Nepal’s palm oil exports to India could suffer as the southern neighbor cut tariffs on crude palm oil from 7.5% to 5% to lower oil prices edible oil ahead of national elections, according to traders in Nepal.

“With India’s reduction of import duty, it is no longer financially possible for Nepalese traders to export refined palm oil to India,” Ratan Lal Kedia told the Post. , vice president of the Nepal Vegetable Ghee and Oil Manufacturers Association.

“We expect refined palm oil shipments to India to fall to zero after its new policy.”

The world’s largest importer of edible oils has reduced import duties effective Feb. 13 in a bid to control local prices and give a boost to domestic refiners.

According to Reuters, the reduction in the tax, known as Cess for Agricultural Infrastructure and Development (AIDC), will make importing crude palm oil cheaper for Indian refiners.

This policy is catastrophic for Nepalese refiners who, reveling in tariff exemption privileges, import crude palm oil and export the processed product to India.

Tariff exemptions on Nepalese exports to India under the South Asian Free Trade Area agreement give an advantage to domestic traders. Countries outside South Asia face tariffs of 54% on palm oil and 45% on soybean oil.

According to the World Bank’s Nepal Development Update in December 2019, Nepal took advantage of this arbitrage opportunity and significantly increased exports of both commodities – palm oil and soybean oil.

After the reduction of the AIDC, the difference in import tax between crude palm oil and refined palm oil would increase to 8.25%, according to the report.

“Exports of refined palm oil have fallen 5% in recent days and traders are exporting their unsold stocks,” Kedia said.

According to the association, there are 20 soybean, sunflower and palm oil refineries in the country.

“As a result of the policy change in India, the production capacity of these factories will drop to 20%,” Kedia said.

According to the Trade and Export Promotion Center, Nepal exported 153,133 tonnes of palm oil worth Rs 31.97 billion in the first six months of the current fiscal year ending mid -January, making it the country’s second largest export after processed soybean oil.

Shipments of processed palm oil to India in the first half of the fiscal year accounted for 26.90% of Nepal’s total exports.

Nepal imported 207,957 tons of crude palm oil worth Rs 27.49 billion in the first six months. The government collected 1.79 billion rupees in import duties on crude palm oil, which is mainly imported from Indonesia, Malaysia and the Philippines.

India’s combined palm oil and soybean oil exports hit 68.66 billion rupees in the first six months, raising hopes of breaking the 100 billion rupees mark by the end of the year. end of the exercise.

In the financial year 2019-2020, palm oil became Nepal’s top export product although the country does not produce a drop of it. Exports of processed palm oil reached a record 18.31 billion rupees in just one year.

The huge flow of edible oil from Nepal to India has prompted the southern neighbor to only allow license holders to import it in a bid to control cheap imports and protect the domestic industry.

Subsequently, Nepal’s processed palm oil exports to India fell by nearly 99% to Rs 443,000 in FY 2020-21.

But Nepali traders have not stopped exploiting loopholes in trade preferences. Soybean oil exports then surged to the top, knocking palm oil out of the top spot, as traders changed tack to continue exploiting preferential trade loopholes after the Indian government cut imports of palm oil.

In the last fiscal year, shipments of processed soybean oil to India reached 56.65 billion rupees, a sharp rise from 12.69 billion rupees previously.

Exports continued to soar. In the first six months of the current financial year, Nepal shipped soybean oil worth Rs 34.26 billion.

The World Bank has said trade in edible oils taking advantage of trade preferences is unsustainable.

Trade experts had warned that the business could collapse at any time because Nepalese exporters failed to meet the conditions for preferential treatment.

The South Asia Free Trade Area Agreement, to which Nepal is a party, stipulates that goods of preferential origin can be imported and re-exported with lower or zero duty rates if conditions are met. fulfilled.

For Nepalese exports to India to be eligible for tariff exemptions under this treaty, the imported goods must have a value added of at least 30%. Nepalese trade experts said Nepalese traders do not meet the 30% value addition requirement.

“Exports will only be sustainable if factories use domestic raw materials,” said former commerce secretary and trade expert Purushottam Ojha.

“An industry based mainly on imported raw materials with little added value will not last, and it is bound to collapse one day as commodity prices are volatile globally,” Ojha said.

“Countries like India continue to change their trade policies by increasing and reducing import duties and other tax provisions to benefit their refiners,” he said.

In 2002-2003, Nepalese exports of vegetable ghee increased tremendously, but when the Indian government lowered import duties, shipments from Nepal ceased altogether.

India, in its recent budget statement, said it would reduce duties on edible oil due to a sharp rise in the world price, a major driver of inflation.

Indian refiners have asked New Delhi to change the import duty structure as it is cheaper to import refined palm oil than crude palm oil due to higher taxes imposed by countries producers on gross product, according to Reuters.

India imports more than two-thirds of its edible oil needs and has struggled to contain a rise in local oil prices in recent months.

About The Author

Related Posts