Asean FTA: Time to introspect on domestic oilseed cultivation
Hindu Business Line | 29 November 2007
Asean FTA: Time to introspect on domestic oilseed cultivation
In the absence of a clear strategy to put our own house in order, the FTA negotiations appear to be farcical. Negotiations are conducted between equals and in a level playing field. But here is a situation where everyone knows India is vulnerable.
G. Chandrashekhar
Mumbai, Nov. 28 — Some sensitive agricultural products (palm oil, tea, coffee and pepper) have become the sticking point in India’s engagement with the Association of South East Asian Nations (ASEAN) for a free trade agreement (FTA). A feeling that India is vulnerable and would in course of time succumb to pressure and further open up its market seems to be gaining ground.
Indeed, it is only logical that overseas supplier countries such as Malaysia and Indonesia continue to persuade India to further lower the customs duty on palm oil. After all, every exporting country would want its market to remain free, open and welcoming.
Exporting countries will try every trick in the book to crack large and lucrative markets open. We have seen many countries do this, some openly and some subtly. India’s plea that the rate of duty on palm group of oils is already low enough and that the country would continue to remain a major market for long years to come seems to have not impressed the exporting countries.
India is already a large producer of oilseeds and vegetable oils. Several million farmers are dependent on oilseed cultivation for their livelihood. India’s sensitivity - domestic compulsion to be seen as protecting oilseed growers - in the matter of palm oil does not seem to concern others at all. Indeed, the world knows India’s desperate need to import humungous quantities of edible oil (50 lakh tonnes (lt) and growing) year after year to meet the domestic shortfall.
Some reports suggest that by March 2008 some broad consensus on FTA is expected to emerge; but it is unclear on what basis such optimism is expressed. For the FTA to become a reality, either India must further soften its stand and agree to further duty reduction or other negotiating countries must cease to press India for lowering duty.
There is nothing to suggest that either of this could happen over the next four months. While hard bargaining for an equitable FTA would continue, may be it is time to introspect. What have we as a country done to improve our indigenous oilseeds and vegetable oil production in the last several years?
Production trends of last several years leave no one in doubt that we have paid inadequate attention to oilseeds production. India began large-scale import of vegetable oil 30 years ago - January 1977 to be precise. Some time in late 1980s and early 1990s, import volumes declined considerably, not because we reached near self-sufficiency, but because edible oil was unaffordable and per capita consumption was rather low. Since 1994, when imports were opened up and customs duties progressively reduced thereafter, India used the facile option of imports without focussing on investments in the domestic sector and improvements in production by lifting yields higher.
Low yields
We are today paying a price for past omissions and commissions. The Government was obsessed with fine cereals (rice and wheat) and overlooked the need to strengthen oilseeds and pulses production. Oilseeds yields have hit a plateau. The average yield of major oilseeds - groundnut, soyabean, rapeseed/mustard - is just about 1,000 kilograms a hectare. Little investment has gone into raising the yields - no extension work, antiquated agronomy, weak input delivery system.
Any increase in output - sporadically - comes from larger acreage and not higher yields. There is nothing to suggest that the domestic oilseeds situation would improve anytime soon. Output is stuck at 230-250 lt, with little prospect of significant expansion.
On the other hand, the country’s demand for vegetable oil is set to grow at about 6-lt a year even under modest growth conditions. This would be equivalent to about 20 lt of oilseeds. Year after year we have to produce 20 lt of additional oilseeds in order to meet the incremental demand for vegetable oil; and freeze the import volume at the current level of 50 lt.
What’s Govt doing?
Contrary to belief, the Government is not protecting oilseed growers’ interest; it is merely allowing them to continue to produce less and stay poor. There is very little policy, financial and physical support. It is this indifference and lack of genuine commitment to lift the farm sector in general and oilseeds in particular that has encouraged supplier nations such as Malaysia and Indonesia to invest in plantations, expand acreage, and produce more palm oil with the unstated objective of continuing to be large suppliers to India.
Under these circumstances, and in the absence of a clear strategy to put our own house in order, the FTA negotiations appear to be farcical. Negotiations are conducted between equals and in a level playing field. But here is a situation where everyone knows India is vulnerable.
Unfortunately, India refuses to recognise its vulnerability and at the same time, refuses to put itself into a position of strength to bargain more effectively. The Ministry of Agriculture has much to answer for the failure on the oilseeds and oils front.
There is no evidence today that the situation would change for the better in the coming years. Similarly, in case of tea, coffee and pepper, the respective commodity boards are under the Commerce Ministry. The Government must make public its gameplan to ensure that the commodities stay competitive, FTA or no FTA.
