Sorry Ramesh Chand, protectionism cannot salvage India’s edible oil economy
Although the Solvent Extractors’ Association (SEA) “lobbied very strongly” with ministers and officials and got import duties on edible oils hiked four times since August, it believes enhanced productivity in oilseeds is vital to steady the ship of the cooking oil industry. The import duty on crude palm oil including education cess has tripled from 15.5% to 48.4% between August and June, and that on refined, bleached and deodorised palmolein and palm oil has doubled from nearly 26% to a tad less than 60% during this period. The duty on crude soybean oil is 38.5%, up from 18% a year ago. The tariff on crude sunflower oil has risen from 13% to 38.5%. The duty on refined oils—soybean, sunflower and rapeseed—is now nearly 50%, up from a little over 20% a year ago. Both crude and refined cottonseed oil, which could be imported duty-free a year ago, now bear a levy of 38.5% and 49.5%, respectively. These are the highest levels of import duties on edible oils in a decade, says news agency Reuters.
The support for protection has come from NITI Aayog member Ramesh Chand. In an article in the Business Standard, he said while the Green Revolution created self-sufficiency and more in cereals, it bypassed the oilseeds sector. India’s import dependency in cooking oil has increased—from less than 5% of domestic consumption in early 1990s, the share of imports is now 66%, he laments. India is the biggest edible oil importer, shelling out about $10 billion a year to buy 14 million tonnes from overseas.
Chand blames liberalised imports after the 1991 trade reforms for this situation. He attributes the change in import stance to “some experts (who) produced analysis that India has a comparative advantage in increasing production and export of cereal instead of oilseed, and it was more efficient to meet edible oil demand from imports.” Persuaded by this logic, the government slashed import duty on palm oil from 65% in 1994-95 to 25% in 1996-97 and 15% the next year, he says, though it could charge up to 300% according to India’s commitment to the World Trade Organisation (WTO). In fact, the United Progressive Alliance (UPA) government of Manmohan Singh went further.
It reduced the import duty on crude and refined palm oil to 0% and 7.5%, respectively, in 2008. The global cereal and edible oil prices had spiked in tandem with crude oil prices, owing to a diversion of corn and palm oil to produce biofuels. The analysis that Chand refers to was published in March 1996 in the Economic and Political Weekly by agricultural economist Ashok Gulati along with Anil Sharma and Deepali S Kohli. In “Self-Sufficiency and Allocative Efficiency: Case of Edible Oils,” they put the 1986 Technology Mission on Oilseeds (TMO) under scrutiny.
The aim of the mission was to achieve self-sufficiency in oilseeds by 1990. Since the consumption of cooking oil grows as incomes rise, imports had risen steadily since 1976-77, they said. By the early 1980s, the country was importing a third of its requirement, which could not be sustained owing to the shortage of hard currency. Chand declares the policy adopted by the Rajiv Gandhi government to achieve self-sufficiency as successful. In just six years, he says, production of oilseeds increased by 78%, or nearly 9 million tonnes a year, and imports fell from close to 2 million tonnes in the year following the launch of the mission to 0.1 million tonnes in 1992-93.
But this self-sufficiency was achieved at a cost. Only the State Trading Corporation (STC) could import cooking oil. Duties were raised to 85%. The National Dairy Development Board (NDDB) was charged with giving price support to farmers by keeping the wholesale prices of cooking oil within the range of Rs 20 and Rs 25 per kg. The NDDB launched Operation Dhara and influenced retail prices though buffer stocks and market intervention (it continues to retail Dhara brand cooking oil). It made losses in the process and was allowed to make them up through import of cooking oil at a special, concessional rate of duty.
Under the 1986 National Oilseed Development Project, priority was given to cultivation of four oilseeds—groundnut, rapeseed-mustard, sunflower and soybean. The project was launched in select district of 12 states. Apart from price support, farmers were given subsidised seed and credit. The project was later extended to 180 districts in 17 states. Gulati and his team attributed 53% of the increase in oilseeds production to area expansion, mainly to irrigated land. Only a third of the output increase was due to yield enhancement, they said. The highest yield increase was in groundnut. The yield of soybean, sunflower and rapeseed-mustard increased by about 20%. The area was diverted from cereals like jowar and pulses.
Chand believes cheap supply of cooking oil created demand. If there was a lid on imports, cooking oil consumption would have been flat, like that of cereals. That may not be true. As incomes rise, people tend to consume more of protein (pulses, milk, eggs and meat) and fat, and less of carbohydrates or cereals. Siraj Chaudhry, the chairman of Cargill India, which is a large global agri-commodities trader that produces and retails cooking oil, says much of the new demand is institutional—from restaurants and the snack food industry.
Chand would like to think that Indian oilseed producers may not be inefficient as they are able to compete on exports of oil meal, which is used as animal feed. It is true that the yield of oilseeds has improved since the technology mission was launched—that of soybean has risen from 755 kg per hectare to 1,060 kg per hectare. Groundnut yield has grown from 852 kg/ha to 1,394 kg/ha (kharif). That of rapeseed-mustard has increased from 706 kg/ha to 1,193 kg/ha.
These yields compare poorly with those of the major oil exporters. Canada’s rapeseed yield is 2.3 tonnes per hectare. Soybean yield in Argentina, Brazil and the US is around 3 tonnes per hectare. VS Bhatia, the director of the Indore-based Indian Institute of Soybean Research, says India’s soybean crop is of 90 days, while that of the Americas is 140-150 days. Still, the scale is vastly different and India is at a cost-disadvantage.
Chand also brings in health aspects to buttress his case for higher import duties. He says palm oil is unhealthy compared to the oils that Indians traditionally consumed. But oil palm yields 4-5 tonnes of oil per hectare and is affordable to the poor. This is the reason why India is promoting its cultivation.
Chaudhry says given India’s low yield, it would require tremendous area expansion to create self-sufficiency in cooking oil. Disposing of oil cake and meal would be problematic because India is not a predominantly meat-eating country. But he says his stance has changed from the TMO days, when he was engaged with the STC in oil imports. Being a large consumer, India cannot depend on oil imports. It must support a local oil-crushing and refining industry to insulate itself from external shocks, like that of 2008. That will also encourage farmers in dry land areas to cultivate oilseeds.
Siraj Hussain, the former agriculture secretary, says the landed cost of edible oil should not be below the minimum support prices (MSP). But if MSP is cost plus 50% (the latest government policy), it will encourage inefficiency. MSPs cannot ignore global price trends.
Import duties must be dynamic and set at a level that protects more efficient domestic producers. Oilseeds (and pulses) are also socially-useful crops. They enrich the soil with atmospheric nitrogen and reduce dependence on imported—and subsidised—urea. They also require less water. Oilseed farmers must be compensated for these environmental services. A per-hectare fixed payment, like that in Telangana (Rs 4,000 per acre, per season), would be ideal.
Salvation lies in technology. Sadly, for ideological reasons, both the BJP and Congress-led governments have not permitted genetically-modified (GM) food crops to be cultivated. Insect-resistant soybean would save the harvest that is eaten by borers. Herbicide tolerance would reduce weeding costs. Chand is silent on high-yielding GM mustard which this government has blocked.
BV Mehta, executive director of SEA says MSP must be linked to productivity, but that may be hard to implement. Last year, SEA had launched Mission Mustard and had sought (without success) the government’s help in increasing area under mustard in Punjab and Haryana through assured procurement at higher support prices. It has also proposed to partner with the government in field-level demonstrations of good agronomic practices to increase mustard yields. It has offered as a model its intervention in castor seed over the past two years covering 140 farmers and 160 hectares in Gujarat’s Junagadh, Banaskantha and Sabarkantha districts. The association’s members had picked the `35-lakh tab for engaging domain experts, training and employing agricultural science graduates as extension agents and for the free supply of inputs. As a result, the association says, average castor seed productivity rose by 80% to 4.5 tonnes/ha in the target farms versus 2.5 tonnes in farms of the control group.
Author runs a blogsite called www.smartindianagriculture.in