Impact of Customs Duty Hike on Edible Oils and Coconut Oil Prices

The recent rise in customs duty on edible oils by 20%, announced on September 13, 2024, has caused a significant ripple in the market. The government’s decision aims to ensure better prices for local farmers producing oilseeds like soybean, palm, and sunflower. However, this move has also triggered a sharp rise in retail prices for imported oils, which has immediate consequences for consumers and businesses alike.

According to V. Krishnamoorthy, Secretary of the Madurai Oil and Oil Seeds Association, prices of palm oil and sunflower oil have increased sharply in retail markets, rising from ₹90 to ₹110 per liter for palm oil and from ₹105 to ₹130 for sunflower oil. These oils are vital for households, eateries, and bakeries, and their price hike will undoubtedly affect daily food costs.

In response to this, the central food ministry has urged edible oil companies to maintain retail prices until existing stocks, imported before the duty hike, are exhausted. Approximately 3 million tons of edible oil, imported at a 0% to 12.5% duty rate, are expected to last for 45-50 days. The ministry has requested companies to avoid increasing prices until this stock is depleted, helping to buffer consumers from immediate price shocks.

Coconut Oil Price Impact

Although coconut oil is primarily produced domestically and not directly impacted by the customs duty hike, it is not entirely immune to the consequences of the price surge in other edible oils. As imported oils become more expensive, demand for alternatives like coconut oil may increase, potentially driving up its price in the domestic market. Coconut oil has already experienced a sharp increase in prices following the announcement of the duty hike, highlighting its sensitivity to shifts in the broader edible oil market.

Supporting Domestic Farmers

Union Agriculture Minister Shivraj Singh Chouhan explained that the increased import duties are designed to ensure better prices for Indian farmers, especially those producing oilseeds like soybean. By raising the import tax to 27.5% (including cess), the government aims to counter the downward pressure on domestic oilseed prices caused by cheaper imported oils. This move is expected to benefit farmers but comes at the cost of higher prices for consumers.

Looking Forward: Demand and Imports

Despite the rise in prices, demand for edible oils in India is expected to remain robust, with consumption projected to grow by 2%-3% due to the country’s rising population and improving economic conditions, according to a Reuters report. Sanjeev Asthana, CEO of Patanjali Foods, views the import duty increase as a positive step for farmers, as it supports local oilseed prices.

India, being the largest importer of vegetable oils globally, sources approximately 70% of its edible oil needs from international markets. Palm oil, primarily imported from Indonesia, Malaysia, and Thailand, is expected to continue dominating the market, with imports projected to increase to between 9 and 10 million metric tons in the 2024-25 period. Meanwhile, soyoil imports are forecasted to remain stable at around 3 million tons.

Conclusion

While the customs duty increase helps support domestic oilseed farmers, it has led to a sharp rise in edible oil prices including Coconut Oil, affecting both households and businesses. Although coconut oil prices have been less impacted by the import duty hike, the overall market dynamics could cause further price increases in the near future. Consumers, especially those relying on imported oils, must prepare for price adjustments as the new import duties take effect, while domestic oil producers may benefit from the protectionist measures.