The government is working hard to project itself as being farmer friendly. She likes to say that she is attached to an autonomous India (atma nirbhar Bharat). But if you look at the government’s policies towards edible oil (and towards pulses too – link), these claims don’t hold up. The image that persists is that of a government concerned with protecting the interests of traders rather than the interests of farmers. Obviously, there are many shifts between intention and action.

Warnings ignored

In 2013, BV Mehta, executive director of the Solvent Extractors’ Association of India (SEA) warned that India continued to be increasingly dependent on edible oil imports. This, he added, was not good for the farmers or for the country. He said the government’s perspective on oil was tragically distorted and skewed against oilseed producers. A copy of his presentation can be downloaded from https://agrioutlookindia.ncaer.org/events/india-edible-oil-sector-mar.pdf

He issued such a warning again in November 2016 (see here) “Edible oil imports have risen sharply in recent years due to stagnant oilseed production and growing demand in the country. India’s dependence on imported oil has increased to 70% of its needs.

These warnings were also echoed by the then chairman of the Gujarat Cooperative Milk Marketing Federation (GCMMF) which sells dairy products under the Amul brand and edible oil under the Dhara brand.

The government does not appear to have heeded these warnings to date. The graph opposite shows how the government continued to favor imports, under one pretext or another.

Importing 42% of the country’s needs in 2010, it currently imports between 55 and 60% of the country’s needs. In terms of value, the share is likely to be higher. This is not an indication of self-sufficiency or of protecting farmers.

The politics of the violin

The government wants farmers to look to commodity markets for future directions. But it changes stock limits, closes commodity exchanges and sometimes commodities exchanges. How can you expect farmers to look to commodity exchanges for price discovery in the face of policy changes, trade bans, and changing stock limits (link)?

It confuses prices by constantly playing with import duties. Here is a quote from the government: “WEF 14.06.2018, the import duty on all crude and refined edible oils has been increased to 35% and 45% respectively while the import duty on olive oil has been increased. been increased to 40%. With effect from 01.01.2020, the import duty on crude and refined palm oil has been revised to 37.5% and 45% respectively. As of 01.08.2020, the policy of importation of refined palm oil is changed from the category “free” to “restricted.” With effect from 27.11.2020, the import duty on crude palm oil has been revised from 37.5% to 27 , 5%….. As of 04/06/2018, the export of all edible oils except mustard oil has become free with no quantitative cap; package size, etc., up to ‘Other orders. Export of mustard oil is permitted in packages up to 5 kg with a minimum export price (MEP) of $ 900 per tonne. ”) https://dfpd.gov. in / export-import-policy-edible-oil.htm_

And less than 10 days ago, the government cut import duties on palm oil and mustard oil to just 12.5% ​​(link). The reason given by the government was that it was concerned about the high prices of cooking oils. Instead, some believe the government has convinced international sellers of edible oil to raise prices. The government’s comments about increasing domestic supply and lowering rates in domestic retail markets have only pushed up edible oil prices in domestic and international markets.

The list of grievances trade has with government policies is long. Some of the grievances can be downloaded from (here). Moreover, as can be seen in the following paragraphs, the government’s arguments are specious.

If there is an oil shortage and prices are also rising, the first thing a sane government would do would be to allow blending of oils to fill shortages in a specific category of oil. Yet strangely enough, in the first week of June 2021, the Food Safety and Standards Authority of India (FSSAI) banned blending mustard oil – a practice that has existed for over 30 years (here). It was customary for mustard oil to be mixed with other edible oils (such as palm, rice bran, etc.). This has reduced the price and increased availability.

The FSSAI said this mixture was unhealthy. But to do so when prices were already high and shortages were evident was reckless, even accomplice. It seems someone wanted India to buy more and more expensive mustard oil from overseas suppliers.

There is another element of absurdity in the government’s approach. It bans the use of GM seeds in India (for very good reasons). But he’s prepared to import edible oil from countries known to use GM seeds. GM seeds allow producers to increase their production and reduce unit costs. Thus, Indian farmers are denied this benefit. But the government allows foreign producers to get better prices at the expense of Indian farmers.

Imports do not lower prices

There is another factor that underscores the fallacy of the government’s arguments. The government believes it can cool domestic prices by importing edible oil. But foreign suppliers are not fooled. When India starts importing edible oil, international prices start to rise. Out of sympathy, domestic prices are also starting to rise. The result is obvious. National production falters. Importers (read traders) who are close to the government and know which way the political winds will blow, are killing people. Real traders who want commodity markets to grow end up whining. The farmers too, who raise their arms and decide not to cultivate this crop.

In fact, the strategy the government should have adopted upon taking office in 2014 is to promise farmers a 3-5% year-over-year increase in domestic prices for the next 10 years. Thus, in 10 years, prices would increase by only 34%. The farmer would know that the prices of petroleum and oilseeds would not fall and would continue to rise further. Imports would decrease and farmers and government could be happy. That’s what Kurien did with the milk. A modified version of this strategy should work very well for edible oils.

Price assurance could be entrusted to the NDDB which, together with the GCMMF, sells edible oil under the Dhara brand. Both organizations are familiar with the industry. This mandate could be transferred to the more credible FPO (farmer organization of producers) which deals with the supply, processing and marketing of oilseeds.

Such a move would allow traders to speculate on domestic futures prices by looking at minimum prices (MSPs) that have been guaranteed and make money on price fluctuations due to deficits or temporary surpluses at the level of. retail. This is the path of long-term economic planning. Don’t play around with policies all the time. This is one of the reasons many of the government’s plans have not worked. They lacked vision and commitment to the welfare of farmers. (Link)

Potential

It is often forgotten that India’s agricultural potential is phenomenal. And if farmers got richer, it would invariably translate into higher national purchasing power, as 50% of the country’s population is tied to this sector. This in turn would drive the cogs of the industry, making it more competitive. By refusing to let farmers earn more, the government is killing the tremendous potential offered by the agricultural sector. The only ones to benefit were the relatives of traders in India and abroad.

Watch how India is doing in oilseed and oil cake exports, even though the country continues to be dependent on imports. This should tell the government that this country’s innate competitiveness in the agricultural sector has not been allowed to grow.

It should also be noted that India is the third world producer of rapeseed-mustard after China and Canada with 12% of total world production. This crop accounts for almost a third of the oil produced in India, making it the main edible oilseed crop in the country. . India could produce more if government policies were reliable and protective.

Yet the government is failing these same producers. India certainly deserves better.

The author is a consultant editor at the FPJ

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Posted on: Monday January 03, 2022 09:10 IST


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