Restrictions on Refined Palm Oil Import in India to Revitalize Palm Oil Refining Sector in Nepal

Nepal’s edible oil refining industries, which were suffering from underutilization of capacity since long, got a new life with the imposition of some restriction on imports of refined palm oil and palm olein on January 08, 2020 and has started issuing licenses to import refined palm olein from Nepal at zero duty. Prior to this decision, Nepal was exporting refined vegetable oils to India since Dec. 2018 under a regional treaty named South Asian Free Trade Agreement (SAFTA). Under this agreement, a SAARC member country could export any commodity to another member country at 50% reduced tariff than that of prevailing regular import tariff on the commodity in question. To avail this facility under SAFTA, there should be at least 30% local value addition against the commodity.

On Feb. 12, 2020, Directorate General of Foreign Trade (DGFT) of India said that as per decision taken on Jan. 06, 2020, Indian govt. has issued licenses to about half a dozen of Indian importers to import around 88,000 tonnes of RBD palm olein from Nepal. Under the new provision, only Indian importers possessing a license were allowed to import refined olein from Nepal at zero duty. However, import of RBD Palm Oil kept out of this order as that does not qualify the requirement of 30% local value addition to become eligible for export at zero tariff facility. 

According to Indian Ministry of Commerce and Industry, India’s vegetable oil imports, which comprises both refined palm olein and refined soyabean oil, from Nepal surged to $251 million in 2019 from just $20.69 million a year ago as refiners in Nepal took advantage of SAFTA to export edible oils at reduced tariff. According to the Trade and Export Promotion Centre, Nepal imported crude palm oil worth US$ 82 million and exported processed palm oil to India worth US$ 94.3 million in the first five months of the 2019-2020 fiscal year. 

Table 1: Yearwise Export Trend of Refined Palm Oil To India:                                                                    

2019 (Tonnes) 2018 (Tonnes) 2017  (Tonnes) 2016 (Tonnes)
56,813 16,183 Nil Nil

 Source: Trade and Export Promotion Centre, Ministry of Commerce and Supplies, Govt. of Nepal

Major players of Oils and Fats refining sector of Nepal, expect that a huge scope has been created for them with the opening up of Indian market for exports of refined olein to India at zero duty and it would provide new life to edible oil refining sectors of Nepal and simultaneously would contributes to increase the import of palm oil, mainly CPO, significantly in Nepal to cater the export demand of refined olein. Prior to Indian decision on Feb. 12, 2020, out of 21 registered refineries in Nepal only 18 refineries were running of which 8 nos were running intermittently and 10 refineries were running regularly but at lower capacity and 3 refineries were closed. But now 19 refineries are running in full swing. It is worthy to mentioned here that Oils and Fats refining sector in Nepal developed mainly based on the export facility of refined products to India at a reduced tariff which started dating back in 1983 under a bilateral trade agreement signed between the two countries and it was on peak in 2003 when a huge quantity of Vanaspati used to be exported to India. Bilateral agreement was replaced by SAFTA which was signed in 1996. Later, import of palm oil experienced a drastic fall in pace with the limiting of scope of export of Vanaspati to India since 2002. Since than edible oil refining sector in Nepal is suffering from the problem of underutilization of capacity.

Nepal imports crude palm oil from Indonesia and Malaysia. Since Nepal is land locked country, it uses Holdia seaport of India for import of palm oil consignments. From Holdia seaport oil is transported to Nepal through India by bowsers.

As per information revealed from the data bank of Trade and Export Promotion Centre, Ministry of Commerce and Supplies, Govt. of Nepal, import of palm oil is in growing trend in Nepal since 2016 in pace with increase of local consumtion. Significant quantity of CPO is being imported in Nepal for production of refined olein followed by vanaspati. Import share of MPO in the total import quantity of palm oil also holds a respectable position compared to other countries of sub-continent detail of which may be seen at Table -2.  Import sources are based on destination of Letter of Credits (LCs), not on the basis of load port and accordingly there may be some variation in the MPO export quantity provided by MPOB and Trade and Export Promotion Centre, Ministry of Commerce and Supplies, Govt. of Nepal. As per the data of Trade and Export Promotion Centre, in 2019 about 42% i.e. 39,349 tonnes of palm oil was imported from Malaysia, which does not tally with MPOB data.

Table 2: Yearwise Import Trend of Palm Oil by Nepal: 2017 – 2019

Source 2019 2018 2017 2016
MT % MT % MT % MT %
Malaysia 39,349 42 40,252 44 30,178 40 15,487 26
Indonesia 53,948 57 50,536 56 44,558 60 44,884 74
Others 785 1 Nil Nil Nil Nil Nil Nil
Total: 94,082 100 90,788 100 74,736 100 60,381 100

Source: Trade and Export Promotion Centre, Ministry of Commerce and Supplies, Govt. of Nepal

Note: Source quantities are based on destination Letter of Credits (LCs) opened for import of the commodity.

Palm oil refers to CPO and RBD PO.

Considering the aforesaid facts, Nepal is a potential export destination for palm oil, specially CPO and MPO suppliers may look to this market to consolidate their position further. Since CPO is the major category palm oil being imported by Nepal, MPO suppliers could avail the opportunity to export the addition CPO which will be available due to delay in implementing the B20 biodiesel policy. MPOC is already in touch with the market since long through regular market visits and maintains a cordial relation with most of the major players of oils and fats market of Nepal.   

Prepared by  Fakhrul Alam 

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