It is time to review the customs duty on essential food imports
March, 18th 2017
With Rabi crop prospects looking bright and harvest kicking off, it is time for the Centre to review the tariff or customs duty on commodities such as wheat, pulses, edible oil and sugar.
Wheat imports are currently allowed at zero duty and inflows during the current fiscal are an estimated 3 mt . The Ministry of Agriculture has estimated the latest wheat crop at a record high 96.6 mt harvested from 31.3 million hectares.
Not everyone is sanguine about this production estimate. If anything, the output could be closer to 90 mt . Even so, the crop size is decent and should ensure comfortable availability. Prices have corrected from November highs and are ruling closer to the procurement price of ?1,600 a quintal. Arrivals should gather pace in the coming weeks.
Indeed, procurement volume is key to future price direction. Last year, despite government’s claims of large harvest (92.3 mt ), procurement fell to 23 mt , well short of the target of 28 mt , leaving public stocks in the central pool at multi-year low. The country cannot afford a repeat performance. The case for review of zero-duty wheat import is strong. Imposing a 15 per cent customs duty will discourage imports at the time of heavy arrivals of harvested crop, improve the marketability of new crop and support domestic prices. This is necessary in order not to discourage growers.
Pulses levy Another essential commodity where levy of customs duty will be justified is pulses. The country is harvesting a record 13.4 mt of pulses in the Rabi season including 9.1 mt of chana or gram (chickpeas) as per government estimate. Open market prices have fallen sharply. Despite a massive rebound in domestic production this year, imports are continuing. That shows the country’s ravenous appetite for consumption. At the same time, continuing large-scale imports depress domestic prices and discourage pulse growers who have risen to the occasion by planting more and harvesting more.
Imposing a 10 per cent customs duty on imported pulses support domestic prices and boost the morale of growers. At the same time, give the harvest size, stocks limits have to be removed and pulse exports opened up. We need a comprehensive approach to address the issues associated with the pulses sector.
There is demand for hiking the rate of customs duty on vegetable oils. Prices of oilseeds such as soybean and mustard have declined sharply. To what extent a hike in customs duty on imported oils will support domestic oilseed prices is unclear. What is clear is that a rate hike will bring windfall profit to those who have built large inventories of oil in anticipation of a duty hike.
It is estimated that about 20 lakh tons of various oils are currently stored and the quantity has been gradually rising in recent months. If there is one essential commodity in which a tariff review is seriously necessary, it is sugar.
Spike inevitable The mismatch between production and estimated consumption this year is well known. Open market prices show a strong upside risk and going forward, a price spike is inevitable given that consumption demand rises manifold during summer, followed by the festival season.
For the government it is an acid test. After facing an embarrassing ‘dal shock’ in 2015-16 it will find it tough to ride out a sugar shock in the coming months. Currently, sugar stocks are concentrated in one region and that is a big risk for the market and for the policy makers.
It is important that plans are put in place to augment availability. One sure way is to allow sugar import at zero duty or at a concessional rate for a limited period of time, place a ceiling on import quantity if need be and review the situation after a few months.