The export of refined soybean oil from Nepal to India has surged dramatically, raising concerns among Indian oil producers who claim the trade violates the South Asian Free Trade Area (SAFTA) rules.

Data from Nepal’s Department of Customs shows that exports of refined soybean oil to India surged more than 60 times in the first eight months of the current fiscal year, which ended in mid-March, compared to the same period last fiscal year.

During this period, Nepal exported 228,548 tonnes of refined soybean oil worth Rs47.94 billion. In comparison, only 3,691 tonnes worth Rs754.14 million were exported during the previous year's period.

Meanwhile, Nepal imported 341,975 tonnes of crude soybean oil worth Rs51.35 billion over the same eight-month period. The country’s primary sources of crude oil imports included Argentina, Brazil, and Thailand, followed by Benin, China, Iraq, Paraguay, Togo, and Ukraine.

Indian producers argue that this trade is severely impacting their industry and have repeatedly petitioned their government for regulatory measures.

Recently, the Indian Vegetable Oil Producers’ Association (IVPA), a leading body representing India’s edible oils and oilseeds sector, urged the Indian government to change the designated port of entry for edible oils imported into Nepal.

In a letter addressed to the Union Minister for Agriculture and Farmers’ Welfare, Shivraj Singh Chouhan, IVPA President Sudhakar Desai, recommended shifting the port from Haldia to Visakhapatnam or other alternatives. The association claims this would help decongest the Haldia port and enhance supply chain efficiency for domestic and Nepal-bound shipments.

The IVPA has raised alarms over the increasing volume of vegetable oil imports from SAFTA member countries, particularly Nepal. They assert this trend harms domestic refiners, discouraging local oilseed farmers and resulting in significant revenue losses for the Indian government.

According to the industry body, a large proportion of the imports seen in 2024 arrived between October and December, following India’s decision to increase import duties—a move which may have triggered third-country routing through Nepal.

In September 2023, India raised the basic import tax on crude and refined edible oils by 20 percent to support local farmers with declining oilseed prices. Since then, soybean oil exports from Nepal have surged.

Despite Nepal producing only a small quantity of soybeans, its soybean oil exports to India grew 45 times in the first half of the current fiscal year.

Desai also recommended imposing a 10 to 15 percent Agriculture Infrastructure and Development Cess (AIDC) on refined oils in the letter.

AIDC is 5 percent on crude edible oils and zero percent on refined ones. The proposed increase, Desai argues, would help control excessive imports and boost the competitiveness of Indian refiners.

Desai suggested implementing a quota system to further regulate the trade, similar to what was previously applied to Vanaspati imports from Nepal.

Such a system could limit the volume of refined oil enjoying duty-free access. He also proposed that all duty-free edible oil imports be routed through government-affiliated cooperatives such as the National Agricultural Cooperative Marketing Federation of India.

This would help regulate supply, stabilise prices, and ensure that profits remain within the domestic market.

In another report, the Solvent Extractors’ Association of India (SEA) expressed hope that a recent Customs Department notification would help reduce the flow of edible oils from Nepal and other SAARC countries.

The notification, issued on March 18, mandates exporters and importers to provide a ‘Proof of Origin’ rather than just a ‘Certificate of Origin’ for commodities imported under concessional duty.

SEA President Sanjeev Asthana stated in media reports that the ongoing influx of refined soybean and palm oil from Nepal, which they claim violates rules of origin, continues to harm India’s refining industry and oilseed farmers.

He emphasised that this unchecked trade is resulting in significant losses to government revenue. According to SEA, the impact of duty-free edible oil imports from Nepal, initially confined to Northern and Eastern India, is also spreading to southern and central parts of the country.

Under SAFTA and the India-Nepal Trade Treaty, Nepali exports to India enjoy zero-duty access. In contrast, countries outside South Asia face a 45 percent tariff when exporting soybean oil to India. This has created a massive price differential, encouraging traders to reroute shipments through Nepal to take advantage of duty-free access.

The SEA warned that what began as a small flow of edible oil has now become a flood, jeopardising the survival of India’s vegetable oil refining industry. The association said this trade distorts local markets and undermines the very purpose of imposing high import duties.

According to SEA, they have strongly appealed to India’s prime minister and other key officials to regulate the import of edible oils from Nepal and other SAARC countries. The Union Commerce Ministry has reportedly responded positively and promised to take appropriate measures.

Nepali trade experts also say this form of trade does little to promote investment in manufacturing or generate significant revenue for the Nepal government.

In a recent interview with The Post, trade expert Rabi Shankar Sainju stated that the value addition on Nepal’s exported soybean oil is often below 15 percent. He explained that traders typically import processed soybean oil in bulk containers, repackage it into smaller units, and re-export it to India.

This process usually bypasses local labour and fails to meet Nepal’s export regulations, which require at least 30 percent value addition for exports to India.