Impact of India’s Higher Import Duties on Oils Effective September 14: How Farmers Will Benefit

On September 14, 2024, India will introduce a new duty structure on crude and refined oils in an effort to protect domestic farmers from the adverse effects of falling oilseed prices. The Ministry of Finance has announced higher import duties on key edible oils such as soybean, sunflower, and palm oil. This decision comes at a critical time, as recent market data has shown a dramatic price deflation in refined oil, which has been steadily falling for over a year. The move is part of the government’s larger strategy to shield local farmers who are grappling with lower income due to declining oilseed prices.

India is one of the world’s largest consumers and importers of edible oils, relying on external sources to meet more than 70% of its oilseed demand. Until now, the country maintained lower import duties to ease the financial burden on consumers, particularly during periods of heightened global commodity prices. However, this led to unintended consequences for the agricultural sector. The sharp drop in the prices of refined oil triggered a substantial rise in imports, particularly palm oil. In the first six months of 2024, palm oil imports shot up by 30% in volume, a significant jump compared to the same period in 2023. Similarly, imports of other oils, such as sunflower seed, safflower, and cottonseed oil, surged by 55% over the same time frame.

In response, the government has raised the basic customs duty on crude oils like soybean, sunflower, and palm oil from a previous rate of zero to 20%. In the case of refined oils, the new duty stands at 32.5%, up from 12.5%. This increase is expected to make imported oils more expensive, giving domestic producers an edge in the market. With these adjustments, the effective duty now stands at 27.5% for crude oils and 35.75% for refined oils, compared to the earlier rates of 5.5% and 13.75%, respectively. By making imports less attractive, the government hopes to create better market conditions for local farmers, ensuring they receive fair prices for their oilseeds.

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The decision to raise duties is primarily a response to the surge in imports that followed the price drop in the international markets. Indian consumers had benefited from lower oil prices, but this came at a significant cost to domestic producers. The deflation in the refined oil sector reached 4.6% in August 2024 alone, which led to fears that domestic oilseed prices could drop even further if action wasn’t taken.

Domestic farmers have been the most affected by this trend, as oilseed prices have remained stagnant or declined due to the surge in cheaper imports. Farmers in India depend heavily on the production of oilseeds, particularly in states like Maharashtra, Madhya Pradesh, and Gujarat. The increased competition from foreign oils has made it difficult for these farmers to sell their products at profitable prices. The government's new import duty structure is expected to give them some much-needed relief.

This policy shift also aligns with broader efforts to increase oilseed cultivation in the country. As of September 12, oilseed sowing has grown by 1.2%, with the total acreage under cultivation reaching 19.2 million hectares. This increase in oilseed production is seen as a positive step toward reducing India’s reliance on imports. By curbing the flow of cheaper imported oils, the government hopes to create a stable and supportive environment for farmers to expand their production.

In addition to raising import duties, the government has taken other steps to support farmers in the agricultural sector. For example, it has removed the minimum export price limit on onions, a measure that is expected to boost exports and benefit farmers, especially in states like Maharashtra. This policy change is significant as Maharashtra is preparing for elections later this year, and ensuring the financial well-being of its farmers is a top priority.

The government’s efforts to balance the needs of both consumers and producers have been a central part of its agricultural policy in recent years. By adjusting import duties on oils, the government aims to protect farmers from the negative impacts of global market fluctuations while maintaining stable prices for consumers. However, some critics argue that these measures could lead to higher prices for consumers in the short term. Still, the long-term goal remains to build a more self-reliant agricultural economy where farmers can thrive without relying heavily on imports.

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India’s decision to raise import duties on oils is just one of many policy changes in the agricultural sector aimed at supporting farmers. With oilseed production on the rise and import duties adjusted, the government is working to create a sustainable environment where both farmers and consumers can benefit. Time will tell whether these measures will be enough to address the challenges faced by India’s farmers, but for now, it’s clear that the government is taking proactive steps to ensure their long-term prosperity.

[Disclaimer: The information provided in this blog is based on current policy changes and market trends as of September 2024. The data mentioned is subject to change, and readers are advised to verify the facts before making financial or business decisions.]