At a time when vegetable oil companies are worried over the growing dependence on imports due to stagnant domestic output, about 75 per cent of the local crushing capacity remains unutilised even after two months of the beginning of the season.
Generally, the Indian vegetable oil industry consisting of oil mills, solvent extraction units, vegetable oil refineries and vanaspati units commence the season during early to mid October. During this time, harvesting of soybean and arrivals in the mandi increase. Small to medium farmers commonly sell their produce to local traders (arhatiyas) who bring the seeds to mandis.
But, big farmers are holding back their produce in anticipation of higher prices. Therefore, mandi arrivals in totality have declined by over 25 per cent so far this season from the normal 2.5-3 million bags during previous seasons, said Rajesh Agarwal, spokesperson, The Soybean Processors’ Association (Sopa).
Also, crushers are not willing to take up their business due to price disparity. According to the Solvent Extractors’ Association (SEA) Executive Director, B V Mehta, crushing of oilseed fetches today a loss of Rs 1,000 per tonne due to higher seed and lower oil prices.
A majority of small and medium units have not yet started operations for the season, while big operators are compensating losses from other sources, said an analyst.
The industry wants a levy on imports, on the argument that this would lead to a rise in edible oil prices. Seed prices will also go up, encouraging more farmers to sell; since the rise in edible oil prices will be far more, crushers will find it much more economical to begin operations, goes the argument.
The domestic turnover of the vegetable oil industry is Rs 100,000 crore. The import-export turnover is Rs 40,000 crore per annum, consisting of Rs 28,000 crore of import of vegetable oils and Rs 12,000 crore export of oilmeals, oilseeds, castor oil, groundnut oil and vegetable fats of tree-borne oilseeds.
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Unhappy with the government’s stand on not levying customs duty on crude oil imports, Dinesh Shahra, MD of Ruchi Soya Industries Ltd, said: “The Indian edible oil industry should exploit domestic resources optimally and hence, the government must create an industry-friendly environment. Today, farmers are not willing to sell their produce, thereby leaving crushing capacity idle.”
“Why is the government not bringing import duty?” he asked.
The hike in import duty may have marginal impact on the domestic price, as it will lead to a price fall in the global market and the landed cost would be more or less the same, even after imposition of duty, Mehta argued.
In the past, the Government of India was getting revenue from import duty on edible oils to the tune of Rs 5,000- 6,000 crore per annum, which has declined to Rs 200 crore. Crude vegetable oil attracts nil import duty, while the refined oil levy is 7.5 per cent from April 2008.
Last oil year (November 2008-October 2009), the country imported 8.6 million tonnes of vegetable oil worth Rs 28,000 crore, set to go up this year on increasing imports at lower price. Out of 15.5 million tonnes of the country’s vegetable oil demand, local production has remained stagnant between 6.5-7 million tonnes. The remaining quantity is met through imports, primarily from Argentina, Indonesia and Malaysia.