The other oil crisis

The lack of long-term thinking on edible oils is jeopardising the viability of this sector. While domestic oilseeds growers are dismayed at the poor returns, the vegetable oil industry is unsure of adequate supplies of raw material to run its plants. The problem is with both the domestic oilseeds pricing policy and an import duty tariff that seems to tilt in favour of import of finished products rather than raw material for processing and value-addition within the country. As a result, a sizable part of the installed capacity of the oil industry, including that of the vanaspati sector, lies idle.

Of even more immediate concern is oil availability. Oilseeds output in the last kharif season was down by close to a million tonnes and, going by the trends in oilseeds crop sowing in the current rabi, the production shortfall in this season may get bigger. Farmers are switching from oilseeds crops like rapeseed and mustard to more lucrative alternatives like wheat and gram. The overall oilseeds output for the year, therefore, might be down by 3-3.5 million tonnes, even as domestic demand for cooking oils grows rapidly by some 3.5 to 4 per cent a year, riding on rising income levels and the growing popularity of fast foods among the rich and the upper-middle class, who, together, account for the bulk of edible oil consumption. As a result, the gap between demand and supply, to be filled by imports, may increase in 2006-07 to a sizeable 6 million tonnes, up from 4 million to 5 million tonnes earlier. Indeed, all indications point to further increase in import dependence in the years to come. This, in itself, may not have been a cause for much worry, but considering the emerging demand and price trends in the global vegetable oils market, the implications are not to be dismissed lightly. International prices are already hardening on the back of burgeoning demand for vegetable oils from the bio-fuel sector. Import dependence could therefore prove a costly option.

Considering these factors, oilseeds cultivation at home should be encouraged. Unfortunately, the government appears to be doing just the opposite by keeping unchanged the support prices of rabi oilseeds at last year's level, while raising substantially the prices for competing crops. The country had, at one stage, achieved nearly 90 per cent self-sufficiency in edible oils because of a well-conceived policy of letting domestic prices float within a band that protected the interests of both producers and consumers. The subsequent policy changes, ad hoc and piece-meal as these have been, have favoured neither oilseeds growers nor the oil industry, and not even consumers. What should not be lost sight of is that oilseeds crops do not require much water to grow, so they can be the ideal choice for vast tracts of land where water is scarce. But the induction of improved technology is imperative to enhance the production efficiency of these crops. For this, the oilseeds technology mission will have to energise itself. On top of that, the government will have to provide a supportive policy and price framework.