Mumbai: The domestic vegetable oil market is in a mess following the sudden decision of the government to allow crude oil imports at zero-duty.
No doubt, there has been a steep fall in open market prices of various oils; but there is a standoff between sellers and buyers over settlement of outstanding contracts.
As a result, it is highly likely that the full benefit of the tariff decision may not accrue to consumers.
Sellers and buyers are still haggling over the price at which contracts have to be settled or performed. Many of the importers had pre-sold their imported cargo even before the arrival of the ship, assuming the duty to remain unchanged.
They have reaped windfall gains in the form of complete waiver of customs duty.
They are said to be forcing local buyers (many of them operate on modest scale) to take delivery of the cargo at the contracted price which obviously was much higher than the market rate after March 31.
Buyers contend that the purchase price was based on assumption that the rate of customs duty would not change.
Now that the duty has been withdrawn (and importers do not have to pay any money as customs duty), the contracted price should be marked down correspondingly, they argue. In other words, how to share the money saved on account of customs duty waiver is the point of dispute.
Terms of contract
Edible oil trade is a continuous business, done on the basis of past relationship and trust.
The terms of contract between sellers and buyers are often arbitrary and are generally loaded in favour of large sellers (read, refiners). The sudden decision to scrap customs duty has thrown the trade out of gear.
Large importers are being accused of squeezing small traders. Several trade intermediaries Business Line spoke to confirmed that there was lack of clarity on contract terms, and the parties to the contract were fighting over terms of settlement. A sharp fall in local market pries from April 1 onwards has put most of the local buyers in a defensive position.
Many are reluctant to take delivery of high priced goods as they would end up incurring huge losses because of the price fall. Sane voices within the vegetable oil trade strongly advocate streamlining of the cash market.
They suggest adoption of standard terms of contract for local business, including terms of settlement in the event of revision (upwards or downwards) in customs duty and other taxes.
“Unless the cash market is cleaned up and systematised, consumers may be denied the benefit of duty cuts,” asserted an intermediary.
Price disparity
Meanwhile, local prices have fallen so much that there is today a price disparity of about $40 a tonne (around Rs 1,600 a tonne) between the landed cost of imported oils and domestic market prices. Domestic prices are lower than imported ones.
This has resulted in a slowdown in purchases by Indian importers.
So far, about 60,000 to 70,000 tonnes of oils — comprising 25,000 tonnes of soyabean oil and about 40,000 tonnes of crude palm oil — are reported to have been purchased.
In addition, apprehensions over imposition of storage restrictions are seen putting importers off. A worrisome aspect is that pipeline stocks are depleting. If the disparity continues for some time and Indians do not return to the overseas market, domestic prices may begin to move up.
Once that happens, importers here will all rush abroad to buy oil, which in turn can push international prices up.
Taking stock
New Delhi needs to take cognizance of what’s going on the country’s vegetable oil market. The measures initiated to fight inflation may come to naught if the industry and trade does not work in harmony.
The government can ill-afford to remain indifferent to trade issues in the marketplace.
The derivatives market continues to remain jittery over threat of a ban on futures trading.
There has recently been a lot of pressure on the government by various political outfits to stop online trading in commodities.
Some interest groups are reportedly camped in the capital to stave off the threat.
No doubt, there has been a steep fall in open market prices of various oils; but there is a standoff between sellers and buyers over settlement of outstanding contracts.
As a result, it is highly likely that the full benefit of the tariff decision may not accrue to consumers.
Sellers and buyers are still haggling over the price at which contracts have to be settled or performed. Many of the importers had pre-sold their imported cargo even before the arrival of the ship, assuming the duty to remain unchanged.
They have reaped windfall gains in the form of complete waiver of customs duty.
They are said to be forcing local buyers (many of them operate on modest scale) to take delivery of the cargo at the contracted price which obviously was much higher than the market rate after March 31.
Buyers contend that the purchase price was based on assumption that the rate of customs duty would not change.
Now that the duty has been withdrawn (and importers do not have to pay any money as customs duty), the contracted price should be marked down correspondingly, they argue. In other words, how to share the money saved on account of customs duty waiver is the point of dispute.
Terms of contract
Edible oil trade is a continuous business, done on the basis of past relationship and trust.
The terms of contract between sellers and buyers are often arbitrary and are generally loaded in favour of large sellers (read, refiners). The sudden decision to scrap customs duty has thrown the trade out of gear.
Large importers are being accused of squeezing small traders. Several trade intermediaries Business Line spoke to confirmed that there was lack of clarity on contract terms, and the parties to the contract were fighting over terms of settlement. A sharp fall in local market pries from April 1 onwards has put most of the local buyers in a defensive position.
Many are reluctant to take delivery of high priced goods as they would end up incurring huge losses because of the price fall. Sane voices within the vegetable oil trade strongly advocate streamlining of the cash market.
They suggest adoption of standard terms of contract for local business, including terms of settlement in the event of revision (upwards or downwards) in customs duty and other taxes.
“Unless the cash market is cleaned up and systematised, consumers may be denied the benefit of duty cuts,” asserted an intermediary.
Price disparity
Meanwhile, local prices have fallen so much that there is today a price disparity of about $40 a tonne (around Rs 1,600 a tonne) between the landed cost of imported oils and domestic market prices. Domestic prices are lower than imported ones.
This has resulted in a slowdown in purchases by Indian importers.
So far, about 60,000 to 70,000 tonnes of oils — comprising 25,000 tonnes of soyabean oil and about 40,000 tonnes of crude palm oil — are reported to have been purchased.
In addition, apprehensions over imposition of storage restrictions are seen putting importers off. A worrisome aspect is that pipeline stocks are depleting. If the disparity continues for some time and Indians do not return to the overseas market, domestic prices may begin to move up.
Once that happens, importers here will all rush abroad to buy oil, which in turn can push international prices up.
Taking stock
New Delhi needs to take cognizance of what’s going on the country’s vegetable oil market. The measures initiated to fight inflation may come to naught if the industry and trade does not work in harmony.
The government can ill-afford to remain indifferent to trade issues in the marketplace.
The derivatives market continues to remain jittery over threat of a ban on futures trading.
There has recently been a lot of pressure on the government by various political outfits to stop online trading in commodities.
Some interest groups are reportedly camped in the capital to stave off the threat.
No comments:
Post a Comment