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Signs of Govt pragmatism on edible oil

G. Chandrashekhar

MUMBAI, Dec. 14

THE Union Agriculture Minister, Mr Nitish Kumar's reported statement to a group of Members of Parliament from the southern States that he would `prefer to deal with the country's edible oils situation in its totality in consultation with the Finance and Commerce Ministries' reveals a refreshing approach to dealing with this vital segment of the food processing sector. The Minister was reacting to a demand for restricting the import of palm oil.

Indeed, if the statement is the outcome of a realisation, albeit belated, that mere tinkering with the duty structure from time-to-time is no panacea for the ills of the country's oilseeds economy, and only an action-oriented plan to build inherent stren gths into the sector would sustain it in the long run, then the Minister deserves to be commended for his pragmatic approach.

To put the current status in perspective, it must be stated that two years after edible oil imports were put under open general licence in 1995, the country's oilseeds economy started to slide. Rapidly rising consumer demand on the one hand and a stagnan t domestic production on the other resulted in a widening supply gap for edible oils.

Domestic oilseeds output consistently fell short of the target leading to burgeoning idle capacity in the processing industry. The South-East Asian economic crisis sharply cut into oilmeal exports from the country.

While all this was happening, the Government simply watched the events from the sidelines and did not make any perceptible attempt to arrest the slide. To be fair, some trade reforms, such as the removal of storage and credit access restrictions, were in itiated; but they were more a part of the internal trade liberalisation process, than for the purpose of building long-term global competitiveness.

Meanwhile, India has emerged as the world's largest importer of edible oils since 1998-99 with an annual import of 44-45 lakh tonnes. Drought conditions in many regions last year and this year have led to a sharp decline in domestic oilseeds production. Oilmeal exports have declined to a recent low with the performance of non-soya meals distressing. Many processing units have turned sick and the asset values are continually falling.

Obviously, there are issues to be sorted out at every stage in the value chain; and for the Agriculture Minister, who wants a holistic view, much of the problems can be traced to stubbornly low productivity of oilseeds, which is indeed the principal issu e.

For each of the major oilseeds grown in the country - groundnut, rapeseed/mustard, soyabean, sunflowerseed and cottonseed - the yields are considerably lower than the global average and far short of productivity levels among the global majors as can be s een from the accompanying table.

Although India has the world's largest area under cultivation of some of the major oilseeds - groundnut (75 lakh hectares), rapeseed/mustard (60 lakh hectares) and cotton (90 lakh hectares), low yields have rendered production expensive and uncompetitive . Also, there are problems relating to the quality of oilseeds produced, such as aflatoxin in groundnut and cottonseed as also glucosinolate in rapeseed/mustard.

Unless serious efforts are made to raise the productivity substantially over the coming years, the oilseeds economy will slowly wither as it will be unable to stand up to competition. Productivity gains alone will encourage farmers. But as yet there are no indications that anyone in the Government is seriously examining ways and means of addressing the issue.

The State governments have to play a more active role not only in oilseeds production, but also in creating facilities for improved marketing. The policy of small-scale industry reservation for crushing of major oilseeds - groundnut and rapeseed/mustard - affects free marketability and prices. This needs to be reviewed and indeed phased out soon.

Then, there are industry-related issues such as fragmented nature of capacities, poor economies of scale, antiquated technology and so on. Consolidation should be encouraged. Rationalisation of tax structure, and simplification of industry and trade-spec ific laws are other areas that deserve attention. Attention to these steps will help build global competitiveness. Over to Mr Nitish Kumar.