Is India’s Tariff Gamble the Big Break for Local Refiners and Farmers—But Can They Deliver?

Globoil Post offers an in-depth look at India’s recent decision to raise import duties on edible oils. The move is aimed at boosting domestic production and protecting local farmers, but will the industry be able to adapt quickly enough to meet the nation’s growing demand? Here’s how the industry’s biggest players are preparing for the shift.

1) The recent increase in import duties on edible oils has been a significant move by the Indian government. How do you see this impacting domestic oilseed farmers and the broader edible oil industry, especially considering the balance between protecting local agriculture and ensuring consumer affordability?

The recent hike in import duties on edible oils is a strategic move by the Indian government aimed at boosting the domestic oilseed industry while reducing the country’s reliance on imports. 

‍According to a government notification, the import duty on crude palm, soybean, and sunflower oils will rise from 0% to 20%, while the duty on refined versions of these oils will increase from 12.5% to 32.5%. As a result, the effective duty, including the agriculture infrastructure and development cess, will increase from 5.5% to 27.5% for crude oils and from 13.75% to 35.75% for refined oils.

‍Here's how this policy might impact different stakeholders:

1. Domestic Oilseed Farmers: The increased import duty should provide a protective shield for domestic oilseed farmers, particularly those cultivating sunflower, soya bean, and palm. By making imported oils more expensive, the government is encouraging local processing and production, which could lead to higher demand for domestic oilseeds. This may result in better prices for farmers, improving their income levels and incentivizing increased production. Additionally, the move aligns with the government’s broader vision of self-sufficiency in agriculture, supporting the ‘Atmanirbhar Bharat’ initiative.

2. Edible Oil Industry: For the domestic edible oil industry, the higher tariffs could offer a dual benefit. On the one hand, it provides an opportunity for local processors to expand their operations due to the expected increased demand for locally produced oils. On the other hand, companies dealing in imported edible oils will face challenges, as their cost structures will be impacted by the higher duties. Companies might need to shift their focus towards sourcing more from domestic producers, which could, in the long run, reduce the volatility caused by fluctuations in global edible oil prices.

3. Consumer Affordability: While the move protects farmers and stimulates local production, consumers are likely to feel the pinch. With higher import duties, edible oil prices in the retail market could rise, adding to the burden of food inflation. This could be a particular concern in a country like India, where edible oils are a staple commodity for most households. The government will need to balance this by ensuring that the domestic production scale increases enough to meet demand without causing a significant spike in prices. Temporary measures like subsidies or price caps might be required to cushion consumers in the interim.

4. Long-term Market Dynamics: In the longer term, this policy could help in reducing India’s dependency on edible oil imports, which account for nearly 60% of its consumption. However, the key challenge will be to increase oilseed productivity and make domestic cultivation competitive with global markets. Investments in R&D, better seed varieties, and infrastructure for oilseed farming will be crucial for making this transition successful. The agriculture infrastructure and development cess on these oils could also support investments in supply chain improvements.

2. With the current changes in duties on crude palm oil and refined products like RBD Olein, what strategies should Indian refiners adopt to stay competitive?

With the recent increase in duties on crude palm oil and refined products like RBD (Refined, Bleached, and Deodorized) Olein, Indian refiners will need to adopt several strategies to stay competitive and mitigate the risks posed by increased cost of imports.

Key Strategies for Indian Refiners:

1. Focus on Efficiency and Cost Reduction: Indian refiners should prioritize operational efficiency to reduce production costs and improve margins. By optimizing energy usage, reducing wastage, and investing in modern refining technologies, they can offset the increased costs associated with the higher duties on crude palm oil. This will allow them to maintain competitiveness.

2. Diversification of Feedstock: Refiners could look to diversify their sources of crude edible oil by increasing the use of domestic oilseeds. This can reduce their dependency on imported crude palm oil and improve supply chain resilience. The government's policy changes are aimed at boosting domestic oilseed production, and refiners can capitalize on this shift by developing stronger relationships with local oilseed farmers.

3. Upgrading Product Mix: Refiners should explore expanding their product mix beyond just refined edible oils. By producing higher-margin by-products such as oleochemicals, biodiesel, and other value-added products, they can boost profitability and hedge against the volatility in refined oil prices. Differentiating products for specific market segments, such as healthier cooking oil options, can also open up new market opportunities.

4. Collaboration with Farmers and Supply Chain Stakeholders: Working more closely with oilseed farmers through contract farming, providing better inputs, and supporting them with technology can ensure a steady supply of domestic crude oil. This would also support the government's goal of self-sufficiency and reduce the reliance on imports. Integrating more deeply with the domestic value chain will also help refiners insulate themselves from international market fluctuations.

3. Indonesia’s plans to reduce duties on Olein more than on crude palm oil could create further challenges for the Indian refining sector. What role do you believe India should play in global edible oil trade policy to protect local industries while maintaining its position as one of the largest importers?

If Indonesia reduces duties on RBD Olein more than on Crude Palm Oil (CPO), it could exacerbate the challenges faced by India's refining sector. This disparity would make refined products more competitive in India, increasing imports of refined oils while discouraging domestic refining activity. To address this, India must play a proactive role in global edible oil trade policy to protect its local industries, while balancing its position as one of the world's largest edible oil importers.

Here are key strategies India could pursue:

1. Strengthening Domestic Oilseed Production: To reduce its reliance on imports, India needs to accelerate the production of domestic oilseeds, such as sunflower, mustard, and soybean. Programs like the National Mission on Edible Oils – Oil Palm (NMEO-OP) aim to increase domestic oilseed production, but India should also invest in R&D for high-yield seeds, farmer education, and infrastructure to make local production more cost-competitive. In doing so, India can reduce the pressure from global price fluctuations and protect its refining sector.

2. Tariff Revisions to Maintain Duty Differentials: India should maintain or even widen the duty differential between crude and refined oils to encourage local refining. If Indonesia lowers its export duties on RBD Olein, India may need to adjust its import duties on refined oils to ensure that importing crude oils for refining remains economically attractive. By implementing such tariff adjustments, India can protect domestic refiners from being undercut by cheaper imports of RBD Olein.

‍3. Diversifying Import Sources: India can reduce its overreliance on Indonesian and Malaysian palm oil by diversifying its edible oil import sources. Expanding trade and captive production partnerships with countries producing other vegetable oils like sunflower and soybean oil (e.g., East Africa and Latin America) will provide flexibility and reduce vulnerability to policy changes in palm oil-exporting nations.