Vegetable Oil Policy “Make-In India” and Import Tariff

Improved import tariffs on Indian palm oil are estimated to be temporary. India’s palm oil demand continues to grow due to lower middle-class consumption growth

Beginning August 2017 India raises tariffs on palm oil imports. CPO import tariff increased from 7.5 to 15 percent. While for Refine Palm Oil rose from 15 percent to 25 percent. In addition to palm oil, imports of other vegetable oils are also raised. Crude Soybean Oil and Sunflower rose from 12.5 percent to 17.5 percent. The rise in import tariffs on vegetable oil raised questions for Indonesia as the world’s largest producer of palm oil.

India developed 10 types of vegetable oils with an area of ​​about 27 million hectares. India also has 1.9 million hectares (1.9 million acres) of land suitable for palm oil development. But the new embedded about 200 thousand hectares with CPO production of about 180 thousand tons. Despite having 10 types of vegetable oil, with a large population of 1.3 billion people, domestic vegetable oil production is not able to meet its needs (only 30 percent of the demand) so that most (70 percent) are imported. Even India’s dependence on imports is increasing.

In a vegetable oil policy, India adopts a “make-in India” dimension. With this principle, India prioritizes domestic vegetable oil. Therefore, if domestic vegetable oil is harvesting, import tariffs of edible oil are raised to protect domestic vegetable oil farmers. Conversely, if the period of lean, done relaxation of import tariff.

Of course, it is not the same as treating import tariffs for every type of vegetable oil. Vegetable oils whose domestic production is quite large, such as soybean oil and sunflower, import tariffs are relatively high. In August 2017, for example, imports of soybean and sunflower oil increased import tariffs from 12.5 percent to 17.5 percent, lower than CPO tariffs, up from 7.5 percent to 15 percent.

Despite imports, India wants to enjoy added value domestically. Therefore, crude oil tariff (crude) tariff is always lower than import tariff of refined vegetable oil further so that further processing is done in the country. This can be seen from the difference in CPO import tariff (up from 7.5 to 15 percent) with Refine Palm Oil (up from 15 to 25 percent).

Thus, India’s import tariff policy is only short-term and flexible in accordance with the dynamics of domestic production. From the projection of domestic vegetable oil production projection, there is no indication that India will undertake a fundamental import subsitution policy in the long run. Even the long-term trend, India’s dependence on imports of vegetable oils is getting bigger.

Indian palm oil market is still prospective for Indonesia in the future. Therefore, (1) the consumption of Indian palm oil is mostly middle and low income groups with relatively high marginal propensity to consume, (2) the share of palm oil in India’s vegetable oil consumption increased from 29 percent in 2002 to 45 percent in 2015 (3 ) about 50 percent of Indian vegetable oil imports are still palm oil and (4) India’s vegetable oil demand will rise from about 20 million tonnes in 2016 to about 34 million tonnes in 2025.

Because the Indian market is very potential, Indonesia needs to be more proactive to seize the Indian vegetable oil market in various creative ways.

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