Skewed Policy, Slippery Deals

IS a skewed edible oil import policy fast driving the domestic oil seed farmer out of business? Gross mismanagement by successive governments since India achieved 97 percent self-sufficiency in 1990-91 has turned one of the largest producers of edible oils in the world into its largest importer. The July 1998 decision of the Vajpayee government to slash import duty on oils from 65 per cent to a mere 15 per cent has further deepened the crisis for the domestic farmer. This year, by October, India had already imported 20.83 lakh tonnes of oil worth Rs 6,000 crore—which is something of a record.

While the easing of duty on edible oil imports was ostensibly aimed at plugging the gap caused by the scarcity of mustard oil due to dropsy deaths (oil has been put on the OGL list), the floodgates have opened for the palmolein importers and the powerful US-based sunflower oil and soyabean oil lobby. Of the edible oil imports that ensued after duty was relaxed, close to 14 lakh tonnes was palmolein, 3 lakh tonnes soyabean and 1.76 lakh tonnes sunflower oil. However, the popular groundnut oil accounted for only 252 tonnes in imports.

Though the official line is that there was a gross domestic shortfall in production (see graph), the oil industry is surprised at the increased imports and says it points to hoarding of domestic oil. Says Rajendar Gupta of the Bombay Oils and Oilseeds Exchange Association: "We do not understand why there is the need for imports. We are self-sufficient. But if imported oil is brought in with such low duties, it could drive the domestic producers out of business."

Clearly the government has no rational, well-thought-out policy for the edible oil sector. According to one Ahmedabad-based expert in the oil sector, it would help if the central government comes out with a consistent policy on not just the domestic edible oil sector but also, at another level, the oil-seed sector. "Perhaps we should be importing oilseeds rather than oil to cater to the domestic crushing capacity until such time as the local production of the crop can enable the mills to run to capacity," he says.

But at the moment the government's import policy seems to have come in handy for the soyabean lobby. Vandana Shiva, director of the Delhi-based NGO, Research Foundation for Science, Technology and Ecology (RFSTE), says that the US, which failed to sell its genetically engineered soya to European countries because of consumer rejection, has now begun to eye the Third World market. It is estimated that over 18 million acres have been planted with the genetically engineered 'Round up Ready Soyabeans' this year in the US. Significantly, the possibility of genetically engineered food products carrying dangerous allergens has not been ruled out. Happily for the soya lobby, the new oil import policy has made it possible for them to not only access the Indian market, but also change the traditional habits of Indians by running the domestic producers out of the market.

The 'Round up Ready Soyabean' has been allegedly genetically engineered by the American chemical and fertiliser manufacturer Monsanto GE. The company also produces the controversial Terminator seeds and the weed killer glyphosate under the brand name 'Round Up' which can be sprayed on to the genetically engineered bean. Monsanto would like the soyabean to be popular to ensure that its weed killer as well as its seeds have a readymade market.

But that is a long-term project. For Indian solvent extractors, the relaxation in the import duty has already come as a big blow. Says Solvent Extractors Association (SEA) president Ajay Tandon: "Earlier the oilseed sector was a net foreign exchange earner. But it has now become forex negative and lost its pride of place." The SEA blames the government for not formulating any policy which could utilise the domestic capability to the full. At present, according to SEA executive director B.V. Mehta, only 50 per cent of this capability is being utilised.

If indeed there is under-utilisation, the big question is where does the domestic produce disappear? Says Gupta: "Ask the Gujarat government, the oil lobby there is very strong. Our inside information is that since the oil barons supported the party in power during the Lok Sabha elections, they were in turn helped by the government."

This insinuation that there has been hoarding of oil adds another dimension to the edible oil tangle. On the one hand, the oil import lobby has been given a free run. On the other, the oil traders, or the taliya rajas, have been given an opportunity by state governments like Gujarat to rake in money; in fact, this license to hoard sent groundnut oil prices to an all-time high during this Diwali season.

Notes Kushal Sharma, a close observer of the oil lobby in Gujarat: "Traders were free to do as they pleased with their oil. In Gujarat oil is like gold. During the festival season the traders made huge sums at the cost of the consumer."

 Should the import policy continue, the biggest loser is bound to be the farmer. The recent dropsy deaths have already turned many a farmer away from continuing with mustard cultivation. Relaxed import duties would mean that he will find it difficult to sell his produce and will be forced to shift to other crops.

For its part, the central government has not helped matters by banning the sale of loose oil from December 15. The ban was announced in the wake of the dropsy deaths but the modalities of the sale of packaged oil has still not been made clear. Therefore, the current situation is that selling packaged as well as loose oil could land the traders and manufacturers in trouble. With 70 per cent of the domestic oil produced being sold as loose oil, the farmer is not clear about the future in oilseed farming.

Meanwhile, India's usually robust groundnut exports have not materialised this year. Exporters who had made advance commitments to foreign buyers are finding their cargo rejected due to the poor quality of the produce. With buyers and brokers discontinuing booking orders, there is a glut of inferior grade groundnut in Gujarat; but extractors are not buying up the produce because they are uncertain of the market response.

OIL experts say the time has come for the government to revise its import policy and support the farmers as well as the domestic trade. The SEA's Gupta warns that the "domestic industry is on the verge of collapse". He points to the obvious disastrous impact on oilseed growing regions.

Observers also caution that if imports completely sideline the domestic farmer, the result may be a slowdown in the research currently in progress at various agricultural institutes to develop the 'oo' (double zero) variety high-yield rape-seed that is seen as the answer to the country's edible oil shortages.

According to the oil industry, the question that the government must actively consider is whether it would like the edible oil market to be dominated by imports from abroad or whether it favours self-sufficiency. Before 1991 there were fears that India would have to increasingly depend on imported edible oil to meet local demand. But it did not take long to shore up domestic produce to meet requirements, saving precious foreign exchange. But with the government apparently concluding that imported oil is a cheaper option, these gains may soon be lost.