The Hindu Business Line : Govt should procure excess vegoil from importers for PDS

Mumbai, July 8 Caught in the pincer of burdensome stocks and falling prices, many Indian importers of vegetable oils, especially crude palm oil, have sought deferment of import shipments.

According to estimate by some traders, shipments totalling anything between 1.5 lakh and two lakh tonnes have been postponed from June to July and August.

There is belief, some contracts may be sought to be further deferred even beyond August.

Worse, it is feared that such postponement could be a precursor to an eventual default, should domestic prices continue to stay at the current consumer-friendly levels or soften further. “Threat of Indian default looms large,” a worried supplier told Business Line.

Large-scale defaults

Almost exactly a year ago, many Indian importers had committed large-scale defaults following a global price collapse, seriously upsetting overseas suppliers some of whom lodged complaints with the Government. Many Indian importers found their names on the watch-list.

Latest reports from the Far-East suggest that palm oil suppliers are bracing themselves for any eventuality. Inventory in Malaysia and Indonesia is beginning to burgeon. The combined inventory level could soon touch 50 lakh tonnes, according to some estimates. Combined with satisfactory prospects for soyabean crop in the US and recent decline in crude, the upside risk to vegoil prices is extremely limited.

Currently, unsold stocks of imported oils in India are estimated to be over 10 lakh tonnes. This is part of over 55 lakh tonnes imported into the country between November 2008 and June 2009, representing a whopping 15 lakh tonnes of additional import volume as compared with the same period previous year. Palm group of oils account for close to 50 lakh tonnes of total imports.

Soaring tank rentals

Storage tanks across the country are overflowing with imported oils. Tank rentals said to be soaring. Domestic demand is sluggish because of seasonal factors. Importers who had pinned their hopes on the Union Budget to bail them out (by re-imposing Customs duty on crude oils) are a truly worried lot today.

Huge carrying costs – storage, interest and incidentals – are incurred in nursing unsold stocks. Open market prices are turning soft. The value of excess inventory of imported oils at present is an estimated Rs 5,000 crore.

The Finance Minister showed enough foresight and gumption in maintaining status quo on edible oil duties. He did not succumb to lobby pressure.

He surely had in mind that the kharif crop prospects are far from satisfactory.

There is also a clear build up of an inflationary environment going forward. Food products are going to be expensive. Krishi Bhawan has to be on guard.

To protect the interests of the aam aadmi, the Government should organise supplies of cooking oil and pulses through the public distribution system, if need be at a subsidised price.

In the event, instead of asking State agencies such as STC and MMTC to undertake fresh imports (which will be additional), it would make sense for the Government to procure imported oil from the private trade here. New Delhi should start a dialogue with trade representatives for procuring imported oil at a scientifically determined price.

Such a move would be advantageous because it would help importers liquidate excess stocks while the Government will have ready access to goods already at home to meet the rush of festival demand. It is worth a try.

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