Nepal VegOil: Can Traders Enjoy 45% Net Profit Again?


May 23, 2023 | Agricultural Markets News

Reading time: 2 minutes

In the last fiscal year, Nepal saw a 23 percent year-on-year jump in agricultural imports. The import bill soared mainly due to increased Edible Oil purchases, particularly Soybean Oil. In just one year, Edible Oil imports swelled from Rs82.9 billion to Rs120.5 billion, with crude Palm and Soybean Oil imports rising to nearly Rs100 billion.

In the last 2-3 years, Nepal’s export figure has primarily been dominated by two products—Palm Oil and soyabean Oil, which are not produced in Nepal. The Edible Oils are brought in crude form, refined in Nepal-based refineries, and exported to India. Industry insiders say many producers do not even refine the Oils as they import refined Oils, repackage and label the products and ship them to India, which results in little to value addition.

Aided by the ballooning export of Edible Oils, Nepal’s overall exports touched the Rs 200 billion mark for the first time in history in FY 2021/22. The contribution of Edible Oils to the country’s overall export was Rs 93.7 billion. Nepal exported Palm Oil and soyabean Oil worth Rs 89.2 billion in the last fiscal year, which accounts for around 45 percent of Nepal’s total exports. Trade experts say that importing crude Oil with zero tariff privilege and re-exporting it to India with zero traffic privilege enabled Nepali traders to enjoy a net profit of 45 percent, excluding other profits.

However, the exports of Edible Oils have slumped massively in the first half of FY 2022/23. The exports of Palm Oil declined to Rs 13 billion from Rs 32 billion, according to data from the Department of Customs and the Trade and Export Promotion Center (TEPC). Likewise, exports of soyabean Oil also dipped to Rs 8 billion in the first six months of this fiscal from Rs 34.3 billion in the same period last fiscal year. Official data shows that there has not been a significant drop in other products exported on a large scale.

The country’s exports of these products suffered after India lowered its customs tariff to help tame the rising inflation rate in October 2021. The import duty on crude varieties of Palm Oil, Soybean Oil, and sunflower Oil is currently zero. However, after considering the 5 percent agri cess and 10 percent social welfare cess, the duty on crude forms of these three Edible Oils is at 5.5 percent.

At the start of 2021, effective customs duty on Palm, Soybean, and sunflower Oils reached 35.75 percent. With the Indian Government removing the import duty on these Edible Oils, Nepali exporters’ duty differential advantage was gone.

Nepali VegOil Exporter Case

Nepal currently levies a one percent customs duty and a 13 percent VAT on importing three critical types of Edible Oil, according to Bipin Kabra, owner of Quality Refinery, one of the leading exporters of Vegetable and Palm Oil to India. “The Indian Government’s decision to abolish customs duty on raw Soybean and Palm Oil has badly affected our exports,” he said.

According to Kabra, his firm currently exports these Oil products only one-fifth of what it used to export until India abolished the import duty. “To restore the exports, either India should hike the import duty again, or the Nepal Government should give us export subsidies,” he said.

India will not be hiking duty on the import of these products anytime soon. In late December last year, the Indian Government extended the policy of keeping lower tariffs on Vegetable Oil till March 2024. These products also don’t qualify to get the export subsidies the Government announced through the budget for the current fiscal year.

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