Emerging markets of Southeast Asia have come to be the mainstay of Indian exports of oilmeals as can be observed from the cargo movement during the past seven years. Indonesia, Thailand, Philippines and Malaysia were responsible for bulk of the offtake of our oilmeals, riding as they were on the crest of the economic boom with growing per capita incomes, rising standards of living and the corresponding growth of consumer spending on meat and poultry products. The raging economic boom, however, was rudely reversed following the Asian economic meltdown. In place of growing consumer demand there were food riots (notably in Indonesia), precipitated by large-scale layoffs and growing unemployment. Erosion of currency values to the tune of 50 per cent-80 per cent has made imports to these countries prohibitively expensive, resulting in virtually blank order books of the Indian oilmeal exporters.Strongly, our solvent extraction industry and export trade has not articulated as yet its response to thisunprecedented marketing crisis. It is not known how exactly does the industry propose to create an alternate outlet for its oilmeals, since it is going to be quite a long time, even upto the turn of the millennium, before order is restored and revival is initiated in the utterly complex economic scenario of Southeast Asia.
The confusion is worse confounded by a precipitous fall in the value of the Japanese yen triggered by the now acknowledged economic recession, and a threatened devaluation of the Chinese yuan. The yuan could slide unless Japan takes immediate measures to restore its currency value to a decent level consistent with comparative strengths of the yuan and yen so as to make it possible for China to survive in the export markets.
Should Japan, however, not relent and decide to work its way out of recession and the currency crisis through increased exports on the strength of a depreciated yen, it is inevitable that a chain reaction of deliberate devaluation of Asian currencies led by Chinafollows and the beleaguered economies of Southeast Asia get into a deeper morass. It would not be surprising in that case if the currency values of these economies reach such lows that their survival in international commerce becomes a near-impossibility, leaving barter trading as the only recourse open to them.This scenario presents both a challenge and an opportunity for the foreign trade of India.
In order to bridge the gap between its domestic production and the consumption demand of edible oils, India has to import at least 1.0 to 1.5 million tonnes of oils per year. At an average cost of US $625 per tonne the import bill for a million tonnes of vegetable oils this year may come to $625 million. Bulk of the imports comprise RBD palmolein bought largely from Malaysia, though Indonesia can also be a potentially major supplier. On the other hand, both these countries are large importers of oilmeals from India, Indonesia being by far more significant of the two on account of the sheer size of itspopulation and a growing compound feed industry. Fortunately for India, it has established a firm foothold in these markets as supplier of a range of oilmeals. India has a substantial export surplus of soyameal, groundnut extractions, rapeseed meal and other oilmeals. With a sustained growth in the production of soyabeans and rapeseed, India's exportable surplus has been showing a corresponding increase year after year.
Additionally, geographic proximity to the neighbouring East Asian markets has gone a long way in establishing the merits of India as a stable and dependable origin for oilmeals. There is thus a high degree of mutuality between India as an exporter of oilmeals and a large importer of vegetable oils on the one hand, and East Asian countries as importers and consumers of oilmeals and exporters of palm oil on the other. It is open for these business partners to adopt a laissez faire policy and let their respective economic conditions as well as international factors in the oilseeds and oilscomplex determine their fortunes.
On the other hand, they can by-pass these extraneous factors and become proactive by arriving at a sustaining arrangement to mutual advantage on the strength of their respective production base, of oilmeals in the case of India, and, mass produced palm oil as it obtains for Malaysia and Indonesia. If they can devise an arrangement based on mutuality of demand and supply and enter into a medium term (of say three to five years) agreement embracing volumes and payment terms in the framework of a barter or link deal, they can look forward to having a number of advantages.
First, as importers of respective commodities they will be assured of their requisite supply at a desired periodicity. Secondly, there will be a degree of insulation from wild fluctuations in prices, though admittedly free market forces may still have an ample scope in price-making.
Thirdly, the proposed arrangement may well sustain itself over a longer period, because the demand and supply situation evenon a progressive basis in these countries is unlikely to witness any revolutionary trend-reversal.
(The author is the Secretary of The Groundnut Extractions Export Development Association. The views expressed are his own and do not reflect those of the organisation he represents.)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
