The Soybeans Processors Association of India sent a letter to the Indian ministry of Commerce and Industry on Wednesday, which was released late Thursday, urging the government not to reduce the duty on crude palm oil for Malaysian palm oil imports.

Under a agreement called ASEAN-India Free Trade Agreement or AIFTA, import duties on Malaysian crude palm oil or CPO will be reduced from 44% to 40% and for refined palm olein, duties reduced from 54% to 45%, effective December 31, 2018.

The letter states that the Indian domestic edible oil market was very price sensitive and any duty reduction on palm oil will depress the domestic soybean oil market.

Since the Indian domestic soy crushing season is currently in full swing, the association fears that prices will fall below the government mandated minimum support price or MSP, that would negatively affect the Indian soybeans farmers, the letter adds.

The letter ends by reiterating that the government should maintain palm oil duties at current levels.

Market sources have been ambivalent about talk on the lowering of duties on Malaysian palm oil and olein imports, but an Indian source claims that the Indian government seems serious about reducing the duties in line with the AIFTA agreement.

However, with the upcoming 2019 general election in India, the Indian government would be reluctant to alienate the farming community which forms a bulk of voters, added the source.

A Singapore-based market source said that any reduction in duties on Malaysian palm oil and products, will benefit Malaysian exports in favor of Indonesian exports.

An Indonesia-based source said that he expected Malaysian palm oil exports could either equal or slightly exceed Indonesian exports to India, if the duty structure is revised.

However, he added that the effect would only last for a year because in 2020, import duties on both Indonesian and Malaysian palm oil exports into India would equalize.

Another source said that the effect of lower duties could be negated even earlier, if the Indonesian government decides to lower CPO levy from the current $50/mt. During the Indonesian Palm Oil Conference (IPOC) and 2019 Price Outlook conference in Bali on Thursday, the Indonesian government ministers reiterated that the government was considering lower duties in the face of lower palm oil prices.