Agri Business

‘ASEAN, other free trade pacts hurting domestic cocoa processing sector’

Subramani Ra Mancombu Chennai | Updated on May 03, 2021

Higher duty for raw material, but processed products imported duty-free, says industry

The domestic cocoa processing industry is aggrieved that India’s free trade agreements (FTAs) with the Association of South-East Asian Nations (ASEAN) and other nations are hurting its competitiveness given an inverted duty structure affecting their operations.

In the case of the FTAs with ASEAN, a significant portion of processed cocoa products such as cocoa butter and powder are imported from ASEAN countries such as Indonesia, Malaysia and Singapore at zero customs duty.

At the same time, when the processing units want to import cocoa beans from African nations, they have to pay 33 per cent Customs duty, which denies them an even playing field.

“India needs 73,000 tonnes of cocoa powder and cocoa butter that are equivalent to 90,000 tonnes of cocoa beans to meet domestic demand. The domestic bean production is 20,000 tonnes, resulting in the production of 15,700 tonnes of cocoa powder and butter, making up 28 per cent of domestic consumption,” said Devabhaktuni Durga Prasad, Managing Director of Hyderabad-based DP Cocoa Products Pvt Ltd.

The Hyderabad-based firm processes 11,000 tonnes or 55 per cent of the cocoa beans produced in India.

“During 2019-20 fiscal, 51,646 tonnes or 64 per cent of the domestic consumption such as powder, butter and chocolate valued at over ₹1,000 crore were imported at zero Customs duty through the FTAs route,” he said.

Another 5,880 tonnes that makeup eight per cent of cocoa powder, butter and chocolate valued at ₹130 crore were imported through payment of Customs duty during the same period.

Importing via FTAs

Clarifying his views on the imports via FTAs, Prasad said duty-free imports of cocoa beans, powder and butter are allowed from ASEAN, but they are mandated to make 35 per cent value-addition using resources in their own countries.

Shippers from the ASEAN need to get Form A1 duly signed by a Government authority in those regions to certify that the mandated norms are met. “But there is no mechanism to check these facts and imports are allowed,” he said, adding that Malaysia claims to import beans from Indonesia.

The dispute, according to Prasad, is that cocoa is not grown in Singapore or Malaysia. Still, a single firm in Singapore processes 70,000 tonnes of beans, while three factories in Malaysia process 2.5 lakh tonnes.

“Indonesia grows 1.5 lakh tonnes of cocoa but processes five lakh tonnes of cocoa beans. All these countries import beans duty-free from African countries and export to other nations,” Prasad said.

In the domestic processing industries, they have to pay 33 per cent Customs duty if they want to import beans, their primary raw material. “This results in Indian industries losing value-addition to the tune of ₹250 crore,” he said.


Quality concerns

The case of Indonesia is curious, Prasad said. The quality of the beans from Jakarta is below the fair average. Still, the Government imposes a 10 per cent export duty, which is not viable for Indian companies when they import beans.

Indonesia does not have a surplus to export. Therefore, India has to import duty-free finished cocoa products, he pointed out.

Interestingly, a decade ago, Indonesia produced six lakh tonnes of cocoa. In view of such good production, the Indonesian government then imposed a 10 per cent export duty to discourage the export of beans.

The objective was to process the beans locally, and export finished products. This resulted in the beans processing capacity increasing to five lakh tonnes.

But during the period, Indonesia growers switched over to other crops resulting in cocoa production dropping to 1.5 lakh tonnes.

When contacted, a leading producer of chocolates said it did not want to comment on the issue.

Commerce Ministry officials did not respond to a mail seeking clarification until this story was published.

Another producer said ASEAN members were exporting processed cocoa after importing beans from Africa and duly processing them.

Chinese connection

Industry sources said that Chinese firms had built up these huge cocoa processing capacities in the FTA regions and were exporting to India. At least 90 per cent of the processing units in Malaysia, Indonesia and Singapore are owned by the Chinese.

“The inverted duty structure when we pay a higher duty for a raw material is preventing the growth of the domestic processing sector, which can not only meet domestic demand but also create ₹1,000 crore value-addition in the next 5-7 years,” Prasad said.

The Hyderabad-based firm raised the issue with the Prime Minister’s Office (PMO) at least a couple of times. Though the PMO had acknowledged the representation, lower-rung officials have been unable to address the issue.

“Our plea is simple: Allow duty-free import of cocoa beans, or permit installation of a processing plant in special economic zones and permit duty-free exports into domestic tariff area from there,” Prasad said.

In addition, he has also sought FTAs with cocoa-growing nations such as Ivory Coast, Ghana, Ecuador, Brazil, Nigeria and Columbia to import beans duty-free. Or the Centre could even impose a 33 per cent duty on the import of cocoa products from countries with which India has signed FTAs, he said.

Industry sources said any change would require Parliament’s approval, and officials are reportedly hesitant to move Parliament “for a minor issue”.



Published on May 03, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like