G. Chandrasekhar

Mumbai , Feb. 7

POLITICAL pressure, rather than supportive scientific evidence, seems to have won the day for palm oil importers. This is clear from the unseemly hurry shown by the Ministry of Finance in diluting the carotenoid 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 per million (ppm) carotenoid content. The minimum level has been diluted from the earlier 500 ppm, which is typically found in oil not processed. In addition, the acid value should now be 4 instead of the earlier 2, which means the free fatty acid content should be higher at 2 per cent (instead of one per cent earlier).

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

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

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

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

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

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

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

Closely following the development in this matter, an oil technologist regretted that food laws in this country were often changed without scientific basis. The least the Government could have done was to wait for the report of RRL scientists, he said.

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

Crude palm oil prices have declined to below the psychological level of 1,300 ringgits a tonne, burdened by rising stocks and slowdown in demand.

With Indian importers expected to rush in to make purchases, palm oil producers overseas can heave a sigh of relief that prices would start recovering. It is a win-win situation for Indian importers and palm oil exporters.

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