Deeply concerned about inflation, the government recently took a series of decisions to increase supplies and contain high food prices. The measures include the lifting of import restrictions on refined palm oil, reduction of customs duties, extension of the validity period for the importation of specified pulses, the declaration of stock and the suspension of the trade in derivatives in a number of sensitive food products.
Cumulatively taken, to what extent these measures would help curb food inflation is a puzzle. The promising outlook for Rabi crops, including grains, oilseeds and pulses, should help push prices down over the next three months.
Import trade lobby
It must be recognized that allowing unrestricted importation of refined palm oil and palmolein until the end of 2022 is a progressive step in the interest of consumers. The edible oil trade in the country is controlled by a handful of large importers and refiners. The market knows who they are and the influence they have on decision-makers.
Almost 50 percent of the import trade is controlled by just half a dozen companies. These companies have always lobbied for their own business interests. Restrictions on the import of refined petroleum meant that non-refiners or merchant-importers were virtually excluded from the import trade. This created an uneven playing field and encouraged the great players to take the lead.
But now that the import policy has been liberalized, the playing field is level. While refiners can continue to import crude oil for further refining and distribution, traders can import refined oil for rapid distribution. This will increase the availability for direct human consumption and will not allow any interest group to play the market. Importing refined oil in consumer packaging can further shorten distribution time.
Wholesale and retail price differential
Another area that deserves the attention of policymakers is the large gap between the wholesale and retail prices of essential food products such as edible oil and pulses. Retail prices are much higher than wholesale rates would justify, even after taking into account packaging, distribution and associated costs.
While high food prices at the retail level make little difference to affluent consumers, the middle class is hit the hardest. The âretail bootyâ of essential food items has been going on for many years without any control.
Our own crop in Rabi and that of the southern hemisphere, combined with the expected drop in international crude oil prices in the first quarter of 2022, should provide some relief from food inflation. The government would be well advised to review some of its recent decisions in April. Even in early March, the harvest prospects in our country and elsewhere in the world would crystallize.
While remaining somewhat high, the current expectation is a downward trend in food prices around the world. As for imported raw materials like edible oil, the only factor that can neutralize, albeit partially, is the rupee which is already weakening.
It is essential to recognize that changing trade policy and tariffs from time to time is only a short-term measure to overcome a difficult period, but should not dilute our focus on increasing production and national productivity.
(The author is a political commentator and agribusiness specialist. Opinions are personal)