Accordingly,edible oil prices are seen sluggish at least till mid-September, despite the temporary jump witnessed last week after the announcement of the import duty hike.

On Wednesday last, Civil Supplies and Public Distribution minister Shanta Kumar announced hike in import duty for RBD palmolein to 44 per cent from around 35 per cent earlier. This step was a day later after the vegetable oil products commissioner MK Kundu issued an order restricting the use of crude palm oil (CPO) only to those vegetable oil manufacturing units equipped with fully captive hydrogen-generation facilities.

These steps sounded like double trouble for CPO producers and exporters of Malaysia who see India as the only major buyer of their mainline product CPO. Little wonder therefore, the palm oil futures on the Kula Lumpur Commodity Exchange (KLCE) have begun sliding.

The July delivery contract which on June 9th was quoted at $1,064 per tonne slipped on June 15 to around $1,015 per tonne. Even the August delivery contract has slid from $1,069 per tonne to $1,025 per tonne. The August delivery contract has plunged to $1027 per tonne from a high of $1,070 on June 9.

On the domestic market, the hike in import duty seems to have lent temporary relief to the sluggish prices. The imported palmolein has jumped from Rs 213 per 10 kg on June 7 to Rs 220 on Thursday; groundnut prices jumped to Rs 410 per 10 kg from Rs 380 on June 7. However, the temporarily rising prices have once again began sliding back on realisation of higher than required stocks.

According to Solvent Extractors' Association (SEA), the main body campaining aggressively for increasing the import duty on edible oil imports, the import of edible oils during May at 363,494 tonnes was up 22 per cent from 288,666 tonnes in April this year. In November 1999, the total edible oil import was placed at 342,313 tonnes.

Traders say, there is more than sufficient stock of edible oils in the country, at least till the next festive season starts from mid-September. "The import duty hike has been a good step whereby the government can raise additional foreign exchange from a commodity that is essential for the country", said IVP Ltd managing director B Mallik. "The duty hike however, may not be curb the imports because the international prices have begun sliding and there is still more room for a further round of duty hike".

In a statement, the SEA president Sandeep Bajoria said: "The increase of 10 per cent import duty is not all adequate to support the domestic farmers and industry and to check the excessive import. We would like to make an appeal to the Government to take next bold step to raise the tariff to maximum permissible limit of 45-100 per cent as per the enabling provisions given to the Finance Minister in the Union Budget and be exercised immediately, as it has been already done in case of wheat, rice & sugar".

While the SEA says it's a welcome step, it may not have the desired impact to check the excessive imports of edible oils and it is likely the exporting countries would further reduce the prices and offset the hike as witnessed last time in December, 1999. Further, the SEA says, the kharif sowing has just started. If oil price remains depressed, it would have serious repercussion on farmers and would totally discourage the farmers to grow oilseeds and also the farmers would use lesser inputs like fertilisers etc. which may also affect the yield. "Due to rising production and low costs, Malaysia has little choice but to cut CPO prices as India is its main market," said a leading edible oil importer.