More than 150 small and medium-scale oil mills have shut shop, following total losses of more than Rs 250 crore
Exemption of import duty on edible oils (since 2008) has resulted in an unprecedented rise in imports during the recent oil year (November 2008-October 2009) as well as boosted the per capita consumption of oil in the country, but it has had a negative impact on small and medium-scale oil processing units.
Oilseed processors’ profit margins have deteriorated severely in the last two seasons. And in a bid to minimise their losses, many plants have begun operating at much lower capacity.
More than 150 small and medium-scale oil mills in central parts of Karnataka have shut shop in the last one-and-a-half years — following combined losses of more than Rs 250 crore — leading to loss of jobs for hundreds of workers in the rich oilseed belt.
“We were forced to close down our mills, as the cost of production went up and we were unable to compete with multinational companies, which are importing huge quantities of oil and selling at prices lower than our product. There are no takers for our oil,” A N Chidananda Gupta, vice-president, Challakere Chamber of Commerce and Industry, said.
While the delivery cost of imported edible oil is Rs 420 for a 10 kg pack, the cost of oil produced by local mills is Rs 440-460 per 10 kg pack. This mismatch between cost and earnings has made oil extraction unviable for domestic producers, he said.
According to the Mumbai-based Solvent Extractors Association of India, the total import of vegetable oils — i.e., edible oil, non-edible oil and vanaspati — in 2008-09 was a new record since the opening up of imports in 1994.
The country imported 8.66 million tonnes valued at about Rs 28,000 crore, compared to 6.31 million metric tonnes in 2007-08 valued at about Rs 25,000 crore.
The sharp increase in imports has been mainly attributed to an increase in the per capita consumption of edible oils with a rise in income and high price-elasticity (lower prices have boosted the consumption of low-priced oils like palmolein).
Zero import duty on crude edible oil and a very nominal duty on refined palmolein have favoured imports over domestic oils at the expense of Indian oilseed producers and crushers. Government schemes like mid-day meals have also boosted demand.
Oilseed stocks were at a record high as on April 1, 2010 due to reduced crushing during the current season. Over 18 million tonnes of oilseeds are still lying uncrushed, apart from unprocessed rice bran.
Gupta said each oil mill employs around 60-70 workers, depending on their capacity, and over 10,000 workers are now jobless. Each oil mill produces, on average, 16 tonnes of oil per day, earning up to Rs 10 lakh daily.
With the closure of these mills the state government is losing, on average, Rs 3 lakh in the form of taxes and another Rs 1.5 lakh from electricity bills per month per mill. “At least considering the loss to the state exchequer, the government should take some remedial measures to save these oil mills,” Gupta said.
The oil mills want the government to immediately re-impose import duty of at least 30 per cent on edible oil, so that imported oil becomes costlier than domestically produced oil. This would bring back customers to local oil, he said.
The millers also want working capital in the form of loans at a subsidised interest rate, not exceeding 5 per cent, and sanction of up to Rs 50 lakh per unit, so that they can reopen their mills and repay over a period of three years.
The state electricity department currently charges these mills a minimum electricity charge of Rs 20,000 per month irrespective of whether they are running the mill or not. The mills should instead be charged on the basis of actual consumption, Gupta added.