The government cut import duty on major edible oils ahead of the festival season citing relief to consumers and mitigating inflationary pressures arising from a sharp increase in international prices as the justification.

While retaining the 5% Agri cess on all crude vegetable oil imports, the basic customs duty of 10% ad valorem on imported crude sunflower oil has been reduced to zero; and that on crude soybean oil and crude palm oil has been cut by half to 5%. On refined oils, there’s a modest reduction in duty.

A look at market conditions, however, shows the duty cut is not just ill-timed, but lacks justification for the revenue it would sacrifice.

Global major vegetable oil production is estimated at 245 million tonnes (MT) in 2026-27, which is 5 million tn higher than previous year, following a record harvest of oilseeds, mainly soybean. Overall, the world market is not in deficit.

Specifically, palm oil production is estimated at a little over 81 million tn for 2026-27, the same as last year. Higher production in Indonesia is seen compensating for the slightly lower output expected in Malaysia.

While the world vegetable oil supply-demand fundamentals are in balance, the conflict in West Asia and associated supply disruptions have caused energy prices to spike. Currently, Brent crude oil is trading well above the $100-a-barrel mark. Elevated crude oil prices have kept vegetable oil prices firm through the biodiesel route as higher crude oil prices make diversion of vegetable oil for biodiesel attractive.

Indonesia has progressively been raising its biodiesel blend target that currently stands at B50. Recently, the Indonesian government talked about moving to B60 in 2027. However, as this writer pointed out in an article earlier this month (Indonesia Biodiesel Policy Unlikely to Hurt India), the country will need at least one year to prepare for B60, resolve challenges in gasoil quality and finalise B60 fuel quality specifications that would sync with automobile engines. In other words, B60 will kick-in only after 2027. 

Importantly, a factor weighing on market sentiment is Malaysia’s palm oil stocks at close to 3 million tn. The peak production season for palm oil is expected to continue until November, by which time inventories may rise further.

On the demand side, there’s a perceptible slowdown in palm oil purchases by major importing countries, including India. Palm oil usually sells at a discount to soft oils (soy oil and sun oil); but in recent months, soft oils are available at prices lower than that of palm oil. No wonder then that in price conscious markets like India, soft oil import has expanded in recent months while palm oil imports have reduced.

Ramadaan in February 2027 will boost consumption demand for vegetable oils in various geographies around the world, but palm oil has a problem. During winter months, palm oil solidifies quickly leading many consumers to avoid it.

Another fact that New Delhi is ignoring is the impending harvest of India’s Kharif oilseeds crop, mainly soybean and groundnut. Poor spatial and temporal distribution of southwest monsoon has reduced the harvest size and oilseed growers are already in distress. Reduction in import duty will depress oilseed prices right at the time of peak market arrivals of harvested produce.

According to the Solvent Extractors’ Association, as of September 1, the country’s vegetable oil inventory (stocks at ports and in the pipeline) was in excess of 2 million tn. More arrivals are slated in the months ahead.

The duty cut may very well prove to be counter-productive. There’s no guarantee that the duty relief will be passed on to consumers, although the government has issued an advisory on the same to the industry. Ideally, the government should have conducted a review for January 2027 when Kharif crop marketing would have peaked, and Rabi crop prospects become clear. As of now, it seems like consumer interest has been placed ahead of growers’ interest.