Edible oil price rise

Context: 

• The Centre’s quick-fix measures to rein in the runaway increase in edible oil prices seem to be landing it in a policy tangle, even as it is not providing intended succour to consumers. 

• The oils and fats component of the CPI have risen 33 per cent year-on-year in July, August and September 2021.
• The Centre has slashed import tariffs on cooking oils three times in as many months. 
• This has levelled effective tariffs on crude edible oils from 30.25 per cent to 5.5-8.25 percent and refined oils from 41.25 per cent to 19.25 per cent. 

 

 

Effects of tariff cuts

• These duty cuts, taken with the decision to move refined palm oil from the restricted to free list, seem to have triggered record imports of the cheap oil. 
• It accounted for 63 per cent of India’s veg oil imports of 124 lakh tonnes in the last 11 months.
• These imports only partly help consumers. 
• India being the world’s largest edible oil buyer, tariff cuts by it usually trigger a spike in international prices nullifying their effect. 
• Indian households also tend to prefer indigenously extracted groundnut, sunflower, mustard, rapeseed and sesame oil as their key cooking medium while using palm oil as a low-cost supplement. 
  • The recent flood of palm oil imports may therefore end up benefiting the processed food and restaurant industries more than ordinary households. 
• Effect on farmers: Recent policy changes do put oilseed farmers and the domestic oil extraction industry in a dilemma. 
  • With an extended monsoon delaying kharif harvests of soyabean and groundnut, farmers are now apprehensive if the demand and realisations for their crop will be depressed at the time of their arrival in the market. 
  • This may lead to watering down of recent increases in the MSPs for rabi oilseeds such as rapeseed and mustard.

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About Public distribution system  It is a government-sponsored chain of shops entrusted with the work of distributing basic food and non-food commodities to the needy sections of the society at very cheap prices. It is established under the Ministry of Consumer Affairs, Food, and Public Distribution. PDS is operated under the joint responsibility of the Central and the State Governments.  The Central Government, through Food Corporation of India (FCI), has assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the State Governments.  The difference between the economic cost of food grains and Issue Prices is incurred by the Central Government as consumer subsidy.  The Central Government is also under obligation to procure food grains for meeting the requirements of the buffer stock to ensure food security of the country.  The operational responsibility including allocation within State, identification of eligible families, issue of Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc., rest with the State Governments.  Under the PDS, presently the commodities namely wheat, rice, sugar and kerosene are being allocated to the States/UTs for distribution. Some States/UTs also distribute additional items of mass consumption through the PDS outlets such as pulses, edible oils, iodized salt, spices, etc.