CPO import to be cheaper for vanaspati units

NEW DELHI, 20 March, 2001 (The Economic Times of India) - THERE issomething about the vanaspati industry which never fails to wring thegovernment’s withers. After announcing in the Budget that all sickvanaspati units would be allowed to import crude palm oil, the cheapestraw material, at a preferential duty, the government is now planning toextend this concession to the entire vanaspati industry.

The Union food and consumer affairs ministry is recommending to thefinance ministry that the concessional duty of 55 per cent should be madeavailable to all units irrespective of their financial health.

Vanaspati was the only sector in the country whose sick units were given aspecial preferential rate of duty in this year’s Budget. Healthy units canimport CPO only at 75 per cent.

The food ministry’s move comes on the back of enormous pressure andextensive lobbying by a few large companies in the vanaspati sector whofear losing out to the hitherto sick units as they will now get a freshlease of life due to the preferential duty.

However, instead of levelling the playing field by removing thispreferential duty completely even for sick units, the food ministry hassuccumbed to corporate pressure by advocating that all vanaspati companiesshould enjoy it.

Extending this preferential duty to all large vanaspati units wouldfurther increase the government’s concessions to this sector.

Already, even if the smallest sick 50-tpd vanaspati plant runs for 350days a year and uses CPO as 75 per cent of its total raw material, thegovernment ends up letting go Rs 2.5 crore in revenue every year.

The major players in the vanaspati sector include the Ruchi group, LibertyOils, Amrit Vanaspati, Hindustan Lever, the Adani group and Conagra’s AgroTech Foods, apart from a host of smaller brands in Uttar Pradesh and WestBengal.

Ironically, the soya and rapeseed solvent extraction sectors would onceagain be rendered uncompetitive, thereby negating efforts made by theBudget to remove any market and price distortions created by end-userimport norms.

At current prices, soya oil is available at $340 a tonne, which with 45per cent duty lands at $493 a tonne. In comparison, CPO at around $220 atonne, even at the maximum 75 per cent duty, lands at $385 a tonne.

If the duty on the world’s cheapest oil is further brought down to 55 percent for all vanaspati units, they will be able to import it at only $341a tonne.