G. Chandrashekhar

Mandatory use of 20 per cent expeller oil in production of vanaspati

Mumbai , July 6

Providing a striking example of callous disregard for a coordinated approach to tackling a crisis situation, the Directorate of Vanaspati under the Ministry of Food, Consumer Affairs and Public Distribution has directed the vanaspati industry to use 20 per cent expeller oil in addition to 12 per cent indigenous oil usage already in force.

The Order dated July 3 issued by Vegetable Oil Products Commissioner has made the directive subject to the condition that the Department of Agriculture and Cooperation shall ensure supply of such quantity of mustard oil obtained by processing of domestic mustard seed through National Agricultural Cooperative Marketing Federation of India Ltd (Nafed).

The Order specifies that such oil shall be supplied to vanaspati units on their demand at a pre-determined price fixed by the Government.

The entire vanaspati industry, already reeling under the twin effects of losing market share to cheaper liquid oils and onslaught of imports from Nepal and Sri Lanka, is upset with the latest directive because it is going to further strain the already enervated industry.

On the Centre's part, little homework seems to have been done by concerned ministries before issue of the order. Several pre-requisites have to be met before the directive can actually take effect.

Admittedly, it is the Agriculture Ministry's responsibility to ensure supply of expeller mustard oil to the industry. Nafed, an agency under the administrative control of the Agriculture Ministry, currently holds over 20 lakh tonnes of mustard seed procured from rabi 2005 and 2006 seasons.

These were procured at very high minimum support price (Rs 1,700 a quintal in 2005 and Rs 1,740 in 2006). The inventory has already incurred huge carrying cost in terms of storage and interest charges.

This expensive oilseeds stock needs to be crushed and converted into expeller oil. In addition, the Government will have to fix a pre-determined price for the expeller mustard oil to be supplied to vanaspati units.

No scheme seems to have been worked out to ensure production and supply of expeller mustard oil. Price to be fixed by the Union Government would be critical as vanaspati may not be able to absorb a high cost raw material.

The industry has sought expeller mustard oil delivered at factory gate at a price lower by Rs 1,000 a tonne as compared with crude palm oil (major raw material). Mechanism of delivery of the oil to vanaspati producers located across the country will also have to be worked out.

Providing the vanaspati units with expeller mustard oil at a price that the industry is in a position to absorb would mean supply at less than cost of production, which in turn means a huge amount of subsidy. Nafed's procurement operations of last two seasons have already meant a huge increase in subsidy burden. Supply of oil to vanaspati at lower cost would become an additional burden.

These are the issues, which ought to have been thought through by policymakers before issue of the directive. It shows lack of coordination and casual attitude to addressing issues with huge financial implication.

Meanwhile, the industry is completely at a loss as to how the order would be implemented.

This issue raises another larger question. Why should the vanaspati industry be forced to use expeller mustard oil? Is it merely because the Government is desperate to liquidate the humungous stock with Nafed incurring huge carrying cost with each passing day and deteriorating in quality? The Government's inept handling of the edible oil situation is sure to result in distortion of the market.

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