The Hindu Business Line : Domestic producers hurt by anomalies in vanaspati imports

THAT the indirect tax regime for the vegetable oil sector is full of anomalies and aberrations is well known; but what is less known is that some of these anomalies are beginning to cause distortions in the market and directly impact domestic players.

One of the starkest anomalies in the tariff regime is the customs duty on imported vanaspati vis-à-vis crude palm oil. While crude palm oil, a raw material for manufacture of vanaspati, attracts customs duty of 65 per cent ad valorem, import of vanaspati itself — the finished product — attracts much lower rate of duty at 30 per cent.

No wonder, large imports of vanaspati or bakery shortening have become the order of the day. What started as a trickle last year has now gathered momentum and monthly imports are estimated at 500 tonnes. Biscuit manufacturers are said to be the main beneficiaries of this Government largesse.

This is seen hurting the country's already enervated vanaspati industry, which has seen a downturn in demand in recent years as a result of uncompetitive market conditions and rising share of liquid oils in the household consumption basket.

Worse, as a trade intermediary pointed out, what is imported and declared as vanaspati may not strictly be hydrogenated vegetable oil, but interesterified vegetable fat, a product that has not undergone the hydrogenation process.

A significant part of the import is from Malaysia, and the ports of entry are said to be Chennai, Kolkata and Mumbai.

It is unclear how the revenue officials classify the imported goods for the purpose of levy of customs duty and whether the imported goods meet the quality stipulation under the Indian food laws, especially Prevention of Food Adulteration Rules, 1955.

The PFA Rules have different quality specifications for interesterified vegetable fat under entry A.17.15.01 and for vanaspati under A.19. For vanaspati, use of sesame oil as `tracer' has been stipulated.

In addition to customs inspection, it is mandatory for the Port Health Office (PHO) under the Union Ministry of Health to certify each consignment and grant clearance on quality grounds. PHO officials draw samples of the imported material, test for compliance with food laws and advise the revenue officials of the test result. It is popularly called the `PHO certificate'.

Threat from Sri Lanka: There seems to be no respite for the Indian vanaspati industry from unfair competition from imports. After facing the fury of imports from Nepal in the North, there is now an attack from the South. The industry has begun to face competition from vanaspati imported from Sri Lanka.

Taking advantage of the bilateral trade agreement between the two countries, some resourceful Indian entrepreneurs have set up vanaspati manufacturing facilities in Sri Lanka. It is believed vanaspati imported from Sri Lanka is duty-free and is sure to directly hurt producers in the southern region of the country.

Sri Lanka is not a known producer of vegetable oil in large quantities.

Obviously, vanaspati in the country is produced out of raw material imported from abroad, most likely, palm oil from Malaysia and Indonesia.

In other words, a substantial part of the finished product is not of Sri Lanka origin. This vitiates the spirit of free trade or preferential trade agreement.

There is need to tighten the Rules of Origin to ensure that domestic producers are not unduly affected because of lax rules and unimaginative trade agreements that fail to reckon with domestic sensitivities. These imports raise questions about the attitude of the government towards the vegetable oil industry.

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