Crude palm oil (CPO) prices are set to increase following the Indian government’s move to cut import duties in an effort to stop food inflation, sources told AgriCensus on 26 November.

Import duties on CPO were reduced from 37.5% to 27.5%, the Indian Ministry of Finance announced on its website, adding that the move was “in the public interest”. The change came into effect on 27 November.

The Indian government’s announcement came at the end of a trading session on 26 November, which saw the Malaysian palm oil futures contract continuing to correct lower after reaching an eight-and-a-half year high at the end of the previous week.

This reduction will distract the correction on CPO,” Sathia Varqa, owner and co-founder at Palm Oil Analytics said.

“[The change] will favour local Indian refiners who will shift to increase buying of CPO while Malaysia outflow of CPO will see a very sharp increase in December. December is the last month of zero export tax on crude products in Malaysia,” Varqa added.

CPO prices had surged 11% since the start of the year to US$895/tonne due to a lack of foreign labour, COVID-related movement restrictions, and heavy La Niña rainfall causing production levels to fall and stocks to shrink to a four-year low, AgriCensus said.

India’s import duties on sunflower oil and soya oil were left unchanged despite the fact both products were seeing even larger price increases.

The reduction in palm oil production in Malaysia in the previous six months had been one of the reasons behind the price increases of other edible oils, the Times of India reported sources as saying on 20 November.

Almost 70% of the palm oil in India was used by the food processing industry, the report said.

The situation was discussed at a presentation before a group of ministers headed by home minister Amit Shah, sources told the newspaper. The sources had been calling on the government to reduce the import duty on palm oil due to the fact that palm oil prices had a direct impact on the prices of other edible oils.

However, the reduction in import duties came despite calls on the government to not proceed with the move from the Soybean Processors Association of India (SOPA) and the Solvent Extractors’ Association of India (SEA).

The trade associations said a cut would affect the local oilseed sector which the country was trying to expand to cut its reliance on vegetable oil imports.

“Lowering import duties has the potential of giving wrong signals to oilseed farmers,” SEA president Atul Charurvedi was quoted by AgriCensus as saying.