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Time to address the oilseed sector’s structural problems

Time to address the oilseed sector’s structural problems

June 12, 2018


It is logical to expect that the market price of a commodity in short supply would remain high; but oilseeds are an exception in our country. Prices of various oilseeds (soybean, groundnut, mustard) have been ruling low, often, even below the minimum support price for extended periods of time, hurting growers’ interests.


A major reason for depressed prices of domestic oilseeds is the continuing large-scale import of low priced oils from abroad. Palm oil accounts for about two-third of the country’s annual import of about 14 million tonnes valued at a whopping $11 billion (over ₹70,000 crore), making India the world’s largest importer.


Our policy omissions and commissions over the last two decades have meant that our self-sufficiency in edible oil stands alarming eroded with import-dependence escalating to 70 per cent of our consumption needs. For the ostensible reason of supporting domestic oilseed growers, the government raised customs duty on edible oil imports across the board in the Union Budget presented on February 1. It followed up with a hike in duty on palm group of oils a month later.


The last duty hike (on palm oil) has raised the hackles of a section of the trade, which has demanded that duty on non-palm oils like soybean, sunflower and rapeseed oils should also be hiked so as to provide a so-called ‘level playing field’.


Illogical demand


The logic of this argument is difficult to digest. At a time when the industry, trade, policymakers, scientists and growers should be working together to maximise domestic output and reduce import dependence (and thereby create a level playing field for the domestic stakeholders), there are people seeking level playing field for goods of foreign origin.


Indeed, the government’s decision in March to hike import duty on the palm group of oils stands on a strong footing both in terms of revenue generation and protection to domestic producers. Our domestic production of palm oil is negligible. The oil comes from abroad. There should be no objection to extracting revenue out of an imported product that is not produced within the country.


If anything, a liberal foreign trade policy has led to indiscriminate imports. Coupled with importer-friendly duty rates followed for long years such imports have ruined the domestic oilseed economy.


Without doubt, imports are inescapable because there is a clear shortage of domestic edible oil. So, it is nobody’s case that edible oil import in general or palm oil import in particular should be stopped. There is need for a strong regulation; imports should be need-based and not speculation driven.


Enough with the tinkering


Successive governments have ignored the structural issues that stymie oilseed production. Instead of working on effective strategies to boost domestic oilseeds and oils production from a long-term perspective, governments have been tinkering with trade and tariff policies which by their nature will have only a short-tem impact. Often, the government has succumbed to lobby pressure.


The latest is the categorical statement reportedly made by the Agriculture Secretary that customs duty on soybean, rapeseed and sunflower oils will be raised soon. The statement raises serious questions of propriety. Customs duty matters are for the Finance Ministry to decide and announce, and outside the ambit of Agriculture Ministry officials to assert in public.


By making the statement on duty hike, the Agriculture Secretary has sent out a signal to the market participants, especially speculators who will take undue advantage of the price movement. This is best avoided. On the other hand, if the Agriculture Ministry is really serious about supporting oilseed growers, it should strengthen its procurement system.


The time has come for the nation to move a little away from tinkering with trade and tariff policies, and concentrate on addressing the structural problems of the oilseed sector.



Technical Research
Monday, January 21, 2019
MCXCrude Palm Oil - MCXJan19553.7558.5552.3554.1
NCDEXMustard SeedFeb193880392938803891
NCDEXSoy OilFeb19766772763766.7
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