Agri Business

Regulate vegetable oil import to protect oilseed growers

G Chandrashekhar August 18 | Updated on August 18, 2020

A simple, quickly implementable, non-tariff option would be to fix an annual quantitative ceiling on import

An unseemly controversy that has erupted within the country’s oilseeds and oils trade bodies over regulation of vegetable oil imports is actually a tragic commentary on the failure of policy-makers to design a comprehensive national policy with long-term perspective.

There is an influential import lobby that has for long years invariably sought to entrench its rent-seeking interests on the one hand, and a domestic oilseed processing industry that seeks to protect the interests of oilseeds growers and millers. These trade bodies are at loggerheads not for any charitable or social cause; it is a fight for market share.

The fact of the matter is that domestic consumption demand for vegetable oils has been rising relentlessly over the years because of rising incomes and demographic pressure. With domestic production stagnating or growing less slowly than consumption, the supply gap has widened to a level where the country’s dependence on import is as alarming as 70 per cent, that is 7 million tonnes domestic production and 14 million tonnes imports. Imports are valued at an astronomical ₹70,000 crore.

As it invariably happens, pressure of unregulated excessive import of vegetable oil has for long years depressed domestic oilseed prices, providing no incentive to growers to expand acreage, improve agronomy, raise yields and realise remunerative prices. Now with the government promising to double farmers’ incomes and talking about self-reliant India (Aatmanirbhar Bharat) there is a sense of urgency to address the challenge of vegoil import that has ballooned to record levels.

India has no choice but to continue to import vegetable oils in order to meet the chronic domestic shortage, at least in the short to medium term. It is no one’s case that imports should be stopped forthwith; it is not feasible and will be against consumer interest. However, if we as a nation are serious about doubling oilseed farmers’ incomes and achieving self-reliance, vegetable oil import deserves to be regulated strictly.

Raising the customs tariff from time to time has been of little help in protecting domestic oilseed growers from the pressure of vegetable oil import. Duty changes are now a failed policy instrument. While customs duties have to be fixed at levels that will not depress domestic oilseed prices, it is time for us to explore non-tariff options.

A simple, quickly implementable, non-tariff option would be to fix an annual quantitative ceiling on import, say 12-13 million tonnes. The ceiling can be reviewed every six months depending on market conditions and prices.

It is critical, import is closely monitored. A system of registration of import contracts should be introduced so that the government knows exactly the quantity contracted for, type of oil, origin, time of arrival, port of arrival and price. Today, New Delhi has no clue whatsoever about forward commitments made by importers. No wonder, interventions like tariff changes are often knee-jerk and unrelated to market conditions.

Regulating and monitoring import ought to be an essential part of the quest for self-reliance. Imposition of quantitative ceiling will almost immediately send out a strong positive signal to domestic oilseed growers. There is no incentive greater than price incentive for growers.

Surely, a rise in oilseed prices will reflect in a rise in edible oil prices. To protect the interests of vulnerable families, edible oil can be distributed through welfare programs such as PDS / NFSA. We have a well established distribution network. Indeed, edible oil was supplied through PDS for many years until 2002 when for some strange reason the then government discontinued it. It is time to bring back edible oil supplies through PDS. Is New Delhi listening?

(The writer is a policy commentator and agribusiness specialist. Views are personal)

Published on August 18, 2020

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