THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT ESTD 1973 POSTGRADUATE PROGRAMME FALL WINTER 2006-08
AN ASSIGNMENT FOR INDIA’S FOREIGN TRADE ON
FOOD PROCESSING SECTOR – EDIBLE OIL IMPORTS BY INDIA
I, a student of PGP/FW/06-08/HR, IIPM Hyderabad, have successfully completed an assignment on “Food Processing – SUGAR” as a product, under the guidance of Prof. E. Muralidarshan.
I hereby declare that all the information that has been collected, analyzed and documented for the project is authentic possession. I would like to categorically mention that the work here has neither purchased nor acquired by any other unfair means. However for the purpose of the project, information already complied in many sources has been utilized.
TABLE OF CONTENT
1. Title of the Project 2. Acknowledgement 3. Declaration 4. Table of Content 5. Introduction to India’s Food Processing Sector. a. Size b. Structural Characteristics c. Policy d. Outlook 6. Export and Import Procedure -Export Procedures 7. Export and Import of Agri Products 8. Edible Oil as Food Processing Product -Introduction -Structural Characteristics - Policy - Outlook 9. Edible Oil Imports by India 10. Summary 11. Bibliography
India‟s Food Processing sector, is still in a nascent stage, and has a share of around 5.5% in the GDP. Its sales turnover is around Rs. 2.8 trillion, and employs around 13 million people. Availability of raw materials, changing lifestyles and relaxation in policies has given a considerable push to the industry‟s growth. The Indian food processing industry holds considerable significance because of the linkages and synergies that it promotes between the two key sectors of the economy, i.e., industry and agriculture. Strengthening this link is of critical importance to improve the value of agricultural procedure; ensure remunerative prices to farmers and at the same time create favorable demand for Indian agricultural products in the world market. Thus a thrust to the food processing sector implies significant development of the agriculture sector and ensures value addition to it. Fast growth in the food processing sector and progressive improvement in the efficiencies of value chain are also important for achieving favorable terms of trade for Indian agriculture both in the domestic and international markets. India‟s Food Processing Industry covers a spectrum of products from the sub-sectors comprising, agriculture, horticulture, plantation, animal husbandry and fisheries. India has abundant availability of a wide variety of crops, fruits, vegetables, flowers, live-stock and seafood. Size The Ministry of Food Processing Industries, GOI, has estimated the size of the Indian Food Market at Rs. 8,600 Billion. This processed food market is projected to be over US $ 100 Billion, of this the primary processed food market accounts for 60%, while the value-added processed food market is around 40%. Structural Characteristics The Indian Food Processing Industry is an extensive through highly fragmented industry. A large number of players in this industry are small sized companies, and are largely concentrated in the unorganized segment. This segment accounts for more than 70% of the output in volume terms and 50% in value terms. Though the
organized sector is comparatively small, it is growing at a much faster pace. Though India‟s agricultural production base is reasonably strong, wastage of agricultural produce is sizeable. Processing of fruits and vegetables is a low 2%, around 35% in milk, 21% in meat and 6% in poultry products. These are quite low by international standards, as processing of agriculture produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. Policy Food processing has been declared a priority sector by the Government of India (GOI). No industrial license is required for food processing except for alcoholic beverages and a few items reserved for SSI. 100% FDI is allowed except in alcoholic beverages and some items reserved for SSI. Up to a maximum of 24% foreign equity is allowed in SSI sector. Use of foreign brand names is now freely permitted. Most of the items can be freely imported and exported except for items in the negative lists for imports and exports. Capital goods are also freely importable, including second hand ones in the food processing sector. Agro based units can be established in special economic zones and 100% EOU are allowed (i) sales up to 50% in domestic traffic area, and (ii) import of capital goods and raw materials at 0% duty. The Government has also proposed to set up the National Institute of Food Technology Entrepreneurship and Management. Wide ranging fiscal policy changes have been introduced progressively. Excise and Import duty rates have been reduced substantially. Many processed food items are totally exempt from excise duty. Custom duty rates have been substantially reduced on plant and equipment, as well as on raw materials and intermediates, especially for export production. Customs duty on packaging machines has been reduced from 15% to 5%. Excise duty is fully exempt on condensed milk, ice cream, preparations of meat, fish and poultry, pasta and yeast. Excise duty on
ready-to-eat packaged foods and instant food mixes, like dosa and idli mixes, is also to be reduced from 16% to 8%. Outlook Demographic factors, changing lifestyles and consumer demand for greater variety has increased pressures on the food processing sector to provide products at competitive prices. Policies are now promoting the participation of private investors that would promote efficiency in food processing and agriculture marketing systems. The Government of India is clearly in the midst of a vision, strategy and action plan for the food processing sector. This strategy addresses issues of taxation, organized retail, infrastructure development, marketing interventions and regulations, strengthening of institutions and issues of food safety and regulations. The Vision 2015 strategy released in 2003-04 envisages: o Trebling the size of the processed food sector to close to US $ 300 bn by 2015. o Increasing level of processing of perishables from 6% to 20%. o Value addition to increase from 20% to 35%. o Increase share in global food trade from 1.5% to 3%. o Increase the share of value added products in food consumption from the current 16% to 50%. Among the food processing segments, progress has been pre-eminent in the grain processing sector with the extensive branding of processed end-products like wheat flour and processed rice. The other growing segment is poultry and meat in terms of branding and marketing of products. The fruits and vegetables segment is still localized in its operations, and largely unbranded. The products those are likely to see growth include pickles, fruit pulps, canned and frozen fruits and vegetables. Organised food retailing is likely to play an important role in increasing the consumption of processed food items leading to accelerated growth of this sector. This retail format reduces the number of intermediaries and transaction costs. The Ministry of Food Processing, GOI, has projected the organized food retail industry to grow by 30% for the next five years. Among the key categories that constitute the organized retail market, the food and beverage segment make up a high 29%. Though current sales of processed foods through retail outlets are hardly 1% of total food
sales, it is estimated to grow at an annual rate of 40% in the near future.
EXPORT AND IMPORT PROCEDURES
Procedures for Import and Export Before actually importing or exporting goods, the goods have to be cleared by the Customs authorities. Such clearance is normally done in notified customs areas. Custom area means all areas of Customs Station and includes any area where imported goods or exported goods are kept pending for clearance by the customs authorities. Customs Station means any of the following places which are notified by the Central Government where customs clearances are to be done:1. Customs Port has been defined as port notified by the Central Government as Customs Port. Under section 29 of the Customs Act any vessel or ship entering India from a place outside India must land only at a Customs Port. 2. Inland Container Depot has been defined as depot notified by the Central Government as Inland Container Depot. 3. Customs Airport has been defined as an airport notified by the Central Government as Customs Airport. An aircraft entering India from a place outside India must land only at a Customs Airport. 4. Land Customs Station has been defined as a place notified by the Central Government to be a Land Customs Station. Goods imported by the land route will have to be brought to a land customs station first before being disposed off in any manner. Once goods enter India the land route, they must follow the prescribed route only and reach the prescribed Land Customs Station only. The Collector has been authorized to specify the limits of a Customs Area and to approve the places for loading and unloading of goods to be exported or imported. Thus, though the Central Government notifies a customs area, the actual place within that city or town is approved by the collector.
Export procedures Certain procedures have to be followed for the purpose of clearing goods to be exported. Briefly these procedures have been discussed below:Procedures to be followed by the exporter 1. The exporter must submit the Shipping Bill in case of export by sea or air and Bill of Export in case of export by road in the prescribed form containing the prescribed details such as the name of the exporter, consignee, invoice number, details of packing, description of goods, quantity, FOB value, etc. Along with the Shipping Bill, other documents such as copy of packing list, invoices, export contract, letter of credit, etc. are also to be submitted. Goods have to be assessed for duty even if no duty is payable. There are 4 types of shipping bills:1. Shipping bill for export of goods under claim for duty drawback. This shipping bill is green colored. 2. Shipping Bill for export of dutiable goods. This shipping bill is yellow colored. 3. Shipping Bill for export of duty free goods. This shipping bill is white colored. 4. Shipping bill for export of duty free goods ex-bond i.e. from bonded warehouse. This shipping bill is pink colored. Declaration of exporter The exporter must make a declaration in the prescribed form in the following situations:
In case of exports of goods under claims for drawbacks of duty In case of goods under DEEC schemes In case of exports of goods in anticipation of issue of advance license or DEEC In case of consignment covered by AR-4A (Excise Forms refer Excise Law Details) pending weighment at the docks. These forms are excise forms against which a manufacturer exporter may clear goods from his factory for the purpose of exports without payment of any excise duty
In case of exporters who have filed Shipping Bill without certificate from an inspection agency
2. Excise formalities: In case goods are cleared by the manufacturer for export, there are accompanied by Form AR-4 or AR-4A. This form must be submitted to the Customs authorities. The Custom Officer certifies that the goods covered by the form have been exported. This firm then has to be submitted to the Maritime Collector for obtaining proof of export. The bond executed by the manufacturer-exporter with the excise authorities for clearance of goods without payment of excise duty is released only when proof of export is accepted by the maritime collector. 3. Exchange control formalities: The exporter must file copies of GR form prescribed by the Reserve Bank of India (RBI) for the purposes of exchange control with his bankers. Purpose of GR form is to enable RBI to ensure that export proceeds from the export are received in India through proper banking channels only within reasonable time limits. 4. Inspection reports: Certain goods such as items which are prohibited for export under the Foreign Trade (Development and Regulation) Act, antiques, arms, narcotics, etc can be exported only after they have been inspected for export and appropriate permissions from the concerned authorities have been obtained. In such case, inspection report must also be submitted. The inspection may be done at the exporter's premises or at a Customs Area. 5. Let export order : After all the above formalities are over and the Customs Officer is satisfied that the export does not contravene the provisions of any law and all duties and other dues have been paid, a "Let Export Order" will be made to permit the export. Procedures have to be followed by the person in-charge of conveyance (shipper) 1. Entry outwards entry outward is granted by the Customs authorities on application made by Steamer Agents 14 days in advance to enable the exporters to submit Shipping Bills. This enables Speedy completion of Customs formalities. Loading of goods on the vessel can start only after Entry Outwards is granted.
2. Loading with permission: Goods for export can be loaded only after the Shipping Bill or Bill of Exports duly assessed by the Customs Officer is handed over by the exporter to the person in-charge of the conveyance. In case of baggage and mail baggage, Shipping Bill is not necessary but approval of the Customs Officer is required for loading. 3. Export manifest or export report must be filed in the prescribed form before departure giving the prescribed details which are similar to the details required in the Import Manifest. The Export Manifest may be amended or supplemented with permission if there were no fraudulent intention. The Export manifest must be accompanied by a declaration that the details specified are true and correct by the person in-charge of the conveyance. This report is not required if the conveyance is carrying only luggage. Miscellaneous procedures 1. Boat notes: Sometimes, a vessel instead of actually docking at a port may unload cargo in a smaller boat which will bring the cargo on to the shore. In such cases, the small boat must be accompanied by a Boat Note. Such Boat Notes will be issued by a Customs Officer in the prescribed form in duplicate. Similarly, in case of exports, a boat may carry the export cargo to a waiting ship at sea. In such cases, a boat note is required. However, a Boat Note is not required if the cargo is accompanied by a shipping list. A Boat Note is also required for transshipment of cargo i.e. transfer from one ship to another for reshipment. 2. Transit goods: Any goods imported in a vessel or aircraft will be allowed to remain on board of the vessel or aircraft and to be transited without payment of custom duty. However all these goods must be mentioned in import manifest submitted by the person in charge of the conveyance. 3. Trans-shipment of goods means transfer of goods from one vessel to another for transport to any port. Goods can be trans-shipped without payment of any customs duty provided they are mentioned in the Import Manifest. In such cases, a Bill of Trans-shipment must be submitted to the Customs Officer. However, such transshipment is not allowed in case of certain prohibited goods.
4. Coastal goods means goods transported from one port in India to another port in India but do not include imported goods. though no import or export is involved in case of coastal goods, adequate control procedures are required in order to ensure that these goods are not illegally exported. Trade and transport of coastal goods by sea can be carried out only on approved coastal ports. The consignor must file a Bill of Coastal Goods to the Customs authorities in the prescribed form giving the prescribed details. The goods will be loaded by master of vessel only after the Bill of Coastal Goods is approved by the Customs authorities. The Master of vessel must carry an advice book where entries will be made by the Customs Officer. This advice book can be inspected by a Customs Officer a coastal port. On completion of loading, entry outwards is granted by the Customs Officer after which the vessel may leave port. The coastal goods can be unloaded on a Coastal Port or a Custom Port. The relevant documents and goods will be inspected by the Customs authorities. Unloading can be done only after obtaining permission from the Customs Officer.
EXPORT AND IMPORT OF AGRI PRODUCTS
Exports Agri-exports accounts for about 13 to 18 percent of total annual exports of the country. In 2000-01, agri products valued at more than US $6 billion were exported from the country, 23 per cent of which was contributed by the marine products alone. Marine products, in recent years, have emerged as the single largest contributor to the total agri exports from the country accounting for over one-fifth of total agri exports. Cereals (mostly Basmati and non-Basmati rice), oil meals, tea, coffee, cashew and spices are the other prominent products, each of which accounts for nearly 5 to 10 percent of the country‟s total agri exports. Meat & meat preparations, fruits & vegetables and processed fruits and vegetables have recently shown strong growth, but they are currently not among the dominant foreign exchange earners. The stagnating agri export from India in recent years can be traced partly to distorted domestic prices for products like rice, wheat, oil meals, tea, coffee etc. Weakness in export infrastructure specific to agri products, such as storage, port handling facilities, lack of large scale processing technology, and export quota restrictions makes Indian supply sources unreliable, and hinder the exploitation of full potential of Indian agri exports. Imports In 2000-01, the country‟s agri imports were only US $1.8 billion, much lower than agri exports of more than US $6 billion from the country. In recent years, edible oil, accounting for nearly 60 to 70 per cent of the value of total agri-imports, has become the single largest item of agri imports. Raw cashewnut, nuts (almonds from USA) and pulses are among the other dominant agri imports, each of which accounts for nearly 5 to 10 percent of total agri imports in recent years. Sugar and cereals, each of which also accounted for 5 to 10 percent of country‟s agri imports in recent years have registered substantial decline both in terms of value and share in 2000-01. Agri imports in 2000-01 constituted only a small proportion of country‟s total imports, i.e. 3.7 percent. In recent years, the share of agri imports in total imports of the country has hovered around 5 to 6 percent. Contrary to
concerns in some circles that liberalisation of imports resulting from the lifting of quantitative restrictions on agri products would lead to surge of agri imports affecting adversely the Indian farmers, the value of agri imports in aggregate terms has come down to about US $ 1.8 billion in 2000-01 from US $2.9 billion and US $ 2.8 billion in 1998-99 and 1999-2000 respectively. India has considerable flexibility to counter flooding of the Indian market by cheap agri imports by imposing tariffs (bound rate) under WTO for agri products which provide a fair level of protection. The Government, in fact, raised the import tariff for many agri products such as tea, coffee, pulses and edible oils in the last Budget (2001-02). Countervailing duties can also be imposed to counter actionable subsidies given to agri products by the exporting countries apart from having the option of acting under safeguard provisions to counter surge of imports.
Cereal Pulses Milk & Cream Cashew nuts Nuts & Fruits Sugar Oil Seeds Veg. Oils Total Agri Imports Percent of Agri to Total Imports Total Country Imports
TABLE 8.26 Agriculture Imports 1998-1999 1999-2000 Value % to total Value % to total Agri Agri Imports Imports 288 9.9 222 7.8 169 5.8 82 2.9 3 0.1 25 0.9 230 159 264 2 1804 2919 6.9 7.9 5.5 9.0 0.1 61.8 100.0 276 136 256 4 1857 2858 5.8 9.7 4.8 9.0 0.1 64.0 100
2000-2001 % to total Agri Imports 19 1.0 109 5.9 2 0.1 Value 211 175 7 2 1334 1858 3.7 11.3 9.4 0.4 0.1 100.00 -
Import Duty on Agri Products
Commodity Bound Rate (as on Jan 1, 2001) Applied Rate Prior to 200102 Nuts Almonds Areca nut Cashew nut (in shell) Cashew nut (shelled) Food Grains Rice Wheat Millets Pulses Fruits Apple Fresh Grapes Oranges Plantations Crops Coffee Tea Natural Rubber in other forms Silk other than silk waste Edible Oil Refined Palm Oil Refined Soya Oil Crude Palm Oil (for Vanaspati) Crude Palm Oil (other than Vanaspati) Others Sugar Cotton (Raw Cotton) Skimmed Milk Sharon Sneha Import Duty (per cent) Announced in Revised rate (if 2001-02 Budget any) subsequent to 2001-02 Budget Rs 35/Kg 100 Zero 40
Rs. 35/Kg 112 112 112
Rs. 35/Kg 100 Zero 44
70 & 80 80-100 70 100 50 40 40
70 & 80 0-50 50 0 50 38.5 38.5
70 & 80 0-50 50 5 50 35 35
150 100 25 100
38.5 38.5 25 38.5
70 70 25 35
300 45 300 300
71.6 50.8 25 55
92.4 50.8 75 75
150 100 60
60 5.5 60
60 5 60
Powder 15 (under TRQ) 15 (under TRQ) 60 (outside 60 (outside TRQ) TRQ)
EDIBLE OIL AS FOOD PROCESSING PRODUCT
Edible oil processing consists of three operations: crushing and expelling (separating oil from the solids), solvent extraction (to chemically remove residual oil from the oilcake solids), and oil refining. In many countries, these three separate processing operations are conducted by one vertically integrated plant. In India, however, only a small share of oilseed production undergoes solvent extraction and oil refining. Instead, India‟s oilseeds processing sector is made up of the three groups viz Ghanis, solvent extractors and oil refiners engaged separately. Edible oils constitute an important component of Indian households‟ expenditure on food. According to NSS 60th Round (January-June 2004), average monthly per capita consumption expenditure (MPCE) of edible oil in food was 8.2% in rural India, and 8.2% in urban India. The share of edible oil has increased in successive NSSO surveys. According to the Second Advance Estimates released by the Ministry of Agriculture on February 5, 2007, total oilseeds production during 2006-07 is expected at 23.62 million tonnes (mt), representing a decline of 15.6% over 2005-06. The decline in oilseeds production is due to lower output of rapeseed, groundnut and castor seed. Size India is world‟s third largest edible oil economy, after China and US. India‟s annual consumption is around 10 million tones vis-à-vis China‟s 14.5 million tonnes. However, India‟s per capita consumption at 10.2 kgs per annum is considerably lower compared to global standards.
India is also a leading producer of oilseeds, contributing 7-8% of world oilseed production. India is estimated to account for around 6% of the world‟s production of edible oils. Though it has the largest cultivated area under oilseeds in the world), crop yields tantamount to only 50-60% of the world‟s average. India is the fifth largest producer of oilseeds in the world, behind US, China, Brazil, and Argentina. Since 1995, Indian share in world production of oilseeds has been around 8-10%. Structural Characteristics
Broadly, edible oil/fat products can be categorized into four categories, vegetable refined oil, hydrogenated oil (vanaspati), bakery fats/margarine, and de-oiled cakes. The Indian edible oil industry can be classified into the following segments. Ghanis (over one lakh units), small-scale expellers (15,000 mills), solvent extractors (600 units), oil refiners (400 units) and vanaspati manufacturers (204 units). Oil mills crush oil seeds and extract oil, 70% of which is sold in the open market. The remaining 30% is refined and sold as branded oil. After the extraction of oil, residual seeds are processed further by solvent extractors, to make solvent-extracted oil. Most of the solvent extracted oil is used to make „vanaspati'. The Indian edible oil industry is highly fragmented with a large number of small scale producers. The ghanis belong to the SSI segment and usually serve the rural markets. Small scale expellers, much like the ghanis, use metal screws to press or expel oil from seeds. However, they are larger than the ghanis, oil expelling capacity being in the range of 5-10 tonnes per day, compared to around 50-60 kilos a day for ghanis. Solvent extractors belong to the organized segment and are also the second largest after the SSI segment, in the domestic edible oil industry. They use modern technology to process low oil & high meal seeds (eg. Soya bean, cottonseed) into edible oil and de-oiled cake. Oil refining also belongs to the organized sector and has recorded rapid growth in recent times. Refiners generally refine both expeller oils and solvent extracted oils.
Vanaspati is made by hydrogenation of refined oil to vegetable shortening or spread and is similar to the milk product ghee and absorbs around 10% of the total edible oil supply in India. Due to increased consumer preference for non traditional oils such as Soya bean and sunflower oil, the organized sector has emerged as one of the fastest growing sectors in recent times clocking double digit growth. Branded products, though small portion of the total edible oils market, have been one of the main drivers of rapid growth. The production of edible oils in India is dependent on the production and availability of oilseeds. While oilseeds production increased from 10.83 million tonnes (mt) in 1985-86 to 24.75 mt in 1998-99, yield per hectare increased from 570 kg to 944 kg. During 1999 to 2003, oilseed output stagnated and also declined. As oilseeds are mostly sown in the non-irrigated regions of the country (viz, Rajasthan, Gujarat, Maharashtra and Madhya Pradesh), its production suffers from high dependence on the monsoon. Moreover, the raw material costs account for over 92% of the total cost of sales due to volatile prices of oilseeds. Besides the increase in raw material prices cannot be passed on entirely to the consumers, edible oil prices being governed by trends in international prices due to substantial imports. Therefore the edible oil industry is characterized by very low profit margins, which is a manifestation of a variety of factors, the most important of all being availability of oilseeds.
In order to increase the domestic supply of oil seeds, the government has been frequently freezing the MSP for wheat and rice while increasing the MSP for oil seeds, thereby prompting a diversification from wheat-rice to oil seeds. This is intended to improve the supply of oil seeds. However, despite these measures, the demand-supply gap is likely to continue in the medium term. Again this does not push up prices, due to availability of low priced imports, as edible oil is the common man‟s utility item. Free imports (since 1994) have further lowered the entry barrier to the industry as crude or refined oil can be imported, packed and distributed doing away with the need of having manufacturing facility in the domestic market.
Customs tariff on edible oil continues to be the most important and dynamic area of government intervention. India adopted a modified tariff schedule for agricultural products in March 2000. The tariff bindings, subsequent to revision in 1996 and renegotiations within the WTO in 1999 retain the overall structure notified after the Uruguay Round: 100% for commodities, 150% for processed products, and 300% for edible oils. Departures from this pattern are mainly with respect of tariff lines that were negotiated as special cases. India's bound rates for edible oil are as high as 300% ad valorem, except for 45% on soybean oil, and 75% for rapeseed oil. On all other oils, the GoI can raise the level of customs duty up to 300%.
The country‟s consumption places India behind only China and the European Union in total edible oil consumption. The growth in consumption of edible oil has been driven by increased population and growing incomes. With its large population and continued strong economic growth, India is likely to register strong gains in total and per-capita edible oil consumption in the medium term. Per capita consumption is expected to increase to 11 kgs in FY2006 and 11.3 kgs in FY2007. Production is expected to increase at a slower rate during OY2007 mainly because of an expected decline in India‟s oilseeds and edible oil production. India‟s production of vegetable oils has been stagnating except for a rise in rapeseed oil. According to the Solvent Extractors Association of India (SEA), India‟s vegetable oil production is expected to decline 4.4% during OY2007 to around 6.8 mt. By 2010, India‟s total requirement of edible oils for the projected population of 1.25 billion at the projected per capita consumption of about 15 kg per annum is expected to be around 19 mt, which is equivalent to an estimated 57 mt of oilseeds. The industry has to contend with increasing competition from imports, the rising cost of oil seeds and the expanding demand-supply gap. Since the production of oil seeds is heavily dependent on monsoons, around 40% of the demand for edible oils within the country has to be met by imports which may continue.
EDIBLE OIL IMPORTS BY INDIA
The scenario of import and export of edible oils in India fluctuates, being subject to variations in demand and supply, based on the quantum of indigenous production. There is the policy of „Seasonally variable import duty‟ to control oil prices during the lean period, but this has affected the farmer and edible oil industry during the glut season.
According to the Uruguay Round (UR) of the WTO Agreement, India has removed all quantitative restrictions on imports of edible oils in the new EXIM policy of 2001. Under the „bound tariffs‟ of UR, India can impose a maximum import tariff of 300 percent on palm oil, 100 percent on other vegetable oils, but only 45 per cent basic and 25 per cent for MFN. The basic tariff on palm oil was 200 per cent and for MFN it was 190 per cent 1985. In 1995, the rates were 50 per cent basic and 40 per cent for MFN, and in 2000 and 2001, basic 100 per cent and 25 per cent for MFN. Depending upon the indigenous production, export and import balance, and tariff was cut in 1995 but raised in 2000. Though the UR bound tariffs were not required to be reduced till 2004, by the year 2001 the import tariffs on soy oil and palm oil were far below the bound rates. Mistry‟s suggested that India should rework its duty structure to reflect GMand non-GM soy oil, applying 45 per cent duty to non-GM soy oil, while the GM soy oil be placed on par with crude palm oil. Unless the exporter declares that the oil is from a GM source, there is no way of proving the origin of oil, since expressed oil does not contain any protein or nucleic acids to determine if it is a GM product. An importing country can insist on such a declaration under the Cartagena Protocol, but in practice it is difficult to segregate GM oil from non-GM oil. Mistry‟s suggestion is also risky since once a product is branded GM, the Indian anti-tech lobbies would work for a ban on such imports. Banning soy oil import for the reason that it is a GM product will invoke WTO provisions, as has happened to the EU
recently, where the WTO ruled against the EU, on a complaint against it by the US, Canada and Argentina, for banning imports of GM corn and soybean, in the face of a de facto moratorium since 1998. In India the consumer does not take any marketed edible oil, as edible oil preferences vary from household to household. Mustard oil is widely used in the north Indian States. In South India groundnut oil, safflower oil and corn oil are preferred, while those who can afford it use the more expensive sesame oil. Both palm oil and soy oil are alien to the Indian psyche, more so the soy oil and it is difficult to make people to consume these oils as easily as other familiar oils. The marketing strategy on soy oil and palm oil was not very effective in enhancing household usage. The palm oil is put on the Public Distribution System (PDS), the means of providing subsidized commodities to people who cannot afford the open market prices. If it were not the cheapest edible oil, on account of being on the PDS, there would not be many takers for palm oil in India. The undesirable side of putting anything on the PDS is that people, who are eligible to buy commodities at PDS rates, sell them at a far higher price than the PDS rates. Importing 2.2 million tonnes of soy oil from South America in 2005 is a little surprising, given the poor preference status of soy oil with the individual consumer. A mixture of vegetable oils is used in the process of hydrogenation, which converts liquid oils into solid fats with increased shelf life. Hydrogenated oils are used in commercial food processing but are not preferred by the health conscious, as hydrogenated fats contain trans fatty acids that enhance the risk of heart disease and stroke. Crushing industry often delays extraction of oil from seeds for the fear of a) the oil becoming rancid if not lifted in time and b) the fall local prices in the post-harvest glut, which would push up import tariffs. The crushers seem to phase their operation depending upon the ground realities. What Malaysia should seek is a MFN status, to place Malaysian palm oil on par with the South American soy oil. Actually there was a charge that many times import duties are slashed to get a favour in another sector, such as railway contracts from Malaysia. Since the Indian production of soy oil and palm oil is not substantial, the quantum of imports is not affected greatly, barring policy decisions based on other considerations.
In 2007, the total edible oils import (including non-edible oil) rose by 2.5% to 26.07 lakh tonne for the first even months of the current season 2006-07 from 25.43 lakh tonne for corresponding period of the previous year. Total import of edible oils was 22.01 lakh tonne, almost same as 22.00 lakh tonne last season. Import of non-edible oils was 4.06 lakh tonne from 3.43 lakh tonne, up by 18%. In May 2007, total edible oils (edible and non-edible) import was 4.94 lakh tonne from 3.99 lakh tonne in May 2006, up by 24%, according to data complied by the Solvent Extractors‟ Association of India (SEA). “Demand for edible oils during this period has not increased significantly. Import of edible oil was at the same level as that of last year and did not increase in spite of lower oilseeds crop during current year. This is mainly due to higher international and domestic prices,” BV Mehta, executive director of SEA said. Imported oil prices in the international markets were ruling higher by about 80-85% over same period last season, he said. Import of refined edible oils during the review period was reported at 52,670 tonne while total crude oil import was reported at 21.48 lakh tonne.
Government bans export of edible oil The government has banned export of edible oil for one year to check rising domestic prices and control inflation. The ban will be in place till March 16, 2009. Edible oil has a weightage of 2.76% in the wholesale price index (WPI) higher than cement (1.73%), wheat (1.38%) and rice (2.45%). ”The ban will not have a major impact on edible oil as exports constitute a small per cent of the entire trade. There was no point in banning export of
groundnut oil, which is premium oil and where the realization is significantly high. The industry could have substituted such export by importing higher quantities of Soya oil or palm oil from the export earnings," said Davish Jain, chairman, Central Organization for Oil Industry and Trade. India exported 11,639 tonne edible oil in 2006-07. India primarily exports small quantities of groundnut oil, mustard oil and coconut oil. In a notification dated March 17, the Directorate General of Foreign Trade said the ban will also cover deals under the transitional arrangements. This implies exporters who had received letters of credit for export on or before March 17 (when the ban came into effect) will not be allowed to honor their commitments. The country meets about 45% of its edible oil requirement through imports. The second advance estimates released by the agriculture ministry last month puts this year's rabi oilseed production at 9.59 million tonne - down 6.7% from last year.
India has the world‟s fourth largest edible oil economy.
India accounts for 9.3 per cent of world oilseed production. It has the world‟s fourth largest edible oil economy. Yet, about 43 per cent of edible oil available in India is imported. In 1999, India ranked as the world's largest importer of edible oils, displacing China. The bulk of edible oil India imports under the Open General Licence (OGL) is RBD palmolein of Malaysian and Indonesian origin. India has approximately 300 crude edible oil refining units, 60-70 per cent of which are small. Unlike the bigger refiners, the small ones are unable to import huge quantities of crude either due to their low capacity or lack of financial resources, and may be forced to close down or sell out to the bigger ones in the foreseeable future. A major problem is the low capacity utilisation. The installed capacity of oil mills is around 36 million tonnes annually, but capacity utilisation is only 40 per cent. Solvent extraction plants show only 33 per cent capacity utilisation and vegetable oil refineries show 40 per cent. The total import of edible oils during the period from November 1998 to October 1999 totalled 4.4 million tonnes valued at more than Rs. 9,000 crores. That was against a demand-supply gap of 1.4 million tonnes in 1998-99. Imports have therefore deluged the market. The import of refined palm oil was put under OGL (open general licence) in March 1994. Other edible oils were put under OGL in April 1995. (When an item is brought under OGL, it means that the item can be imported without seeking any approval). Originally, there was no discrimination between refined and nonrefined edible oil as far as import duty was concerned. The duty on both was 65 per cent. Duty was then slashed to 30 per cent for both,
then to 20 per cent in 1996 and 15 per cent in the 1999-2000 budget. On December 30, 1999, a differential duty structure was introduced. Duty on refined oil was fixed at 27.5 per cent (25 per cent plus 10 per cent surcharge), while that on crude was retained at 16.5 per cent (15 per cent plus 10 per cent surcharge). But only actual users (as opposed to traders) are allowed to avail of this reduced duty on crude oil. Traders are nevertheless allowed to import crude at the reduced duty but only to sell to actual users on a high seas basis. This requires that the actual user fills in the import documents (and pays the reduced duty) but leaves the importing process to the trader. In most parts of the world, import duty on oilseeds is lower than that on oils. But, in India, it is higher: 40 per cent. That is why no import of oilseeds or oil-bearing material has taken place in India. The industry wants the duty to be lowered from the present 40 per cent to 5 per cent. Edible oils prices in the Indian market have crashed due to large imports by multinational trading houses. The edible oils industry is one sector in India that will see considerable reform in the foreseeable future.
(in Rs/tonne except for RBD Palmolein which is in FOB US dollars) December 1999 Product RBD Palmolein (Local) RBD Palmolein (FOB US$) Washed Cottonseed Oil Soyabean Oil Rice Bran Oil 1st 8th 15th 22nd 30th Average January 2000 5th 13th 19th Difference 1/12/99 to 19/1/2000
Prices of edible oils in India's Mumbai market
20,800 minus 700
360 24,000 25,000 38,500 21,200 19,000
367 25,000 25,000 39,000 21,500 19,200
367 25,000 24,500 38,000 20,800 19,300
367 25,200 24,800 38,600 20,900 19,000
361 24,735 25,088 38,527 21,181 19,242
Sunflower Oil 24,300 25,300
26,000 25,500 25,500 24,000 39,500 39,000 22,000 21,300 19,600 18,200
25,500 plus 1,200 24,000 minus 1,300 38,000 nil 21,200 minus 300 18,300 minus 700
Groundnut Oil 38,000 21,500 19,000
Source: Solvent Extractors' Association
1. www.google.com 2. www.businessstandard.com 3. www.jeena.com