The Hindu Business Line : No relief from high edible oil prices

Mumbai April 19 The ham-handed manner in which the Government seems to treat the edible oil sector is by now common knowledge. There is widespread resentment over continued neglect of the oilseeds-based sector. It is most unlike say the country's sugar sector, which seems to be the policymakers' darling.

New Delhi has always been quick to shower unduly benign policy support to protect the interests of stakeholders in the sugar sector, something that is completely missing in case of oilseeds.

No wonder, unsteady oilseeds output and continued dependence on edible oil imports have become characteristic features of this sector; and with that, trade and tariff related decisions have increasingly become the focus of attention rather than structural issues impacting primary production and processing industry.

Notwithstanding the steady cut in customs duty on imported oils (thrice in recent months), edible oils are most unlikely to turn cheaper in the domestic market.

Third advance estimate released by the Agriculture Ministry placed total oilseeds production in 2006-07 at 233 lakh tonnes versus 280 lakh tonnes of the previous year. A large (47 lakh tonnes) shortfall in indigenous oilseeds output during oil year November 2006-October 07 would mean we will have to import about nearly 10 lakh tonnes of additional oil this year over last year's 45 lakh tonnes.

Look at the latest import numbers. Arrivals during November 2006-March 2007 were an estimated 14 lakh tonnes. Even if the country's import requirement is conservatively estimated at 50 lakh tonnes for the year (considering some demand compression because of high prices), over the next seven months - between April and October - we need to import at least 35-36 lakh tonnes, that is on an average 5 lakh tonnes a month.

From next month onwards, the domestic price direction will be influenced by weather conditions too in addition to other factors such as international prices, import volumes, inventory levels and so on.

Palm oil has always been the preferred oil in our country because of lower price, consumer acceptance and easy logistics - proximity of supply source and short voyage time. Because of these advantages, for long years the policymakers here had been content with cosy market conditions. World's two largest palm oil producers and exporters Malaysia and Indonesia too had considerable dependence on the burgeoning Indian market.

The recent developments must be an eye-opener for Indian policymakers. Palm oil producers are no more dependent on India. Although India continues to be a major market, it has ceased to be a major force to influence palm oil prices. Newer factors such as trans-fat and biodiesel have come into play.

Fuelling concern

Palm oil is now being promoted as fuel rather than food.

The `Food versus Fuel' debate will continue to hog the limelight for some more years; and global vegetable oil prices will continue to remain rather strong for several more seasons until production responds to high prices.

If the Indian government is serious about inflation control and making essential food products of mass consumption available to consumers at reasonable rates, there is absolutely no alternative to focussing on raising indigenous production. The facile option of imports at cheaper prices is drying up.

Because inflation hurts the poor the hardest, there is strong case for reviving edible oil supplies through the public distribution system.

Decision to stop edible oil supplies through PDS taken sometime in 2002 was unjustified and anti-consumer.

For a start, vanaspati imports from Nepal and Sri Lanka, which pose unfair competition to the domestic industry should be entirely channelled through the Government and diverted for PDS. Liquid oil import on the Government account may also be resorted to supplement vanaspati supplies.

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