Palm oil boycott latest woe for producers

Palm oil boycott latest woe for producers

NEW DELHI (Dow Jones): Southeast Asian palm oil producers, faced with record high stock levels and depressed prices, may yet receive another blow.

An ongoing campaign to boycott imported palm oil in the Indian state of Kerala is finding popular support.

Kerala consumes predominantly coconut oil, not quite palm oil's substitute. But the campaign, once spread to other parts of India will hurt palm oil, in favor of other vegetable oils that are easily available, industry participants said.

"Kerala is a small state and palm oil consumption there is not significant because it also has coconut oil. But if the campaign spreads to other parts, it could have an impact on (palm oil) prices," said M.R. Chandran, chief executive of the Malaysian Palm Oil Association in Kuala Lumpur.

Crude palm oil for spot delivery was offered at 840 ringgit (about US$220) a metric ton in Malaysia Thursday. Malaysian CPO prices fell to a seven-year low of 785 riggit /ton late last month, after averaging 1,451 ringgit/ton in 1999.

The "boycott-palm oil" campaign seems to be catching the fancy of growers, traders and officials keen to support the sagging domestic vegetable oil prices ahead of the harvesting season beginning November.

In an opinion poll last week, www.deepika.com, the Internet edition of a local language daily in Kerala asked its readers if the state should boycott palm oil to boost demand for locally produced coconut oil.

About 83 percent of the respondents said yes, while only 14% were against. The remaining 3 percent didn't have an opinion.

The "boycott-palm oil" campaign is gaining momentum in Kerala.

Late last week, Kerala's provincial government said it was stopping distribution of palm oil through state-run public distribution outlets once current stocks are cleared.

Private traders have offered to stop the sale of palm oil if the state government stopped selling it through its outlets.

A coordination council of private traders in the state has now asked all its members to boycott palm oil. They have declared four districts in the states "palm oil-free" from Nov. 1.

India is the largest importer of palm oil from Malaysia and Indonesia, the two leading producers in the world.

According to cargo surveyor Intertek Testing Services, India imported 1.66 million tons of palm oil from Malaysia during January-October, out of Malaysia's total export of 7.63 million tons. Pakistan, the second largest importer this year, was a distant number two importing only about 880,000 tons.

Although independent estimates of palm oil imports from Indonesia aren't available, Indian importers say the quantity coming in from Indonesia is equally high.

Such large scale imports of palm oil have led to pressures from the domestic vegetable oil producers. They have lobbied for import taxes to be raised to help local farmers.

The move to boycott palm oil comes at a time when there is already speculation that the Indian government is ready to raise import taxes on vegetable oils, following the end of a long festival season.

The government's response to demands from the local industry to raise edible oil import taxes has been "positive," said Sandeep Bajoria, president of the Solvent Extractors Association of India.

In the run up to Diwali last week, the government resisted pressure from vegetable oil farmers and traders to raise taxes as it feared higher seasonal demand may push up prices and the already high inflation levels.

"Experience shows that once (ministers) start speaking (in favor of a tax increase), it happens in a month or two," says V.K. Mohata, director of Malwa Vanaspati & Chemical Co. in Bombay.

Indian Agriculture Minister Nitish Kumar recently told the Parliament that higher taxes on edible oil imports were needed to protect local oilseed growers.

During a press conference in New Delhi, Indian Food Minister Shanta Kumar also said his ministry is examining the effectiveness of the current import taxes on vegetable oils with a view to raise them.

India raised vegetable oil import taxes twice over the past 12 months, but growers and traders said the current taxes are far from sufficient.

To "check cheap imports" import taxes on refined vegetable oils were raised to 38.5 percent from 27.5 percent June 12, 2000. This followed another increase to 27.5 percent from 16.5 percent Dec. 30, 1999. Also, the import tax on most crude vegetable oils was raised to 27.5 percent from 16.5 percent June 12.

If edible oil taxes aren't raised further to support local prices, India's oilseed output will fall in the coming seasons, they said.

"Higher taxes are required now. Farmers are not getting adequate prices for their produce and will become disinterested in growing oilseeds. If that trend catches on, we will be forced to import even more," says Bajoria of the Solvent Extractors Association.

India's oilseed output has already fallen to 19 million metric tons in the 1999-2000 fiscal year ended March 31, from a peak of 21 million tons in the fiscal year 1994-95, the Association said.