Centre set to stock up cooking oil.

NEW DELHI: India is once again planning to beef up its public stocks of imported cooking oil amid concerns that a weak monsoon could affect sowing of key oilseeds and force prices to creep up in the coming festival months.

According to a fresh proposal before the Cabinet, the government plans to ask state-owned trading companies—STC, MMTC and PEC—to import up to 1 million tonnes over the next one year, said a food ministry official on condition of anonymity.

There is concern within the government that poor rainfall could hit sowing of two major kharif oilseeds—soyabeans and groundnut—in Madhya Pradesh, Maharashtra and Gujarat, which could lower the availability of indigenous oil that usually acts as a cap on imports and reduces India’s dependence on cooking oil from Malaysia, Indonesia and Brazil.

Although the move, which could see the government selling oil in one-litre packs through ration shops to families below the poverty line, will be consumer-friendly at a time inflation of food items stays stubbornly high at around 10%, it may depress margins for large private sector players in the vegetable oils business.

These businesses are banking on rising local prices to make money in an area that traditionally works on wafer-thin margins of just around 2%.

The government’s planned intervention involves the three state-run trading companies importing crude palm oil, the world’s cheapest oil, refining it and getting it packed locally for sale to state governments, which in turn will deliver it to ration shops. For this, the central government is willing to pay a subsidy of Rs 15/kg to make good any losses that these companies incur while selling the oil to states.

This is the second time the central government has shown willingness to supply cooking oil through ration shops. An earlier scheme for importing 1 million tonnes of oil, which began in April 2008, had to be dropped midway due as a decline in international cooking oil prices made it affordable for consumers in the open market.

“Only 3.6 lakh tonne oil was imported under the earlier scheme despite a sanction for 10 lakh tonne, because states were unwilling to place orders with PSUs. But if prices again zoom in the coming months, consumers may return to ration shops for cooking oil,” the official said.

Although the government may be concerned about food inflation, neither private companies nor government-owned trading companies are likely to appreciate the move.

If the government starts supplying oil at below-market prices to ration shops, diversion of demand and leakage of subsidised oil into the open market would tend to depress the entire price table and also discourage private importers from placing contracts, said a trader at a Mumbai-based cooking oil company.

Currently, crude palm oil is available at Indore for around Rs 35/kg while refined palmolein is available for Rs 40.50/kg plus VAT. At these prices, cooking oil is still fairly affordable for most families.

Source : The Economic Times