The Hindu Business Line : Caught in the veg oil mill

Under twin pressures — of rising domestic prices caused by shortage and for lowering the high tariff wall — the Government had no choice but to reduce the basic Customs duty on certain vegetable oils, including crude palm oil and refined palmolein. A huge compromise in the form of duty reduction without an upward revision in tariff values to reflect current market prices is sure to result in a major revenue sacrifice. To what extent consumers will benefit remains to be seen as the international market is on a bull run and indigenous production this year is far from satisfactory.

Stagnating raw material (oilseeds) output, increasing dependence on imported vegetable oils, low per capita consumption, lack of modernisation in the already fragmented processing industry, and apathy of policymakers to structural problems have been the defining feature of the vegetable oil sector for many years now. On the other hand, rising incomes, the demographic pressure and a burgeoning livestock industry push the demand for oils and oilmeals to a higher trajectory. The integration with the global market constantly throws up new challenges in the form of tightening quality standards and price volatility, even while impinging on domestic producers' interests. OECD oilseeds subsidy is as high as $7 billion a year. Lately, large-scale diversion of vegetable oil for biodiesel production has led to a price spike globally. A more recent phenomenon in the country that should cause concern to all stakeholders is the competition among three major crops — wheat, pulses and oilseeds — for acreage in the rabi season. Rapeseed/mustard has clearly lost ground to grain. While there is no guarantee that higher acreage for grain would result in larger output, oilseeds production is set to decline because of the area shrinkage. It is turning out to be an alarming `zero-sum' game. There is nothing to suggest the government is seized of or even remotely concerned about the emerging challenge.

If according priority to acreage for grains is unavoidable, the only way forward for oilseeds is a decisive break above the current low yields of less than 1,000 kg a hectare (versus global average of 1600 kg/ha and developed countries' 2200 kg). A 200 kg/ha increase from the 26 million hectares under oilseeds will yield additional 5.2 million tonnes of oilseeds equivalent to approximately 1.5 million tonnes of more oil. This target is far from ambitious, but only if policymakers are committed to making it happen. A holistic approach is necessary to address the problems of oilseeds cultivation; it must include infusion of new technology, oil palm development, exploiting minor forest produce and modernisation of processing industry through consolidation and encouragement to fresh investment. The processing industry, comprising solvent extraction, refinery and vanaspati units, should be roped in to strengthen the raw material production base. Clearly, the Ministry of Agriculture and Food must act with a long-term perspective.

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