20/10/05 Mumbai , (Business Line) - Soyabean oil imports into thecountry have displayed a significant spurt this year with arrivalsincreasing by over 100 per cent from last year.

Imports expanded to 18.2 lakh tonnes (1 million = 10 lakh) (lt) duringthe first 11 months of the current oil year from November 2004 toSeptember 2005 compared with 7.2 lt during same period last year.

It is projected to touch a record 20 lt by October 2005, representing 40per cent of the country's total imports for 2004-05, up from about 20 percent, that is 9.0 lt out of total arrival of 44 lt in the previous year.

This phenomenal increase is notwithstanding the fact that soyabean oil isexpensive by as much as $100-120 a tonne than substitutes such as palmoil. Many believe imports have doubled merely because the rate of customsduty on soyabean oil is at a relatively low WTO-bound rate of 45 per centwhile crude palm oil bears 80 per cent.

In reality, imports have expanded because of the relatively highprofitability of importing soyabean oil. Analysis of landed cost ofsoybean oil (including import related expenses and customs duty) andmarket price (ex-port) shows that import of this particular oil has beenprofitable vis-à-vis other oils in the last six months.

Soya oil imports have brought in assured profit of anything between Rs2,000 and Rs 3,000 a tonne for importers, quick calculations of costs andprices of last six months show. It is high profitability that hasencouraged larger imports. In addition, huge refining capacities createdin the country following tax breaks given by the Government are alsoforcing larger imports as refineries have to remain operational.

One of the negative fallouts of large import of this oil has been therampant adulteration of soya oil with sunflower oil, which is a premiumproduct. Because of low import volumes, sunflower oil is about Rs 10,000 atonne more expensive than soyabean oil. This has provided facileopportunity for adulterators to blend soyaoil with sunoil, and palm offthe mix as premium sunoil.

On the other hand, palm oil group of oils are rapidly losing their marketshare in India because of poor profitability. Importers complain that onoccasions the margins on palm oil turn negative. One of the major issuesin crude palm oil import is the disposal of stearine that is produced as aby-product when the refined palm oil is fractionated to produce refinedpalmolein.

Concerned over shrinking share of the Indian market, palm oil producershave been seeking a level playing field with soyabean oil in terms of therate of customs duty. Given that palm oil is cheaper than soyabean oil byabout $100 a tonne, either a lowering of customs duty on palm oil or ahike in duty on soyabean oil would provide solid support to palm oil inthe Indian market.

Demand for restricting soyabean oil import has already begun to do therounds not only in industry circles, but also among government, primarilybecause unrestrained imports are seen hurting domestic soyabean and oilmarket. India is world's fifth largest producer of soyabean.

Also, not only is the foreign exchange outgo higher on soyaoil importbecause of high price, but also revenue generation (customs duty) is lowerbecause of lower rate of duty.

The Government has not been able to successfully renegotiate a higherbound rate of customs duty for soyabean oil. Obviously, some non-tariffmeasure may be necessary to curtail its imports. Imposing restriction onsoyabean oil produced out of genetically-modified (GM) soyabean could beone way to address the issue.

Business Line first raised this issue more than two years ago, butpolicymakers have remained unmoved. There is something for the IndianGovernment to learn from European Union legislation regulating import ofGM products including vegetable oil.