Raising tariffs on edible oils in India will lead to an increase in prices for soap, snacks, and personal hygiene products.

The recent decision by the Indian government to increase duties on the import of crude and refined edible oils will inevitably lead to higher prices for a range of everyday goods, such as soap, personal hygiene products, snacks, and the oils themselves.

Experts claim that companies like Hindustan Unilever, Britannia, and Nestle will have to raise prices by 1.6–2.5%, while edible oil producers will need to increase prices by 20% to maintain profitability.

The government recently announced the increase in rates to restrict imports and boost farmers' income. Import duties on crude soybean, palm, and sunflower oil have been raised from 5.5% to 27.5%. Duties on refined soybean, palm, and sunflower oil have also increased from 13.75% to 37.5%. This decision was taken to protect farmers from low prices for oilseeds that fall below the minimum support price.

This change will directly impact soap and personal hygiene product manufacturers that use palm oil in their production, as well as snack and biscuit producers that use refined palm oil and specialty fats.

"Edible oils, particularly palm oil, are key raw materials for many fast-moving consumer goods companies, widely used in personal hygiene products like soap and cosmetics, as well as in food products such as biscuits and snacks," said Equirus Fund Manager Gaurav Arora.

"The duty increase will inevitably lead to price hikes for palm oil and its derivatives," he added, noting that the share of oil in raw materials for companies can range from double digits to the first two to fifty or more percent for soap.

The duty hike was confirmed by B.V. Mehta, Executive Director of the Solvent Extractors' Association of India, who also noted that the impact will depend on how companies handle the duty increase. "One needs to look at it from the farmers' perspective, not consumers'."

Impact on Soap Manufacturers

Companies like HUL, which source most of their palm fatty acid distillate (PFAD) domestically, may need to raise soap prices by 1.6% to maintain EBITDA profitability, according to a Nomura bank note. PFAD accounts for 12-13% of the company's raw material costs.

The duty hike will not affect Godrej Consumer, which imports PFAD directly. Those who directly import refined oil will not be affected by the duty increase.

Food product company Britannia, which uses refined oil, may face a price hike of 2.5% to maintain profitability. According to Nomura, refined palm oil accounts for 18% of the company's raw material costs. Nestle, on the other hand, uses refined palm oil for 11% of its raw material expenses and will need to raise prices by 1.5%.

"We believe that snack companies will be severely affected as their consumption of refined palm oil is significantly higher, so they will face sharp price increases," Nomura stated.

Edible Oil Prices

According to Arora, edible oil companies may have to significantly raise prices to maintain profitability in the medium term.

He noted that while some companies have secured themselves for the near future, temporary margin challenges may arise over a quarter or so, "after which companies may pass on the price hike to consumers. So, there may be a compression of peak margins, but the impact will be manageable."

The Ministry of Consumer Affairs, Food and Public Distribution recommended that edible oil producer associations maintain the recommended retail price for oil until stocks imported at lower duties are available.