The Hindu Business Line : Inedible policies

It happened before, and it is happening again. The unseemly spat between the Finance Ministry and the Food and Agriculture Ministry over the cut in the basic Customs duty on imported palm oil once again exposes the ad hoc approach of policymakers to the myriad issues confronting the vegetable oil sector. Without doubt the Finance Ministry's concerns over rising prices of essential food products (and associated political backlash) are real. Inflation is surely hurting masses of consumers, particularly the rural poor. On the other hand, cheap imports (through lowering of duties) can hurt domestic producer interests. So, the fears of the Farm Ministry too cannot be brushed aside. There is the third angle — of the Government, through the Commerce Ministry, merrily entering into a series of free trade agreements without adequate stakeholder consultation and also being pressured to reduce what others see as high levels of import duties.

Integration with the global market means that the domestic market must follow international price trends; now the vegetable oil market is on the boil because of the rapidly growing biodiesel demand. How does one reconcile the apparently conflicting positions — the need to protect domestic producer interest by ensuring remunerative prices and advancing consumer interest by ensuring supplies at reasonable rates? Also, over the medium term, Customs duties will have to be lowered to levels comparable with other Asian nations. The fact is that the Government has no clue on the direction the country's vegetable oil sector must take. For over 30 years India has been importing edible oils. If anything, import volumes are expanding to meet domestic production shortfalls. Sluggish oilseeds output growth and low yields continue to be the bane of this important segment of the food-processing sector. The Agriculture Ministry cannot escape responsibility for the poor show and has much to answer for.

Policymakers have been tinkering with trade and tariff issues without addressing the structural weaknesses of production and processing sectors. It is time the Government looked beyond fiscal instruments (raising or lowering import duties) and seriously examined non-trade and non-price initiatives. To make the oilseeds-based industry competitive and strong enough to stand up to competition from imports, there is only one way forward — Increase production and productivity of oilseeds; improve quality; consolidate fragmented processing capacities; modernise the industry; and protect consumers through strict implementation of food laws. This needs large investments, an integrated approach and the political will to deliver. In the short run, it would make commercial sense to reduce the Customs duty on palm oil while simultaneously raising tariff values to reflect international prices. It is critical that the Government support consumers by restoring edible oil supplies through the Public Distribution System, a practice that was unwisely discontinued five years ago because of low prices.

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