Gujarat's cottonseed oil and crushing industry is faced with a problem of plenty. In the recent past, cottonseed crushing capacity has outpaced the growth of cotton production in the state.
This has led to glut in cottonseed oil and crushing industry and erosion in the profitability of industry players.
Lured by the increased cotton output in the state, many players have entered the space over the past couple of years. Currently, Gujarat has 625 cottonseed oil mills-the number stood at around 570 by the end of calendar year 2007. Similarly, cottonseed expeller units have surged from 2,748 to 3,000 in the same period.
"In the last two year, cottonseed crushing capacity has almost doubled, while the cotton output in the state has grown at an average rate of 15 per cent. The cotton production stood at 7.4 million bales in 2004-05, which increased to 11.5 million bales for FY08," said Satish Thakkar, vice president, Gujarat cottonseed crushers' association.
Also, the government offered subsidy and tax sops to provide support to the industry. As a result, many players ventured into this businsess, leading to glut in crushing and oil production capacity. Cottonseed oil millers are not getting enough raw material due to multiple players in the industry, added Thakkar.
"This has also impacted the profitability of oil mills and expellers," said Dilip Patel, president, Gujarat cotton ginning and pressing association. With so much of competition, majority of units fail to utilise their full capacity.
There are instances where oill mills and crushing units owners decided to sell their units owing to increased competition and lower margins. The story in ginning and pressing business is similar.
"Currently, Gujarat has around 950 ginning and pressing units. The total number of such units in 2007 was 896," he added.
Industry players believe that in order to avoid glut , government should stop extending subsidy and more tax sops to these units.
