Indian vanaspati makers on firmer ground

The import has been stopped since April after the central government reduced the Customs duty on crude palm oil (CPO) from 45 per cent to nil during March-April to check inflation. CPO is the primary raw material used in producing vanaspati.  "The capacity utilisation around this time last year was just 30 per cent. It has now moved up to 45-50 per cent as cheaper imports from Sri Lanka and Nepal have stopped," said Sanjay Agarwal, managing director, KS Oils. The company has a vanaspati production capacity of 150 tonnes per day (tpd).  Under the free trade agreement (FTA) with Sri Lanka (signed in 1998), the island nation can export 250,000 tonnes duty-free vanaspati to India while the Indo-Nepal Treaty allows 100,000 tonnes of duty-free import from Nepal.  Vanaspati producers in these two countries enjoyed a cost advantage over their Indian counterparts since they could import CPO duty free while the Indian producers had to pay a much higher duty.  Before the last rounds of duty cut, a 15-kg vanaspati tin was selling at Rs 1,050 and landed cost of Sri Lankan vanaspati was Rs 1,000. With the duty correction, the price advantage has gone for imported vanaspati. Post duty-cut, the price of domestically-produced vanaspati has slipped to Rs 900 while the cost of imported product has remained unchanged.  The combined import of 350,000 tonnes accounted for almost 25 per cent of India's annual vanaspati consumption, estimated at 1.4 million tonnes. The gap is now being met from domestic production.  The Customs duty on CPO has come down from 88.8 per cent in August 2006 to nil. Between March and April this year, the duty has been reduced from 45 per cent to nil. As a result of this cut, vanaspati prices have remained largely stable since April.  "The unhealthy competition with cheap imported vanaspati has come to an end and domestic manufacturers can perform well in the level-playing field that has been restored now. While the industry as a whole has seen improved capacity utilisation, some are also looking to expand. Our company is increasing its capacity from 350 tpd to 750 tpd," said S N Jhunjhunwala, director, Jhunjhunwala Vanaspati.