The Chain: Demand-Side Special

This edition of The Chain takes a special country-by-country look at developments in some key palm oil consumer markets.

India

In an effort to support local edible oils production and stem cheap imports, in September 2015 India raised import duties on crude palm and soybean oils from 7.5% to 12.5%. At the same time, the tariff on refined oils was increased from 15% to 20%. The Solvent Extractors’ Association of India reported annual imports of edible and non-edible oils increase 23.6% (to 14.6 million metric tons from 11.8 million metric tons) YoY for the 12-month period Nov 2014 to Oct 2015 compared to the previous 12-month period.

Indian domestic oilseed production reduced over the same period due to weather pattern changes, as growers experienced a deficit in rain. Over this time frame, Indian imports of CPO increased 1.5 million metric tons to 7.7 million metric tons. Likewise, soybean oil imports increased 1 million metric tons to 2.9 million metric tons.

Russia

Russia is also considering a tax on palm oil imports. The excise tax on palm oil – up to 30% – if passed, would be about $200 per ton. It would begin in the summer of 2016. If this tax existed in 2015, it would have raised over $150 million in tax revenue. Likewise, Russian palm oil imports have exceeded planned limits by over 75% – at greater than 780,000 metric tons annually. From a Russian perspective, this increasing reliance on palm oil imports stifles the dairy industry’s innovation and production, while decreasing demand for domestically produced edible and non-edible oils such as sunflower oils and animal fats.

Pakistan

Pakistan’s domestic demand for edible oils is about 3.7 million metric tons, 71% of which is palm oil. As soybean oils trade at a discount to El Niño inflated palm oil prices, soybean oil is expected to grow 15% to 20% per year into 2017. Pakistan’s key concern is least expensive oil to improve its international trade deficit.

China

China is also beginning to switch to soybean oil at the expense of palm oil as it expands its domestic livestock production. Analysts forecast YoY Chinese demand to be stable at 5.8 million metric tons, as growth in demand for livestock feed is expected to be met by soybean oil.

France

France imports about 50,000 to 150,000 metric tons of Indonesian CPO annually. The country recently proposed a “Nutella Tax” on palm oil imports to support biodiversity conservation. The proposed tax schedule would have started at €300 per ton, and then increased to €500 in 2018, €700 in 2019 and €900 in 2020, while leaving taxes on other vegetable oils such as olive, corn, and peanut oil untouched (which range between €113.24 and €170.13 per ton). On a per ton basis, the current CPO tax is at €104 per ton against €190 per ton for olive oil.

Though France’s consumption of palm oil is small compared to 2015 global production estimates of 62 million metric tons, Indonesia and Malaysia are worried that the “Nutella Tax” would spread to other nations that consume more. As a result, the Indonesian government has threatened to file a report with the World Trade Organization over France’s proposed tax schedule. Indonesia’s government believes that separate tax treatment for various vegetable oils might violate the principles of national treatment and non-discrimination. Yet some estimates say that French taxes on the primary vegetable oils that drive deforestation are relatively equivalent.

The latest CPO proposal has tax starting at €30 in 2017 and increasing by €20 per year to €90 euros in 2020. The new levy would come on top of an existing one of €104. French lawmakers will review the tax in May 2016. Current taxes on palm kernel and coconut oils are €113 a ton.