26/03/2008 (Lanka Business Online (LBO)) – Sri Lanka based makers of vanaspati ghee or hydrogenated vegetable oil who exported to India under a free trade deal said they faced closure after India slashed duty on imported vegetable oils.
India dropped import duty on palm oil on March 20 in a bid to check rising domestic prices, making Sri Lankan manufactured palm oil based vanaspati no longer competitive, manufacturers said in a statement Wednesday.
"The 14 companies manufacturing and exporting to India under the Indo-Sri Lanka free trade agreement will be compelled to close the factories temporarily until alternative avenues are found for export to other countries," the Vanaspati Manufacturers Association said in a statement.
"The last nail was driven into the coffin for export of vanaspati bakery shortening and margarine to India under the Indo-Lanka Free Trade Agreement by the Customs notification reducing the Indian import duty on crude palm oil and crude palm olein from 45 percent to 20 percent."
Exporters were already struggling with excess capacity after India slapped quotas on vanaspati shipments last year.
This was after Indian vanaspathi makers protested that Sri Lanka based firms were engaging in import duty arbitrage by shipping vanaspathi to India out of raw material that was also imported to Sri Lanka.
With crude palm oil (CPO) prices doubling in recent years and India's cutting import duty on CPO, Sri Lankan exporters say they are being priced out of the Indian market as they no longer have a tariff advantage.
India announced the latest duty cut as part of measures to bring inflation under control.
Sri Lankan vanaspati exporters said they had been able to export only 160,000 metric tonnes of vanaspati, bakery shortening and margarine between April 2007 and March 2008.
This was because Sri Lankan export prices and the local Indian prices were evening out as India reduced some duties and international palm oil prices rose steeply.
"The escalation of the prices of raw materials such as crude palm oil and crude palm olein with effective reduction of Indian import duty made it extremely difficult for the Sri Lankan exporters to compete in the Indian market," the statement said.
The volume of vanaspati shipped from Sri Lanka in the last financial year is less than the 250,000 MT quota allowed by India and far below installed capacity, exporters said.
Loose monetary policy in the United States for more than a decade has fired a real estate bubble in that country and commodity and precious metals bubbles around the world.
A housing bubble has already burst in the US following a few years of tighter policy, but the US again slashed interest rates to help their banking sector giving new life to the commodity and precious metals bubble.
But the US Federal Reserve gave a subtle warning in a March statement that it expected the commodity bubble to also lose steam later in the year.