Vanaspati output hit even as cheap imports flood market

Ashok B Sharma in New Delhi

VANASPATI production in the country has declined to below 90,000 tonne per month and the trend is likely to continue until corrective measures are taken to ensure a level playing field to the domestic industry vis-a-vis the flood of cheap imports from Nepal, said the executive secretary of Vanaspati Manufacturers’ Association of India (VMAI), S Gurumoorthi.

Mr Gurumoorthi stated that the fall in production is primarily due to the the exorbitant hike in import duty on crude palm oil (CPO) for use by the industry from 25 per cent to 75 per cent in the last Union Budget, recent spurt in global prices of CPO and the mandatory provision for use of 25 per cent indigenous edible oils (which are comparatively costlier than imported CPO) by the industry. The domestic industry have to pack their products in higher-priced prime quality tin-containers as per BIS norms. Over and above this situation is rendered worse by allowing duty free imports of cheap vanaspati from Nepal.

He stated that the domestic industry is unfortunately hemmed in such a situation and has already appeal to the Government to reduce the duty on CPO imported by them to the previous level of 25 per cent and remove the mandatory provision of use of 25 per cent of indigenous edible oil. At least these corrective measures will give the domestic industry a competitive edge, even if the duty free imports from Nepal are not checked.

Mr Gurumoorthi said that in November, 2000 domestic vanaspati production was 1.531 lakh tonne and remained at an average level of 1.4 lakh tonne per month till the import duty on CPO was hiked to 75 per cent. Thereafter there was a sharp decline. In February, 2001 before the hike in duty was effected, the vanaspati production was 1.322 lakh tonne. After the duty hike was effected in March, 2001, vanaspati output declined to 1.162 lakh tonne and touched the lowest level of 80,200 tonne in June, 2001. However, in July, 2001 vanaspati output made a marginal recovery to rise to 86,900 tonne. The average capacity utilisation of industry has sharply dropped to a pathetic level of 29 per cent. The margin of profit has dwindled to a mere one per cent or even lower, placing the viability of the industry at stake, he said.

He said that the industry’s major raw material requirement is met by imported CPO, as it is cheaper than other permitted and indigenous edible oils. In February, 2001 the price of CPO was $220 per tonne which shot up to $338 per tonne on August 20, 2001, indicating an increase of 53.6 per cent. But taking into account the hike in import duty, the percentage increase in price of CPO would be 114.5 per cent.

Comparatively the prices of indigenous edible oils on an average has also increased from nine per cent in February, 2001 to 34 per cent in August, 2001. The indigenous groundnut oil price has increased by 27.4 per cent, that of indigenous mustard oil by 11.4 per cent, that of indigenous soyabean oil by 8.9 per cent and that of indigenous sunflower oil by 33.6 per cent. Such steep rise in raw material cost both on account of enormous hike in duty on CPO and subsequent rise in global prices coupled with rise in domestic edible oil prices have collectively pushed up the prices of Indian vanaspati making it impossible to compete with the Nepalese product, he said.

He said that vanaspati units located in oilseed deficit states of West Bengal, Assam, Bihar, Punjab and Orissa are compelled to fulfil the mandatory use of indigenous edible oils by procuring edible oils from far flung oilseeds growing states, thus adding up to the transportation costs.

Mr Gurumoorthi said the difference in prices of Nepalese vanaspati and Indian vanaspati which was Rs 128 per 15 kg pack in March, 2001 has now risen to Rs 180 per 15 kg pack.