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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani


Business Line



Flip-flop on edible oil policy
Mumbai , Feb. 7 - POLITICAL pressure, rather than supportive scientificevidence, seems to have won the day for palm oil importers. This is clearfrom the unseemly hurry shown by the Ministry of Finance in diluting thecarotenoid condition.

The move has implications not only for revenue, but also consumer welfare.From now on, to be eligible to be charged at 65 per cent customs duty,crude palm oil consignments will be tested for a minimum of 250 parts permillion (ppm) carotenoid content. The minimum level has been diluted fromthe earlier 500 ppm, which is typically found in oil not processed. Inaddition, the acid value should now be 4 instead of the earlier 2, whichmeans the free fatty acid content should be higher at 2 per cent (insteadof one per cent earlier).

Interestingly, crude palm oil imports from now on would be restricted. Anew "actual user" condition has been imposed for importers to be eligibleto clear cargo at 65 per cent duty. The move will boost the fortunes ofIndian importers who run refineries. They will now pay lower rate of dutyon their crude palm oil consignments.

Earlier, imported goods not conforming to the minimum 500 ppm carotenoidcondition were treated as "other than crude" and charged 75 per centcustoms duty. From now on, almost all consignments will be cleared at 65per cent duty. This is a windfall for refineries that are sure to exercisegreater control over the domestic edible oil market, and a blow tomerchant-importers, who would not be eligible to avail themselves of lowerrate of duty.

Whether the benefit of lower duty (following dilution of qualitycondition) would be passed on to consumers or pocketed byimporters-refiners remains to be seen. Importers had lobbied rather hardfor several months to get the carotenoid condition waived or diluted.There is nothing to suggest that the Finance Ministry has amended thequality condition based on any scientific evidence contrary to its earlierstand. It is ironical that the Department of Revenue which imposed thecondition a year-and-a-half ago has now chosen to dilute the qualityspecification even without waiting for the report of the delegation ofscientists from the Thiruvananthapuram-based Regional Research Laboratorythat recently returned from Indonesia after a fortnight's study tourcovering palm oil production, processing and handling.

The scientists are yet to analyse samples of palm oil consignments andprepare and submit a report to the Government on the content andcharacteristics of carotenoid in palm oil.

It is widely believed that tremendous political pressure was brought onthe Finance Ministry to amend the quality condition.

The stipulation of minimum carotenoid content in crude palm oil (500 partsper million) was imposed by the Finance Ministry on August 1, 2003 inresponse to reports that several Indian importers indulged inmisdeclaration of cargo quality to avail themselves of the concessionalrate of 65 per cent customs duty on crude palm oil. In many cases, theimported goods were suspected to be not crude, but processed oil.

While carotenoid condition for crude palm oil has been diluted, that forcrude palmolein has been maintained at the previous level of 500 ppmminimum. This is an anomalous situation because, per se, crude palmoleinis nothing but the liquid fraction of crude palm oil.

Closely following the development in this matter, an oil technologistregretted that food laws in this country were often changed withoutscientific basis. The least the Government could have done was to wait forthe report of RRL scientists, he said.

The latest move is likely to prove a bonanza for the Malaysian palm oilmarket, which has been reeling under a severe downward price pressure forseveral weeks.

Crude palm oil prices have declined to below the psychological level of1,300 ringgits a tonne, burdened by rising stocks and slowdown in demand.

With Indian importers expected to rush in to make purchases, palm oilproducers overseas can heave a sigh of relief that prices would startrecovering. It is a win-win situation for Indian importers and palm oilexporters.