MARKET DEVELOPMENT
15-10-2001
India's edible oil policies hurting domestic indus
BANGALORE, Oct. 5. (Business Line) - THE current disagreement between ITCand Conagra over the oil milling facility in Mantralayam reflects thestate of the edible oil industry today, thanks to Government policies.The 300-tonne-per-day capacity mill has now become economically unviablebecause of these policies and neither Agro Tech Foods Ltd (ATFL),Conagra's subsidiary which had taken the facility on lease from ITC, northe original owner of the factory really wants it.The disagreement arises from the fact that Conagra now wants to take it ona fresh lease on different terms than that agreed to in 1997, or buy itoutright for Rs 14 crore, though ITC itself had paid Rs 112 crore for it.ITC, which first set up the facility, had hoped to repeat the success ofits tobacco experiment with sunflower. ITC is credited with introducingcontract manufacturing of tobacco and encouraging cultivation through itsother unit, ILTD (ITC Leaf Tobacco Division).However, the sunflower oil facility has succumbed to forces that has theentire milling industry in the country in doldrums. The Mantralayamfactory highlights what the Government policies have done to theindigenous oils and oilseeds industry.When it was set up, the company bought the sunflower grown by farmers inthe surrounding Rayalseema and north Karnataka regions. But crushingedible oil became unviable after the Government brought edible oil underOGL.Since then a series of protests finally resulted in increasing the importduty from 15 per cent to the current 75 per cent, though in stages. Everytime the duty was increased, Malaysia - from where most of the palm oilwas being imported - reacted by dropping prices, according to SolventExtractors' Association (SEA) sources.While sunflower oil was not being imported till two years ago, all edibleoils suffered from cheap imports as they were being mixed with theimported oils, according to industry sources.Two years ago, ATFL stopped milling and found it more economical to importsunflower oil and package it here, say sources. This decision meant asignificant reduction in the demand for sunflower seeds. ATFL was themajor buyer of seeds from farmers in the region.With the demand down, the area under sunflower dropped in north Karnatakafrom 8.81 lakh hectares in 1996-97, to 5.74 lakh hectares in 2000-01.In the Rayalseema district, where around six lakh hectares were undersunflower, there has been an estimated 50 per cent drop in cultivatedarea. Prices fell from Rs 1,050-1,350 per quintal in 1996-97 to Rs 800-950in 2000-01.Incidentally, the move has also affected Advanta India (formerly ITCZeneca), which sold moisture stress-tolerant hybrids in the drought-proneRayalseema and north Karnataka areas. The company had 80 per cent of themarket-share in sunflower seeds in the area and, according to sources,sales of sunflower seeds came down by 50 per cent, as there were notakers.To drive home the point of the effect of imports, industry sources pointout that the immediate connection between the import duty prices and theprices of oilseeds is apparent. The latest increase in import duty to 75per cent saw sunflower seed prices firm up at Rs 16 per kg and remainstable, after a long time.SEA sources believe that a policy more favourable to the Indian industrycan rejuvenate the sector and help it bounce back in three years.
