India and U.S. Could Gain From Liberalizing Oilseed
Trade
Suresh
Persaud
India has emerged as one of the
world’s largest importers of vegetable oils.
Imports have grown partly because of sharply reduced
vegetable oil tariffs, coupled with rapid economic
growth and an expanding middle class. But growth
in oil imports is also the result of India’s
restrictive trade policies on imports of oilseeds
(soybeans, peanuts, rapeseed, and sunflower seed),
the critical raw materials from which food processors
extract vegetable oils and feed proteins. India’s
oilseed production is insufficient to meet demand
from domestic oil producers, who are forced to operate
at low rates of capacity utilization (30-40 percent).
Without a significant increase in the availability
of oilseeds, either through greater domestic production
or reduced import barriers, India will likely experience
a growing deficit in vegetable oils and an eventual
deficit in feed protein.
Stakeholders in the Indian market
stand to gain if India follows the example of other
developing countries—most notably China—and
reduces barriers to oilseed imports. Lower tariff
and nontariff barriers on oilseeds would stimulate
large-scale soybean imports, particularly if oil
tariffs are not altered from their current levels.
Processors in India could use imported oilseeds
to more fully utilize capacity, resulting in lower
processing costs and higher net revenues and employment.
Moreover, lower processing costs would allow oil
producers to better cope with competition from the
influx of cheap palm oil imports.
The U.S. could also benefit if
India liberalizes its oilseed trade, while keeping
in place its tariffs on oils. U.S. exports of soybean
oil to India have been limited because Latin American
soybean oil and Asian palm oil are cheaper. The
U.S. is a competitive soybean supplier, but its
soybean exports have been blocked by India’s
tariff and nontariff barriers. Although U.S. suppliers
of soybeans and products would still face considerable
competition from Latin American suppliers, U.S.
trade prospects would likely improve if India liberalizes
trade and substitutes soybean imports for oil imports.
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