The oilseeds sector needs fresh policy impetus

G Chandrashekhar | Updated on September 12, 2019

Domestic producers are languishing due to unfettered imports. A ceiling on imports and addressing production issues are vital

It is heartening that the government has now woken up to the poor state of our domestic oilseeds and vegetable oil sector. In her maiden Budget speech on July 5, Finance Minister Nirmala Sitharaman referred to the need to boost domestic oilseeds production to reduce the burgeoning dependence on imported oils.

Without doubt, in the short to medium term, the country cannot do without edible oil imports to meet the domestic shortfall. India’s vegetable oil imports — in volume and value terms — have skyrocketed in recent years to 14-15 million tonnes, amounting to around $11 billion (over ₹77,000 crore).

Our import dependence has worsened to over 70 per cent. In a situation of shortage, it is logical to expect that domestic producers will reap large gains. But, far from it, in our country, oilseed growers are in distress. They are unable to receive even the minimum support price assured by the government.

No wonder, the acreage under oilseeds has stagnated at 26-28 million hectares. Yields continue to be abysmally low (1,000-1,100 kg per hectare) as growers have no incentive to improve agronomic practices. The marketability of the crop is weak in the absence of an effective price support mechanism.

It is time for the policymakers to seriously get down to addressing the real issues of the sector rather than merely tinker with tariff policies in a way that helps traders and speculators.

The policy objectives should be to balance the interests of growers and consumers alike. The policy must ensure more remunerative prices to oilseed growers so that they strive to produce more by raising yields. At the same time, the policy must ensure that consumers, especially the poor, have access to cooking oil at affordable prices.

Clearly, liberal policies or free market operations of the last 25 years (unfettered imports, zero or low rate of duty) have failed to protect domestic growers insofar as the oilseeds and vegoil sector is concerned. It is time we tackled the issues facing the sector differently.

While raising oilseeds yields through improved agronomy, tapping non-conventional sources (tree-borne oilseeds etc) and improving extraction efficiency are some of the key initiatives, their positive outcomes will be felt with a time lag. Here are a few simple and eminently implementable suggestions whose outcomes will be almost immediate.

Ceiling on vegoil import: There must be a ceiling on the volume of edible oil import. Private trade imports excessive quantities for speculative purposes and floods the domestic market, which in turn depresses domestic oilseed prices.

A reasonable guess would be that 10-15 per cent of the current import volume is speculation driven. . A ceiling on vegoil import (with provision to review it every six months) will reduce the quantum of arrivals and support domestic producers, especially growers.

Monitor imports: Imports have to be closely monitored by following a system of registration of contracts, tracking arrivals, and so on. Trade will become more transparent. This will help policymakers with real-time information for taking informed decisions proactively. Currently, policymaking for the sector is reactive and New Delhi has no clue about imports contracted for. This must change.

Reduce credit period: Many Indian importers are caught in an ‘import debt trap’. They often enjoy credit period of 90-150 days for payment of the value of the cargo to overseas suppliers. The long credit period encourages over-trading and fosters an unending loop of imports for sake of paying for past imports. This one step alone has the potential to transform the trade.

Dynamic tariffs: Import duties should be varied dynamically so that imported oils are not cheaper than domestic oils calculated on the basis of MSP for oilseeds.

The aforesaid steps will lift domestic oilseed prices from the current low levels and provide a morale booster to growers. Marketability of the crop will improve as the ceiling on oil imports will help boost capacity utilisation in domestic oil mills and solvent extraction plants.

It is important to ensure that consumers across the country — especially the weaker sections — have access to cooking oil at affordable price. This is possible by including edible oil under the Public Distribution System and National Food Security Act. Even 2 kg of refined oil per family per month at subsidised rates would go a long way in advancing food and nutrition security. If it entails a subsidy, so be it. A combination of PDS and private trade supplies will help advance consumer interest.

The government has taken steps with far-reaching implications on pulses trade. Despite immense international pressure to ease policy restrictions on pulses, New Delhi has stood its ground.

So, it is time the government turned its attention towards oilseeds.

Importantly, policies backed by investments to address the structural issues of oilseeds production so as to raise productivity levels are imperative.

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

Published on September 12, 2019

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