The Hindu Business Line : Bulging oilseed stocks

ON THE FACE of it, a modest 2.3 per cent increase in agricultural growth in fiscal 2005-06 (up from 0.7 per cent the previous year) is something to cheer about; but a closer look reveals some disturbing trends. Growth is uneven across crops. Chronic output shortfall coexists with unstable production and continuing export of some commodities. For sure, we have no significant surpluses (save cotton), while shortages are beginning to be felt in some crops; the deficit is turning increasingly acute in a few. We are confronted with the strange amalgam of tightening supplies and rising prices, on the one hand, and rising production, falling prices and continuing imports, on the other. In foodgrains, despite the rising overall output, the country is heavily dependent on imported pulses (over 20 lakh tonnes a year, equivalent to 15 per cent of the domestic output), just about staves off import of coarse grain, and has been forced to look for imported wheat. Currently, rice is the only grain we export in sizeable quantity. The sugar market too faces tightening supplies and rising prices.

Perhaps the most complex and potentially damaging to the nation's economic health is oilseeds. Rising domestic production, a large inventory with government agency, and continuing imports have combined with global weakening of the market to pull down domestic oilseeds and vegetable oil prices. The consumer-friendly development is not without its negative side. For 2005-06, the food subsidy bill may balloon by about Rs 1,500 crore, representing the carrying cost of nearly 20 lakh tonnes of rapeseed/mustard by the National Agricultural Cooperative Marketing Federation (NAFED), the price-support agency. In addition, a large rabi crop of oilseeds is getting ready. With the minimum support price (at Rs 1,715 a quintal) unsustainably high and not warranted by the current market conditions, farmers will continue to dump the harvested produce on NAFED. Among oilseed processors, there will be no takers, as there is a clear mismatch between the oilseed MSP and the open market price of edible oil. The procurement of rapeseed/mustard in the current season can rise to 25 lakh tonnes as the crop size is estimated at 65 lakh tonnes. NAFED is going to be saddled with massive stocks, and the cost of carry in 2006-07 could rise to Rs 2,500 crore. Such expenses are unaffordable, to say the least.

The Government has already lost valuable time (seven-eight months) in taking a decision on the disposal of stocks with NAFED. Storage and logistics problems will only worsen with the coming season. Suggestions from various industry and trade associations to raise the Customs duty on imported oils are short-sighted and do not seek to address the question of inventory liquidation. One sensible way is to incentivise the use of rapeseed/mustard oil in the manufacture of vanaspati. The industry is struggling to face the onslaught of cheap imports and would welcome some incentive for using surplus domestic oil. Supply of the oil through the public distribution system is another viable option. A decision on this issue brooks no delay. Time is of the essence because, with each passing day, costs keep rising.

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