While the decline in the country’s imports in the past year has been a much talked about issue, not much attention has been caught by the fall in the country’s exports. Nepal’s exports have declined by 32 percent to Rs 80.80 billion in the first half of the current fiscal year, particularly due to the dramatic decline in the exports of palm oil, soyabean oil, and sunflower oil to India.
In the last 2-3 years, Nepal’s export figure has largely been dominated by two products—palm oil and soyabean oil, which are basically not produced in Nepal. The edible oils are brought in crude form and 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 export them to India which results in no to little 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 93.69 billion. Nepal export palm oil and soyabean oil worth Rs 89.18 billion in the last fiscal year which accounts for around 45 percent of Nepal’s total exports.
However, the exports of edible oils have slumped massively in the first half of FY 2022/23. The exports of palm oil slumped to Rs 13.08 billion from Rs 31.97 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 34.26 billion in the same period last fiscal year. Official data shows that there has not been a significant drop in other products which are 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. In fact, the import duty on crude varieties of palm oil, soybean oil, and sunflower oil is currently zero. However, after taking into account the 5 percent agri cess and 10 percent social welfare cess, the effective duty on crude forms of these three types of edible oil is at 5.5 percent.
At the start of 2021, effective customs duty on palm, soybean and sunflower oils reached as high as 35.75 percent. With the Indian government removing the import duty on these edible oils, the duty differential advantage Nepali exporters had was gone.
Nepal currently levies a one percent customs duty and a 13 percent VAT on the import of these three 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 oil 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. “In order 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 that the government announced through the budget for the current fiscal year.
Nepal government in the federal budget for the current fiscal year 2022/23 had announced that it would provide export subsidies to 18 types of goods. Government officials and experts say that vegetable oil and palm oil have very low-value additions in the country. But Kabra claimed that there is a value of the addition of as much as 25 percent. “There is a value addition during the refining and packaging process,” he said, adding, “This has also aided the growth of the packaging industry in Nepal.”
The problem faced by the domestic edible oil producers currently is similar to the late 1990s when Nepal’s vegetable ghee industry suffered massively after India lowered the import duty of raw materials of vegetable ghee. India also imposed quantitative restrictions on the exports of Nepal’s vegetable ghee.
Even the World Bank has not considered the export of palm oil and soyabean oil as sustainable export products. In its Nepal Development Update in December 2019, the Washington DC-based multilateral agency stated that Nepal capitalized on this arbitrage opportunity and significantly increased exports of palm oil and soybean oil and suggested that the edible oil business taking advantage of trade preferences needed to be more sustainable.
The South Asian Free Trade Area agreement, to which Nepal is a party, stipulates that goods of preferential origin are eligible to be imported and re-exported with lower duty rates or at zero rates if the requirements are met.
Under this agreement, imports must contribute a value of at least 30 percent in order for Nepali exports to India to qualify for tariff concessions. Experts in Nepali trade have said that Nepali traders fall short of the required 30 percent value addition. It is not the first time that Indian policy has determined whether these two items will be exported or not.
|Fiscal Year||Export Value|
|2022/23||Rs 80.807 billion|
|2021/22||Rs 118.85 billion|
Edible Oil Exports
FY 2022/23 (First Six Months)
|Soyabean Oil||Rs 8.009 billion|
|Palm Oil||Rs 13.087 billion|
|Sunflower Oil||Rs 0.227 billion|
|Total||Rs 21.323 billion|
FY 2021/22 (First Six Months)
|Soyabean Oil||Rs 34.269 billion|
|Palm Oil||Rs 31.974 billion|
|Sunflower Oil||Rs 2.414 billion|
|Total||Rs 68.657 billion|