March 1: In my last article (February 16, 1998), I had dealt with the merits of importing oilseeds to optimise the utilisation of the solvent extraction industry's processing capacity as against the import of vegetable oils. The agriculture ministry has since decided to form a three-member sub-committee to look into the relevant aspects of plant protection and quarantine before allowing oilseeds imports. The composition of the committee is yet to be announced.The subject of oilseeds import, therefore, deserves to be vetted from various angles since vested interests and strong lobbies are working for and against the the idea of importing oilseeds in preference to vegetable oils.
The interests involved are: exporters abroad shipping vegetable oils to India; the vanaspati industry (a major user of imported oils as an industrial raw material for hydrogenation); the solvent extractions industry (nursing a huge idle capacity, which it would like to put to good use); the consumer of edible oils; and the Indianoilseeds farmer.
It would be surprising if these interests did not have a strong presence and representation at various levels of the hierarchical decision-making chain in the Union ministries of agriculture, commerce and finance. However, it has been observed that with the exception of the solvent extraction industry, which is pleading for import of oilseeds, other segments are yet to manifest their strong stance for or against the import of oilseeds.
Countries exporting vegetable oils to India would not want any change in the existing policy -- at least to the extent that it would curtail imports of edible oils to India either through a conscious decision imposing quantitative restrictions on such imports or through adverse import tariffs, or by the residual effect of the increase in supply of such oils in India through imports of oilseeds for processing domestically. Quantitative restrictions, however, would be violative of WTO obligations, say after 5-10 years, for India has already subscribed tothem. Objections emanating from considerations of plant protection and quarantine, or those related to protecting indigenous strains of soyabeans from genetically modified beans, are an entirely different ballgame, which would be quite separate and independent of the WTO regime.
These exporters (whose mainstay is palm and allied oils) may argue that barring the prevalent unusual circumstances (wherein Indonesia has placed an embargo on exports as a result of which quotations for palm oil have considerably firmed up during the course of the past few weeks), palm oil has undoubtedly been the cheapest oil that India could import. Producers of soyabean and sunflower oils could export seeds instead of oils to India, but for those countries producing palm oil this is not possible, which could hurt major palm oil exporting countries -- Malaysia and Indonesia.
On the other hand, if no quantitative restrictions are imposed on imports of vegetable oils, and the economics of importing oilseeds versus oils are leftto market forces, we can look forward to serious price competition influencing the viability of imports of the respective commodities one way or the other.
The recent upward price trend in vegetable oils is more in sympathy with the higher c&f prices of imported oils, especially those from south-east Asia. This is surprising because this is happening during the busy season, and when the kharif oilseeds production in India is seen to be comfortable. The spurt in prices, therefore, appears to be entirely sentimental and is unlikely to escape the attention of policy makers in the government.
If India imports, say, 1.5 million tonnes of vegetable oils annually at a monthly average of 1.25 lakh tonnes against the domestic production of over seven million tonnes, it becomes a significant factor influencing Indian vegetable oils prices. This then is a case of the tail wagging the dog.
There are hardly any domestic factors to support increased consumption of vegetable oils, considering the economy's sluggishgrowth, both in the industrial and agricultural sectors.
The vanaspati industry, a large consumer of imported oils for hydrogenation, would look out for vegetable oils in the country as a one-point source of raw materials, irrespective whether it is of domestic or imported origin. It has to process such oils and market them in competition with various cooking media (such as expeller filtered oil and refined oils). It must, therefore, vie for the cheapest available oils to make its operations sustainable.
It would, therefore, not be unnatural for the vanaspati industry to be concerned about the economic viability of importing seeds vis-a-vis oils, because unviable imports could result in higher vegetable oil prices, making its operations difficult to sustain. If the solvent extraction industry should find it difficult to control its costs -- including the costs of movement of oilseeds from ports to plants in the interior and the additional freight cost for returning oilmeals to ports for being exported-- the viability of the proposal could be seriously jeopardised.
The industry will have to market its oilmeals at prevailing prices of proteins in the international markets, and sell vegetable oils domestically in competition with imported oils. In doing so, it will have to reckon with dual transportation costs as referred to above, in addition to infrastructural bottlenecks at ports and a host of other adverse logistical factors. In the past, the government has been extremely sensitive to the interests of consumers of commodities of mass consumption.
The consumer comes first, the farmer next and industry the last. Therefore, any experiment that may lead to either shortages or unacceptably high prices of edible oils will be disastrous, and as such a deserving candidate for being jettisoned. Those advocating oilseeds imports will have to be extremely sensitive to the interests of the consumer and must work out their economics in such a way that his interests are not hurt.
Finally, comes the oilseedfarmer. Post-independence India has seen the progressive fragmentation of cultivable land resulting in no more large-scale farming. To compound this situation, the cooperative movement has not taken off in agriculture in any significant manner. The Indian farmer thus stands isolated and feels lost when it comes to mustering resourexpected to face world competition with these constraints. In such a complex situation it is hard to figure out whether the oilseeds farmer is better or worse off as a result of imports of oilseeds or vegetable oils.
The market price of oilseeds is determined by several factors such as prevailing and prospective prices of oil and oilmeals, and competitive bidding by a processing industry hungering to wallop limited supplies of oilseeds.
The demand, on the other hand, is fairly price elastic: at lower prices there is a likelihood of incremental growth in demand from the marginal consumer. Further, there is the all-important aspect of the cost of production of oilseeds in thecontext of the Indian farmer's small land holding and limited resources. The farmer does not enjoy economies of scale nor does he have a strong back-up of cooperatives.
In this situation it is not likely that the farmer is going to be able to make out his case one way or the other for import of oilseeds or vegetable oils. The onus, therefore, would lie entirely on the authorities deliberating on the subject to ensure that in the quest for imports, whatever be the compulsions, the interests of the farmer are not overlooked. Unless, of course, India is aiming to surrender its position as one of the major producers of oilseeds in the world.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
