inflation, the government has slashed import duty on all crude vegetable oils from 45% to 20% and for refined vegetable oils from 55% to 27.5%, except soya oil, with effect from March 20.

Industry sources said, showing quick response to the reduction in import duty on CPO, vanaspati producers have cut their prices by Rs 30-40 per 15-kg container. With this, a retail consumer is set to get vanaspati at Rs 63-65 per kg than its previous prices of Rs Rs 67-70 per kg.

A top official of Indian Vanaspati Producers’ Association said with base import price of CPO remaining unchanged at $447 per tonne from July 2006, the effective customs duty on CPO now stands at 7.5% in the aftermath of the recent reduction. This is expected to curb cheap imports from Nepal and Sri Lanka, which have done great damage to the local vanaspati industry.

The check on cheaper imports from those two countries is expected to turn around many local vanaspati units, which being unable to face competition from cheaper imports, have been forced to run their plants at 20% of the capacity and help open a lot more closed units too, he added.

The local vanaspati industry, with a capacity build-up of nearly 25 lakh tonne, is well equipped to meet the domestic demand, which is estimated at 12-14 lakh tonne per annum. But facing stiff competition from cheap imports of vanaspati from Nepal and Sri Lanka under free trade agreements (FTAs), capacity utilisation of the domestic industry has now plummeted to 30%.

Under FTA with Nepal, India allows duty-free import of vanaspati up to one lakh tonne a year from that country.

Under FTA with Sri Lanka, the duty-free import quota from that country is pegged up to 2.5 lakh tonne. Moreover, CPO import into those countries has always been duty free against India where import duty on CPO ranged between 89% and 45% from 1997 to March 19, this year. This has put Indian vanaspati always above the prices of imported vanaspati, coming from Nepal and Sri Lanka.