occasional paper - 26 oilseeds production, processing … 26.pdf · occasional paper - 26 oilseeds...
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Occasional Paper - 26
OILSEEDS PRODUCTION, PROCESSING AND TRADE : A POLICY FRAMEWORK
RV.SHENOI
\T/ 3T[fsfc|5 1t5^fWT 3Tk 3T^;^TeiM f w ^
Department of Economic Analysis and Research
1 \ ^ c ^ 3 l k JJI<H>| 1 cj5RT tt|5 National Bani< for Agriculture and Rural Development
Munnboi
2003
Occasional Paper - 26
OILSEEDS PRODUCTION, PROCESSING AND TRADE : A POLICY FRAMEWORK
RV.SHENOI
Department of Economic Analysis and Research
National Bank for Agriculture and Rural Development
Munnbai
2003
' ^ ' fcFT, T ^ ^ ^ - 2 4 , ' ^ ' ^e i l^ . a. ^. 8121, e l F ^ - ^ W i c R ^ , W^ ( ^ ) , g ^ - 400 051. Published by National Bank for Agriculture and Rural Development, Department of Economic Analysis and Research, 4 th floor, ' C Wing, Plot No. C-24, " G " Block, P. B. No. 8 1 2 1 , Bandra-KurIa Complex, Bandra (East), Mumbai - 400 0 5 1 .
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TABLE OF CONTENTS
Page No.
ACKNOWLEDGEMENTS VII
*I4MICI* ^ ^ EXECUTIVE SUMMARY
IX
xiii
CHAPTER 1 : INTRODUCTION
CHAPTER 2 : OILSEEDS PRODUCTION STRATEGY: TECHNOLOGY. INPUTS AND EXTENSION 23
CHAPTER 3 : PROCESSING OF OILSEEDS AND OILS 53
CHAPTER 4 : MARKETING OF OILSEEDS AND OILS: DOMESTIC SCENE 67
CHAPTER 5 LIBERALISING TRADE IN INDIA'S OILSEEDS ECONOMY 83
CHAPTER 6 CONCLUSIONS AND RECOMMENDATIONS 107
REFERENCES 119
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ACKNOWLEDGEMENTS
The author is grateful to NABARD for assigning him preparation of this occasional paper. He is also indebted to several friends and colleagues, who provided constant support and encouraged him to wri te this monograph on the success stories of 'Yellow Revolution", i.e. oilseeds production in India in the 1990s. Needless to emphasize, oilseeds production recorded an annual growth of over 8% as against an increase of about 3% for all crops put together. In particular, the author is beholden to Dr M S Swaminathan, Chairman, M. S. Swaminathan Research Foundation, Chennai, for his encouragement; to Dr Mangala Rai, Deputy Director General, ICAR, for his support; to Dr D M Hegde, Director of Oilseeds Research, ICAR for his useful comments; to Shri M L Manrai, formerly Economic Advisor, Technology Mission on Oilseeds for data support; and last but not the least, Shri B V Mehta, Director General, Solvent Extractors Association, Mumbai for filling certain critical gaps in the draft paper.
P. V. Shenoi
VII
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Author
Dr. P. V. Shenoi 'Shanthi - Prem' 20 - 'C ' 1st Main Road, (Behind Air Force Trg. Command) RMV Extn. Stage II, Block I, Bangalore - 560 0 9 4 .
The usual disclaimer about the responsibility of the National Bank as to the facts cited and views expressed in the paper is implied.
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XII
EXECUTIVE SUMMARY
Oilseeds occupy one-seventh of the total cultivated area in India, contributing a gross turnover of Rs. 72,000 crores, including Rs.11,500 crores in international trade. India became a net importer of oilseeds products in early 1980's. However, the initiatives of the Technology Mission on Oilseeds boosted the annual output by an unprecedented annual growth of 8%, helping to generate trade surpluses in late 1980's. Again, in late 1990's, the imports of edible oils picked up to reach 5 million tonnes in the oil year ending Oct. 2001, an increase of 260% in 6 years. Efficient management of oilseeds economy, including production and processing of oilseeds and oils, as well as improvements in their technologies, are of critical importance for the economic health of India.
2. The objective of this paper is to develop a policy framework to enhance the efficiency of production, processing and trade in oilseeds and associated products like oil and oilcakes. Such a framework can optimise the comparative advantage of several stakeholders in this sub-sector, like farmers, consumers, traders, processors and others.
3. The consumption of edible oil accelerated in mid-1 980's, following rise in per capita income as well as the availability of inexpensive palm oil from East Asian countries. When the import bill rose to Rs. 3884 crores in five years during 1981-86, the Government of India saw the need for special measures to enhance the productivity of Indian oilseeds complex. A Technology Mission on Oilseeds was established in 1986, with an integrated approach to meet this challenge of galloping imports of edible oils. Special init iatives were launched on several crit ical f ronts like the improvement of oilseeds production and processing technology, additional support to oilseed farmers and processors along with enhanced customs duty of 65% on the import of edible oils. This had a salutary impact. The Mission could raise oilseed output by about 50% in the course of four years to 16.5 million tonnes in 1989-90 and further to a record 24.4 million tonnes in 1996-97. The import of edible oils in 1992-93 crashed to 1.03 lakh tonnes, of the value of Rs. 167 crores : just 5% of the peak imports in 1987-88 and only 10% of the average imports for the ten years during 1983- 92.
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The export of oilseed products reached a high of Rs. 1 794 crores in 1993, w i th the pealc exports to date reaching Rs. 4740 crores in the year 1997-98 . The latter exceeded the total exports of all tradit ional farm exports like tea, coffee and spices.
4 . In mid-1990 's , the import duty on edible oil was sharply reduced from 6 5 % to 15% in stages, which happened to coincide wi th the crash in the export prices of this commodity in East Asia fo l lowing economic crisis there; the latter drastically reduced the prices of palmolein. As a result, the imports of palm oils soared from 1.06 million tonnes (value Rs. 2200 crores) in 1995-96 to 4 .20 mill ion tonnes (value Rs. 7984 crores) in 1999-2000 . The budding Indian oi lseed and oi lpalm sector was substant ia l ly devastated. This policy was revised only in 2 0 0 1 , and the import duty on palm oils was raised to 9 2 . 4 % . It wi l l take some t ime for the Indian oilseed sector to recover from this damage caused during 1 9 9 5 - 2 0 0 1 .
5. The holistic management strategy fol lowed by the Technology M i s s i o n on Oi lseeds rep resen ted an i n n o v a t i o n in Ind ian administrat ion: four mini-missions were const i tuted, one each for oilseeds cult ivat ion and oilseeds processing technologies, oilseeds farmers support and oilseeds processing and marketing support. Such mini-missions had.in their Steering Committees, stakeholders in the public, cooperative and private sectors, w i th the result that all aspects of technical, managerial and economic, concerning all stake holders were debated and decisions taken in a holistic manner. All Government and private sector agencies in the oilseeds arena pulled together to achieve the best results. The resultant policy f ramework succeeded in enhancing economic eff ic iency and in reducing the unit costs of oilseed production, processing and trade. It also promoted social equity, by making oilseeds products available to poorer sections at affordable prices.
6. Mini-mission I on Oilseeds Crops Technology was led by the Indian Council of Agricultural Research and its specialised Directorate of Oilseeds Research. It fol lowed a four-pronged strategy to develop and supply a more eff icient oilseeds cult ivation technology to the farmers: (a) area expansion, (b) crops zoning as well as more efficient use of seeds, fertil iser, moisture and plant protect ion, (c) more
xiv
eff ic ient crops management, and (d) domest icat ion of oi lpalm technology. Working wi th 26 State Agricultural Universities and specialised units of ICAR, it held all-India technology trials in farmers' fields on technology options and finalised recommendations for higher yields. The full implementation of these recommendations would have led to an output of 45.2 million tonnes of oilseeds, instead of an average of 22 mi l l ion tonnes in recent years . Nevertheless, the improved technology developed by the DOR of the ICAR had led to an increased output of 5 3 % in 12 years: f rom an yield of 619 kgs per ha. in 1987-88 to an average of 953 kg in 1998-99, as against an increase of only 2 1 % in the preceding 12 years 1976-88. The DOR needs to continue its efforts towards yet more eff icient and profitable technology by making optimal use of genetic, land and water resources.
7. Chapter 2 examines the farmers' support policy of the Ministry of Agr icul ture for expanding oilseeds product ion consist ing of technology extension and input supply. Large sums of money (Rs. 445 crores during the 8'^ Plan) were spent to support some 25 different activities, which had the potential of increasing the yields directly or indirectly on cost-effective basis. Annual concurrent evaluations by an expert agency, the Agricultural Finance Corporation of Mumbai, identified weaknesses in implementation and recommended remedial steps. The continuation of input subsidies for proven technologies (like improved seeds, plant protection chemicals and equipment) over successive plan periods was not justified. Special field demonstrations need to be undertaken to convince the farmers in the irrigated regions of the Punjab and Haryana to avoid the prevalent two cereal crops rotation, which is harming the ecology of this region with soil exhaustion and salination of fertile lands. Introduction of a lighter crops like oilseeds during Kharif in this region will improve ecological balance and long-term productivity.
8. Paragraph 2.15 outlines the potential for the production of 6 to 7 lakh tonnes of vegetable oils in tribal areas, out of seeds of more than 100 variation of oilseed trees found in forest areas. Section 2.1 6 outlines how oilseed area can be expanded by 5 million hectares wi thout affecting the output of any other crops. Incentives need to be instituted for the farmers for adopting these measures on sound economic and environmental lines.
XV
9. Section 2.18 outlines several steps in the short, medium and long term for sound development of oilpalm sector. The facilities available under the WTO regulations should be fully utilised to protect the Indian oilpalm farmers against unequal competit ion from other countries. More energetic steps are needed to streamline credit facil i t ies for oilseed farmers.
10. Efficiency in oilseeds and oil processing industry benefits all stakeholders: farmers, processors and consumers. Chapter 3 sets out the strengths, weaknesses, opportunities and threats of the oilseed processing industry. This industry suffers from low rates of capacity uti l isation, low oil recovery and high unit costs. The lack of adequate in tegrat ion between expel l ing units and solvent extract ion units alone is cost ing the country Rs. 1 500 crores annually. Reservation of 8 0 % of the oilseeds output for the inefficient small scale processing industry is depriving the consumers, the farmers and the processors the benefit of modern technology, which represents much lower costs and better quality in output . The reservation in favour of small scale industry should be w i thdrawn, as has happened in the case of cereal processing industry.
1 1 . The Council of Scientific and Industrial Research has done useful research and development work for improving the efficiency of oilseed processing industry, but mostly in the small scale sector. It should pay more attention to the improvement of eff iciency in larger and economically viable processing units. Rice bran oil can be a useful source of fats in India, The CSIR needs to work w i th its colleagues in other paddy growing countries for developing standard regulations for rice bran oil: a resource whose util isation is very low in India. Solvent extract ion industry, w i th only 3 0 % capacity u t i l i sa t i on , needs to be s t reng thened , by do ing away w i t h geographical imbalances, preventing habitual breaches of the law by these units and above all, by reducing Government restrictions on market development. Finally, India's export trade of de-oiled cakes should be strengthened through improved system of bulk transport, rapid systems for loading into vessels and better port procedures.
12. Several policy reforms have been set out in Chapter 4 to strengthen the marketing of oilseeds and oi lcakes, wh ich can enhance the income of farmers, processors and traders in an efficient
xvi
manner, while enhancing the productivity of the oilseeds sector. Better enforcement in the regulated markets wi l l lead to larger patronisation of their services by the farmers who wil l get the benefit of higher prices w i th correct quality and quantity assessments. Cooperative marketing institutions need to be strengthened. Forward markets and contract farming systems should be introduced. Better integrat ion between markets wi l l enhance realisations for the farmers. Earnings from oilcakes can be enhanced through removal of restrictions on livestock industry, improving the transport system for animal feed and improving the quality of de-oiled cakes.
13. Import duty protection of 6 2 % to Indian oilseeds sector had led in early 1990 's to a high output g rowth , as well as a rapid growth in exports of oilseed products, particularly cakes and meals. A reduction of import duties to 15% in later 1990 's had reversed this s i tuat ion. The international compet i t iveness of four major oilseeds crops ( which account for about 8 0 % of the national output) has improved significantly during the period 1988-99 justifying tariff protect ion. Moreover, India had fulf i l led all the requirements of Uruguay Round Rules in exporting oilcakes and meals. Fortunately for the sector, the Government relented in 2001 and restored the protective cover. It is hoped that Indian exporters wil l regain their initiative, which they displayed in mid 1990's. Within the four corners of WTO regulations, there is justi f ication for further opening of the Indian oilseeds markets for international compet i t ion.
14. India's oilseeds sector has the potent ia l to increase its eff iciency in several directions: more eff icient crops development and processing w i th the use of better technology as well as better trade promotion. Further liberalisation of the sector w i th proactive measures by the Government in partnership w i th all stakeholders can enhance its efficiency and lead to higher contr ibution to India's economic development.
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CHAPTER 1
INTRODUCTION
1.1 OBJECTIVE OF THE STUDY
1.1.1 The objective of this study is to develop a policy framework for optimising value addition and outline the contribution of the oil seed sector to the overall Indian economy. This is sought to be done by analyzing the factors influencing the production, processing, consumption and trade in oilseeds and its products like oil and oilcakes. The present public policy will be critically evaluated; and new policy options will be analysed in the context of the post - WTO scenario. An integrated policy framework will be developed with a view to optimize the comparative advantages available in the Indian economy for all stakeholders: consumers, farmers, traders, processors and others.
1.2 APPROACH AND METHODOLOGY
1.2.1 The study attempts a holistic approach for optimizing economic and social returns to all resources employed in the production and processing of oilseeds. Oilseeds farmers, processors and traders const i tu te the major i ty of stakeholders on the supply side. Likewise, consumers of edible oil and other products of oilseeds seek satisfactory value for their money, through reasonable prices and acceptable quality for edible oil and other products. The interests of all these stakeholders will receive consideration.
1.2.2 This study has six chapters. This first chapter outlines the objectives of the study, its approach and methodology as well as demand and supply perspectives for oilseeds and oils in India. It then examines the components of a public policy framework for the oilseed sector and proceeds to outline the contribution of the oilseeds sector to the national economy. The second chapter focuses on oilseeds production, particularly the development of technology and
1
its transfer to the farmers. This is followed by the third chapter, with an analysis of the processing of oilseeds and oils, including technologies employed, public policies and research and development. The fourth chapter deals with the domestic marketing of oilseeds and oils, particularly the structure of the markets, consumption patterns, market interventions by the Government etc. The external economy of the oilseeds sector is dealt with in the fifth chapter. The sixth and final chapter sums up the conclusions and policy recommendations relating to the production, marketing, trade and other aspects of oilseeds, oils and other byproducts.
1.3 DEMAND AND SUPPLY PERSPECTIVES IN THE OILSEEDS ECONOMY
1.3.1 Oilseeds and edible oils have an important place in the consumption basket in India. Edible oil in human diet is an important source of energy and a significant contributor to taste in food. Oils and fats are also used in industry to produce processed foods and toiletries. Oilcakes and oil meals are useful ingredients in animal feed industry. Factors influencing consumption of oil and fats include levels of income, traditions, taste preferences and relative prices. Nutritionists in India hold that the typical human body annually needs 6 to 8 kgs of oils and fats, at a minimum, for maintenance of good health. The income levels, eating preferences and culinary traditions of the consumer have however influenced the actual quantum of consumption. Though mainly culinary inputs, oils and fats have multifarious uses. The average Indian consumer uses relatively low quantities of edible oil, no doubt influenced by his modest level of income. The annual per capita "disappearance" of oils and fats in 1999 was as high as 82.3 kg in Malaysia, 47 kg in the USA, 45.8 kg in EU-15, 17.3 kg average for the world as a whole and 11.9 kg in China, as against 9.9 kg in India.
1.3.2 The per capita use of vegetable oils has risen in India in recent decades: from an average of 3.4 kg in the 1 960s, to
4.3 kg in the 1970s, to 6.3 kg in the 1980s and to 9.9 kg in 1 9 9 9 . These averages mask large v a r i a t i o n s in consumption levels between the poor and-the rich. The sharp increase in consumption during the 1980s and 1990s was made possible by large-scale import of edible oils. However, during the early 1990s, the accelerated domestic production of oilseeds and hence of edible oils, as well as the higher import of these oils, contributed to the increase in such consumption.
1.3.3 Vege tab le oi ls are also used by the i ndus t r y in t he manufacture of soaps, detergents, cosmetics, plasticizers, stabilizers, lubricants, grease, pharmaceuticals, animal feeds, infant foods, emulsifier in food and non-food applications, paints and varnishes.
1.3.4 Oilcakes and de-oiled meals of groundnuts, soybean and sunflower are rich in proteins; they are used in making food products for human consumption. Oilcakes and deoiled meals derived from cotton seed, linseed, sal seed, mango kernel and de-oiled rice bran are used in animal feeds. Derivatives of neem, oil and cake are sources of environmentally safe agro-chemicals used for pest control in agriculture. Oils and cakes of tree-borne oilseeds have possibil i t ies of being exploited as chemicals for use in the agricultural sector. Oilcakes/meals of rapeseed, mustard and non-edible group of oilseeds like castor, linseed, mahua, kusum and karanj are useful manures.
1.3.5 Oilseeds like groundnuts, soybean, sunflower, sesamum and mustard are consumed directly in various food preparations. Soybean is an important pulse in the tradit ional areas of its cul t ivat ion; and groundnut is used in a large number of confectionary items. Safflower and niger seed are in demand as birdfeed.
1.3.6 Leafy parts of legume oilseeds like groundnut, soybean and mustard are important sources of fodder in the areas of their cult ivat ion. Legume oilseeds are also important for sustainability of cropping systems and maintenance of soil hea l th , as they f ix a tmospher ic n i t rogen in the so i l , substi tut ing for the costlier chemical ferti l izers.
1.3.7 The global edible oil economy underwent a transformation from the 1960s, with the speedy expansion of oil palm cultivation in South East Asia, particularly Malaysia and Indonesia. Oilpalms yield the highest quantity of edible oil per hectare, at relatively low unit costs. The demand for edible oil is both income and price elastic in India. With per capita incomes rising recently to around 3% annually, the prices of edible oils began rising swiftly. The Government of India resorted to large scale import of inexpensive palm oil: in the five years 1980: 85, the average annual import shot up to 1.175 million tonnes, accounting for more than 20% of the annual consumption of edible oils; the annual average value was Rs. 623 crores, making it the second largest import item, after petroleum. The peak import in the 1980s, of 1.95 million tonnes, took place in 1987-88 (a drought year in India) of the value of Rs. 969 crores. These large imports set the alarm bells ringing in the Government of India, then facing a foreign exchange crunch. It triggered the development of an energetic self-reliance policy in oilseeds in 1988.
1.3.8 Even before the crunch started in the 1980s, the Central and the State Governments had been assisting the oilseeds farmers to improve their yields of oilseeds, through field demonstrations of improved seeds and other inputs. The farmers however preferred to devote their better lands for cereal crops like wheat and paddy, for which a more profitable technology was available. Moreover, the market prices for these cereal crops were more attractive, thanks to the effective price support system implemented by the Food Corporation of India. Oilseeds cultivation received lower priority from farmers, due to a less profitable technology and due to a more uncertain market price for the produce.
1.3.9 When the import bill for the edible oils reached an alarming Rs. 3,884 crores during the five years 1981-86, the Government of India decided to set up an inter-ministerial Technology Mission on Oilseeds in the Ministry of Agriculture to deal with the serious situation. Shri Rajiv Gandhi, the then Prime Minister of India, defined the scope and strategy of the Mission thus, in his address at the Indian Agricultural Research Institute, New Delhi in February 1986:
"One of our biggest problems today in the agricultural sector is oilseeds. We are setting up a thrust Mission for oilseeds production. When we talk of a Mission, we mean an exercise starting from the engineering of the seeds and finishing with the finished product of vegetable oil, which could be delivered to the consumer. We would like to put one person in charge of such a Mission with full funding with no restrictions on him whether bureaucratic or otherwise. The only limits will be certain achievements, which must come within a certain time frame. This will cut across a number of Ministries where we find a lot of hassles and we find our projects getting stalled because the interaction is not smooth enough".
1.3.10 The Technology Mission on Oilseeds (TMO) took a holistic view of the oilseeds sector and concluded that policy initiatives were needed on a wide front of activities, with the involvement of players in the private, cooperative and public sectors, in planning and implementation. Mini-missions were established in four vital areas of oilseeds development, associating all relevant Ministries and agencies in the public, cooperative and private sectors:
(i) Mini-mission I on oilseeds production research, led by the Indian Council of Agricultural Research (IGAR) for improving oilseeds crops technology for stepping up yields and profits for the benefit of the farmer.
(ii) Mini-mission II for improving oilseeds processing and post harvest technology, led by the Council of Scientific and Industrial Research (CSIR), which will increase the oil y ields f rom t rad i t iona l and nontraditional oilseeds and which will reduce the estimated annual loss of 5,00,000 tonnes of oil, due to inefficient storage and processing.
(iii) Mini-mission III, led by the Union Department of Agriculture and Cooperation, for strengthening services to the farmer, particularly productive technology, seeds, fertilizers, pesticides, irrigation, credit etc.
(iv) Mini-mission IV, led by the Union Department of Agriculture and Cooperation and working wi th the Union Ministry of Civil Supplies and National Dairy Development Board, for improving institut ions for post harvest services, including price support to farmers, buffer stocking etc. and financial and other support to the processing industry.
1.3.11 The central concept of the TMO was to tackle the problem of low productivi ty in oilseeds cult ivation and processing. This was accompanied by an augmentation of capacities to support the farmers, processors, marketers and researchers. The National Federation of Cooperative Marketing Societies (NAFED) coordinated a market support programme wherever the price of oilseeds dipped low after the harvest. The National Dairy Development Board, Anand, Gujarat, which had brought about the White Revolution in milk, took a keen interest in the oilseed sector: fat f rom edible oil was like fat f rom butter in the dairy sector. The NDDB applied the successful dairy cooperative model to the oilseed farmers. It assisted oilseeds-growing states to set up and develop o i lseeds g r o w e r s ' coopera t ives and thei r s ta te level federa t ions , for suppor t ing more ef f ic ient p roduc t ion , p rocess ing and marke t ing of o i lseeds, oi l and other byproducts. Its active market intervention initiative sought to provide incentive prices to the oilseeds farmers.
1.3.12 The TMO scored a remarkable success in the f irst eight years of its career (1986-94). This was facil i tated by a relatively protectionist umbrella of import duties on the import of edible oil of the order of 6 5 % on palmolein, the commonly imported oil. The TMO had been assigned an ambitious output target of 16.5 million tonnes in four years by 1990 , which was 5 0 % higher than the base level of 10.83 million tonnes in 1985-86. An output of 16.5 tonnes was expected to halve the recent annual imports of the order of one million tonnes of palmolein. Responding to the strong policy on extension, financial and credit support and stimulus provided by the Central and State Governments, the oilseed farmers rose to the occasion and exceeded the target of 16.5 M.T in 1990 -91 : they actually produced 18.6
MT. The import of edible oil came down steeply to 1,03,000 tonnes, of the value of Rs. 167 crores in 1 992-93 : this was just 5% of the peak imports that had taken place f ive years earlier in 1987-88.This was also only 1 0 % of the annual average imports during the ten years 1 983 -92 . Even more creditable was the performance in the export of oil cakes: a record of Rs. 1794 crores. The edible oil economy had thus become in 1 992-93 a net earner of foreign exchange, as contrasted to its earlier record, as the second largest impor te r and user of scarce fo re ign exchange . This phenomenon came to be called the Yel low Revolut ion. The above trend continued strongly for f ive years ti l l 1 9 9 7 - 9 8 , when the value of exports of oilseed sector reached a peak of Rs. 4 7 4 0 crores: this exceeded the sum tota l of the value of all tradit ional agricultural exports like tea, coffee and spices.
1.3.13 The situation began changing significantly in mid-1990s. The import duty on most edible oils was reduced drastically f rom 6 5 % to 3 0 % in April 1995 and further down to 2 5 % in 1996 and f inal ly to 1 5 % in 1998 . This period also coincided w i th the economic crisis in the palmoil export ing countries in South East Asia like Malaysia and Indonesia. Their currencies underwent sharp devaluation vis-a-vis Indian rupee and this helped them to export more palmolein to India, along wi th the reduction in Indian import duties. This was a great blow to the Indian oilseed farmers, particularly the newly developed oil palm plantations. Import of palmoil went up sharply f rom 1.06 million tonnes (value Rs. 2260 crores) in 1995-96 to 2.62 million tonnes (value Rs. 7589 crores) in 1998-99 and further to 4 .20 million tonnes (value Rs. 7984 crores) in 1999-2000 . The profitabil i ty of oilseed cult ivation fell sharply for Indian farmers. The output of oilseeds came down from a peak of 24 .4 million tons in 1996-97 to 20.9 million tons in 1999-2000 . The budding Indian oilpalm industry was substantially devastated. The oilseed sector remains paralysed in 2002 , even after the import duty on palmolein was raised to 9 2 . 4 % in 2 0 0 1 .
1.3.14 The demand perspective in the oilseed sector offers tough challenges to the Indian agricultural sector. The per capita
consumption of oils and fats has more than doubled in the 1 5 years ending 1999, while the population itself has been growing at close to 2 % per annum. Assuming the annual income growth rates of 6% and also assuming stable edible oil prices, the annual demand for vegetable oils may grow at least by 6 % . In the year 2 0 1 0 , w i t h an est imated p o p u l a t i o n of 1 2 0 0 m i l l i on and per cap i t a annua l consumption df 1 5 kg, our edible oil requirement would be 18 million tonnes, roughly equivalent to 52 million tonnes of oilseeds - approximately double of the highest output achieved till date of 26 million tonnes. Complete self-reliance in oils then requires an annual output growth of 6% to 8% til l 2010 on competit ive cost basis.
1.4 OILSEEDS PRODUCTION PERSPECTIVE
1.4.1 Oilseeds, as a group of ten major crops, const i tu te an impor tan t componen t of agr icu l tura l sector in India, occupying 1 4 % of the total cultivated area, next only to foodgrains. Oilseeds production accounts for 6% of the GNP. India is one of the leading oilseeds producing countries of the wor ld w i t h 1 9 % of the global oi lseeds area and accounting for 10% of global output. India takes the first place in the world in the cult ivation of three oilseeds crops: castor, saff lower and sesamum. India is also the second largest producer of groundnut and third largest of rapeseed mustard. About 14 mil l ion families are engaged in the product ion of oilseeds and another one mil l ion in their processing.
1.4.2 India's diverse agro-ecological conditions are ideally suited for growing nine annual oilseeds crops: groundnut, rapeseed mustard, sunflower, sesamum, soybean, saff lower, castor, linseed and niger. India also grows t w o perennial oilseed crops in coconut and oilpalm. Crops such as cot ton and maize also contr ibute to the product ion of edible oils. Moreover 100 tree species of forest origin, if eff iciently exploited, can add one million tonnes of vegetable oil to the domestic output.
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1.4.3 However in terms of efficiency in the cultivation of oilseeds, i.e. yields per hectare, India has to go a long way to catch up with world leaders in almost all oilseed crops, since our yields are pretty low: 1078 kg / ha in 1998 in groundnut, (world average 1632 kg in 1997), 935 kg / ha in rapeseed mustard (world average 1451 kg) and 1128 kg / ha in soybean (world average 2174 kg). The average yields of eight major oilseeds in India m 1997 were 848 kg/ha, as against a global average of 1641 kg/ha for them in that year.
1.4.4 Oilseeds are produced practically in all the States of India. Madhya Pradesh has the largest area under oilseeds: 23.2% of the national total of 26.22 mha in 1997-98, followed by Rajasthan (16.8% of national area), Gujarat (11.6%), Maharashtra (10%), Andhra Pradesh (9.5%), Karnataka (8.2%) and Tamilnadu (5%). Madhya Pradesh also leads the states in terms of oilseeds output (26.2% of national output in 1997-98), followed by Gujarat (17.4%), Rajasthan (14.9%), Tamilnadu (8.5%), Maharashtra (7.8%), Karnataka (6%) and Uttar Pradesh (4.5%).
1.4.5 Edible oilseeds grown in India can be classified in two main ways. The first classification divides them into traditional and non-traditional types. Traditional oilseeds include groundnut, rapeseed mustard, sesame, safflower, linseed and castor. The non-traditional and recent adoptions include soybean, sunflower and oilpalm. The second classification refers to the edibility of resultant oils from oilseeds. All the above produce common edible oil except three: linseed, sesamum and niger. Cottonseed is another rich source of edible oil, which has remained relatively unexploited so far.
1.4(a) CULTIVATION OF OILSEEDS
1.4.6 Oilseeds are grown mostly as rainfed crops, although the use of irrigation has been increasing at an encouraging rate, with the introduction of new technology, based on high yielding varieties of seeds. It is estimated that as against an average of 35% of the area under irrigation for food crops during 1985-90, oilseeds area receiving irrigation was estimated at 19.9% during that period. There is, however.
a significant acceleration by 1 0 % in the use of irrigation for oilseeds, between the periods 1975-80 and 1 985-90 , fronn 9 .98% to 19 .9% of the total irrigated area, as against an enhancement from 3 0 % to 3 5 % for foodgrains. This reflects the percept ion of the farmers tha t a more prof i tab le technology is available in oilseeds cult ivat ion, just i fying a larger allocation of costly irrigation resources to that crops.
1.4.7 However, oilseeds, being predominantly unirrigated rainfed crops, the output suffers greater variation from year to year, depending upon the quantity and distribution of rainfall. For instance, in 1999-2000, during which the monsoon was rather weak in major oilseeds areas, the output declined by 16% from the peak level attained in the preceding year wi th good rainfall. The output during the Kharif season, in which the dependence on rainfall is greater, is more unstable than the output in the Rabi season, which witnesses greater use of irrigation.
1.4.8 The fo l lowing table provides details of the area, output and yields of major oilseeds in India in the year 1 998-99 .
Table 1.1: Area, Production & Yields of Major Oilseeds in India in the Year 1998-99
(Area in lakh hectares, production in lakh tonnes and yields in kg/ha)
SI. No.
Crops Kharif Rabi Total SI. No.
Crops
A P Y A P Y A P Y
1. Groundnut 64.3 73.3 1140 11.4 18.4 1609 75.7 91.7 1210
2. Rapeseed mustard - - - 66.0 59.7 1875 66.0 57.7 875
3. Soybean 63.1 69.7 1100 - - - 63.1 69.4 1100
4. Sunflower 7.3 3.4 460 12.7 8.3 655 20.0 11.7 584
5. Sesame 16.7 15.6 332 - - - . 16.7 5.6 332
6. Linseed - - - 8.0 2.7 344 8.0 2.7 344
7. Safflower - - - 5.3 3.2 614 5.3 3.2 614
8. Castor 6.9 8.4 1221 - - - 6.9 8.4 1221
9. Niger 5.4 1.6 304 - - - 5.4 1.6 304
10. Total 163.7 161.7 987 103.4 90.4 875 267 252 944
Source: Damodaran T and Hegde DM, "Oilseeds Situation : A Statistical Compendium" (2000), Directorate of
Oilseeds Research, Hyderabad.
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1.4.9 It would be interesting to compare the progress in the production of oilseeds, which is the second important group of crops after foodgrains, with the progress in the production of foodgrains, in the two periods 1949-86 and 1986-98 :
Table 1.2: Comparison of Area, Output and Yields of Oilseeds Group with Foodgrains Group in the Periods 1949-86 and 1986-98
Particulars Foodgrains Particulars
1949-50 1985-86 Variation % 1980-87 1992-98 Variation %
Area (in million ha) 99.3 128.0 (+)29 127.2 123.8 (-)2
Production (in million tonnes) 54.9 150.4 (+)173 143.4 192.3 + 34
Yields (kg/ha) 553 1175 (+)113 1128 1552 + 38
Oil Seeds
1949-50 1985-86 Variation % 1980-87 1992-98 Variation %
Area |m. ha) 10.1 19.0 (+)90 18.6 26.1 (+)40
Production (m tonnes) 5.2 10.8 (+)108 11.3 21.3 (+)89
Yields (kg/ha) 519 570 (+)10 605 816 (+)35
Sources : (1) Agriculture Statistics at a Glance, Dapt of Agriculture & Coop, New Delhi 1996. 12) Indian Economic Survey, Ministry of Finance, Feb 2001.
1.4.10 In the 36 year period 1949-50 to 1985-86, the area under foodgrains expanded by 29%, while that of oilseeds shot up about three times of that, by 90%; but the growth in output was 173% for foodgrains and only 108% for oilseeds, with the average yields of the two crops going up by 11 3% and 10% respectively. This reflects the tremendous impact made by the high yielding varieties on foodgrains output, while the oilseed technology was unable to progress equally significantly.
1.4.11 However, the second period of 11 years 1 986-98, reflects the relative acceleration in the progress of oilseeds crops, mainly due to the special efforts, made by the Technology Mission on Oilseeds, set up by the Government of India in collaboration with the State Governments. These efforts focused on creating just and fair price incentives for enhancing the profitability on application of better oilseeds technology; the input supply was strengthened, helping the oilseed farmer to produce more. The area under
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foodgrains over these 11 years contracted by 2 % , but the o u t p u t and un i t y ie lds increased by 3 4 % and 3 8 % respectively. On the oilseeds f ront , the area expanded by 4 0 % , witnessing an increase in output by 8 9 % and yield increase of 3 5 % . The relative increase in prof i tabi l i ty induced the farmers to enhance the allocation of irrigation to oilseed crops f rom 9 .7% of the oilseeds area to 2 6 % during this period.
1.4.12 The three graphs at the end of this Chapter set out the trends during the period 1970-71 to 1999-2000 regarding (a) area under oilseeds, (b) oilseeds productivi ty in kg/ha and (c) output of oilseeds. In all the three charts, acceleration in progress is c lear ly v is ib le , af ter 1 9 8 6 , w h e n the Techno logy Miss ion on Oi lseeds was es tab l ished to encourage oilseed production.
1.4.13 It would be useful to analyse the variations in the area, output and yields of different oilseeds during the t w o periods 1949-86 and 1986-98.
Table 1.3 : Compound Growth Rates in Area, Production and Productivity of Oilseed Crops in India
Crops 1949-50 to 1985-86 1986-87 to 1997-98 Crops
A P Y A P Y
Groundnut 1.26 1.62 0.36 0.01 1.92 1.93
Rapeseed-mustard 1.80 3.26 1.43 4.89 5.86 0.94
Sesame -0.02 0.30 0.32 •2.23 0.13 2.40
Castor -0.04 3.51 3.54 2.37 12.83 10.20
Linseed 0.42 0.49 0.07 -3.58 -2.35 1.22
Niger* 1.35 3.08 1.69 -0.96 0.60 1.58
Saf flower** 3.11 10.24 6.92 -3.12 -3.23 -0.14
Soybean*** 33.05 35.08 1.53 14.24 19.91 4.96
Sunflower*** 10.57 7.13 -3.08 5.60 10.28 4.40
All Oilseeds 1.57 2.30 0.71 2.90 5.90 2.93
A - Area; P-Production; Y- Yield *, **, *** starting years 1964-65, 1965-66 and 1970-71 respectively. (Hegde Dl\/I, Project Director, Directorate of Oilseed Research Hyderabad; P-67, Survey of Indian Agriculture, April 2001. The Hindu, May 2000.)
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1.4.1.4 It is seen fronn Table 1.3 that for "all oilseeds", the compound annual growth rates in area in the second period, at 2 . 9 % , was nearly 8 0 % higher than such growth rate in the f irst period, while the growth rates in production and productivity in the second period vis a vis. the first period were higher by 157% and 310%. This clearly establishes that the oilseed sector witnessed phenomenal annual growth in eff iciency and volume, during the period 1 986-98 as compared to the period 1949-86.
1.4.15 Among the 9 oilseeds surveyed in table 1.3, the annual compound g rowth rates in areas were the highest for soybean (14.24%) for the period 1980-98, fo l lowed by sunflower (5.6%) and rapeseed mustard ( 4 .89%) . The most important oilseed, groundnut, hardly registered any g rowth in area. There was however a fall in the areas under linseed, sa f f l ower , sesame and niger - oi lseeds in w h i c h the technological development has been relatively slower. The highest growth in output during this period was seen in soybean, fo l lowed by castor , sunf lower and rapeseed mustard. In terms of productivi ty gains per unit area, castor again led, fo l lowed by soybean, sunf lower, sesame and groundnut.
1.4.16 In the fol lowing paragraphs, a brief account is given of the cu l t i va t i on of the three impor tan t o i lseeds in Ind ia : groundnut, rapeseed mustard and soybean, that accounted for 8 8 % of total oilseeds output in the year 1998-99 .
1.4.17 Groundnut is the single largest cont r ibu tor to oi lseed production in India, wi th 3 7 % of total oilseed output in 1998-99 , coming from 3 5 % of the total oilseed area, w i th an average yield of 1210 kg /ha. The average yield in the Rabi season, mostly irrigated, at 1609 kg/ha is 4 2 % higher than the yield in the Kharif season. However, only one seventh of the total groundnut area is used in the higher yielding Rabi season. Groundnut crops are highly susceptible to pests and diseases ; and hence require high investment in plant protect ion. It also produces considerable green mass and hence needs large application of plant food , in the shape of organic and inorganic ferti l izers. There has been a 8 7 %
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improvement in yields over time, from a level of 719 kg/ha in 1985-86 to 1210 kg/ha in 1998-99; the area increased during this period only by about 5%. The major producers in 1998-99 were Gujarat (25.8 lakh tonnes), followed by Tamilnadu (19.6), Andhra Pradesh (19.2), Karnataka (12.3) and Maharashtra (6.3).
1.4.18 Rapeseed mustard occupied the second largest oilseeds area in the country in 1998-99 (6.6 million ha), with the third largest output : 5.77 million tonnes, with the fourth largest yield (875 kg/ha) amongst the nine leading oilseeds in India. The major growing States are Rajasthan (38% of total area) followed by Uttar Pradesh (19%), Madhya Pradesh (10%), and Haryana (10%). This is an exclusively Rabi season crop in India. As seen from Table T.3, the period 1986-98 has seen a significant expansion of area and output of this crop, though the present yield of 875 kg/ha can be considerably improved with the use of better seeds, fertilization and plant protection measures.
1.4.19 Soybean is the single largest grown oilseed in the world at 158.3 million tonnes in 1998; this exceeds the aggregate global output of four important oilseeds - groundnut, rapeseed mustard, sunflower, and cottonseed. Its virtue is that it has not only 18% oil content, but also 46% protein content. Thus, 1 tonne of soybean is equal to 0.6 tonne of groundnut for oil purposes, plus 2 tonnes of ordinary pulses in terms of protein. Soybean is more valuable as a protein crop for humans and for livestock, than as an oilseed. In the year 1997-98, India exported Rs. 3495 crores worth of oil meals and oilcakes; more than 75% of it was of soybean origin.
1.4.20 There has been rapid expansion of soybean cultivation in India, from 32,000 ha in 1970-71 to 1,243,000 ha in 1984-85 and to 5,980,000 ha in 1999-2000. The yield has also gone up from 426 kg/ha in 1970 to 768 kg/ha in 1984-85 and to 1103 kg/ha in 1999-2000. The leading states here are Madhya Pradesh (4.4 ha), Maharashtra (1.06 m ha) followed by Rajasthan (0.68 mha). The compound growth rates of area and production of Soybean are the highest
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annongst all oilseeds for both the periods 1 949-86 and 1 987-98 , (see table 2.2), Yet, the average yields in India at 1103 kg/ha in 1999 -2000 , trail behind the global average of several soybean leaders, like the USA (2620 kg/ha), Brazil (2420kg/ha) Argentina (2760 kg/ha) and European Union (3440 kg/ha).
1.4.21 Indian scientists have been able to develop soybean seed varieties suitable for different agro climatic condit ions in India and capable of yielding 3 to 3.5 tonnes per ha i.e. three t imes the present average yield. ICAR is work ing to overcome the present constraints, like short longevity of the seeds as p lan t i ng m a t e r i a l , p o d - s h a t t e r i n g and susceptibil i ty to insect pests and diseases. Unfortunately, soybean has a beany f lavour that is not liked in India. Researchers are trying to reduce this f lavour. Greater use of Soya products wil l help reduce the protein gap in the typical Indian diet.
1.4.22 The strategy worked by the Technology Mission on Oilseeds operated impressively in t w o respects. First, production of nine major oilseeds jumped from less than 10 million tonnes in 1 980 to more than 21 million tonnes in 1 993-94 . Wi th a growth rate of 5.8 per cent per annum between 1981-82 and 1993 -94 , the oilseed crops registered the fas test expansion of all major crops. They contributed 22 per cent to all-India crops growth in rainfed areas where most of the oilseeds were cult ivated. The order of production instabil i ty is estimated to have declined by 75 per cent; the co-efficient of variation declined from 20 per cent in 1971-77 to 5 per cen t in 1 9 8 9 - 9 4 as reg iona l , seasonal and va r i e ta l diversification of crops, along wi th the expansion of oilseeds production into irrigated areas, helped stabilize product ion.
1.4.23 The single largest import of oil by India is palmoil/ palmolein, primary f rom Malaysia and Indonesia. It is very reasonably priced and has become very popular w i th the low-income sections of the population. An expert committee appointed by the Government of India recommended that oil palm can be cost-effectively cult ivated in 8 lakh ha of irrigated land in Andhra Pradesh, Karnataka, Tamilnadu, Maharashtra and
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Kerala. A comprehens i ve deve lopmen t scheme was introduced in 1 9 9 1 . Under the 8^^ plan, an allocation of Rs. 215 crores was made for promoting oilpalm in 80 ,000 ha of land; the actual achievement was 34 ,500 ha, which went up to 49 ,000 by 1998-99. Unfortunately, a number of factors have affl icted the programme: cheap imports of palm oil under reduced import duty regime, low and nonviable support prices for produce, delayed development of irr igation and processing faci l i t ies etc.
1.5 A POLICY FRAMEWORK FOR OILSEEDS SECTOR
1.5.1 The general objective of any agricultural policy is to enhance economic efficiency and promote social equity. Economic eff iciency is achieved by optimising the productivi ty of all resources employed in agriculture: land, labour, capital, enterprise and technology. The social objective is to ensure a just and equitable distribution of benefits from and burdens of oilseed sector amongst all the participants: the producers and consumers on the one hand and the rich and the poor on the other. Economic policy in India has developed over decades to respond to these social, economic and political imperatives.
1.5.2 The Technology Mission on Oilseeds (TMO) was set up in 1986 by the Government of India to achieve speedy enhancement of oilseeds production. India had a relatively c losed economy w i t h widespread cont ro ls on pr ivate economic activit ies: on the prices of inputs and outputs, on the movement and trade of oilseeds and on the processing of oilseeds. The policy makers were alarmed to see the burgeoning import of edible oils in mid - 1980s, despite heavy import duties. They were equally concerned that the farmers did not feel encouraged to use the available oilseeds cult ivation technology, though the latter promised to double t he y ie lds . The respons ib i l i t i es re la t ing t o o i lseeds development wi th in the Government lay divided amongst several agencies dealing w i th research, cul t ivat ion, input supply, credi t , processing, trade etc. w i t h inadequate coordination amongst them. The Government of India felt the need for greater emphas is , f o c u s , synergy and
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coord ina t ion for s tepping up oi lseeds ou tpu t and for improving the efficiency of this sector as a whole.
1.5.3 A highly focused oilseeds policy f ramework was approved in 1986. Shri Rajiv Gandhi, the then Prime Minister of India, in his address at the Indian Agricultural Research Inst i tute, New Delhi in Feb 1986, defined the scope and strategy of the oilseeds mission in clear terms as indicated at paragraph 1.3.5.
1.5.4 Paragraphs 1.3.12 has already outlined how the Technology Mission on Oilseeds achieved a remarkable success in increasing oilseed output by 5 0 % in four years by 1990 ; the Mission later helped reduce imports of edible oil and to enhance exports of oilseed products, establishing oilseed sector as a major net exporter. Due to the drastic reduction of import duties from 6 5 % to 15%, the imports of palmoil spurted, peaking to Rs. 7984 crores in 1999-2000 . This disincentive has led to the decline of oilseed production from a peak of 24.4 million tonnes in 1996-97 to 20.4 million tonnes in 2 0 0 0 - 0 1 . The import duty on palmoil was raised to 92 .4 % in 2 0 0 1 , responding to a strong appeal f rom the farmers and processing industry. It has to be seen how far this wi l l enthuse the oilseed farmers to invest in better technology and inputs , for enhancing product iv i ty and production of oilseeds.
1.5.5 The oilseeds policy framework has now to be fine-tuned in the context of the developments outl ined above in an environment of steadily liberalizing economy. The policy has to put a premium on (a) improving technology of oilseeds product ion and processing, (b) encouraging farmers to modernize oilseeds production and the industry to improve processing, (c) reducing subsidies and allowing market forces to provide support services efficiently and (d) modulating imports and import duties to balance the interests of producers and consumers in the oilseed sector in an optimal manner.
1.5.6 In a nutshel l , Indian oilseeds pol icy f ramework has to promote the goals of economic eff iciency and social equity through a creative combinat ion of policies, science and technology. Public Policy should support greater involvement
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of private sector in providing services to the farmer, the processor and the trader. The tariff policy should strike a golden balance between the promotion of domestic production and of export, while safeguarding the interests of consumers, through reasonable quantity of imports to ensure fair prices for them.
1.6 CONTRIBUTION OF THE OILSEEDS SECTOR TO THE INDIAN ECONOMY
1.6.1 It has been already noted that oilseeds crops, occupying 14% of the cultivated land in India, contribute 6% of GDP. The oilseeds sector provides employment to 14 million farm families and another one million, engaged in trade and processing. The contribution of the oilseeds sector to the Indian economy can be enhanced, consistent with the efficient use of resources like land, labour, technology, capital and organization, if the following preconditions are fulfilled:
(i) only those oilseeds are promoted in which India has a comparative cost advantage and consumer acceptance;
(ii) farmers get access to productive technology and inputs, assuring a satisfactory return to their investment in land, labour and capital for growing those crops;
(iii) there is continuous progress in developing more efficient agronomic and processing technologies, which help farmers to grow oilseed crops cost e f fec t ive ly and processors to process them efficiently;
(iv) the conditions relating to marketing provide farmers and processors with incentives, while ensuring competitive prices for the benefit of consumers and for exporters.
1.6.2 The above preconditions for success can be secured under four cumulative and mutually supporting preconditions:
(i) Development of cost-ef fect ive oilseeds crops production technology.
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(ii) Support to oilseed farmers through (a) effective demonstration of crop production technology and (b) supply of all essential inputs and services at affordable costs: particularly seeds with high-yielding potential and other desirable characteristics, plant foods like fertilizers and micronutrients and plant protection materials and services.
(iii) Development of an efficient oilseed-processing infrastructure, through the provision of suitable processing technology, ensuring reasonable costs and acceptable output quality standards.
(iv) An oilseeds marketing structure which offers fair incentives to farmers, processors and traders, consistent with a fair deal for the consumers.
1.6.3 This paper seeks to analyse the experience so far in developing the four services mentioned in para 1.6.2. It also proceeds to make operat ional and pol icy recommendations for improving the supply of these services to the respective stakeholders in the oilseeds sector.
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Chart 1 : Trend in area under oilseeds in India 2800Q
24000
2D000
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4000
o
<i " 1 1 ( 1 ( 1 1 1 1 r 1 1 1 1 1 1 1 1 r- < ) 1 1 1 ( r 1 ( r
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N>
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900
800
700
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* 500
400
300
200
100
Chart 2 : Trend in oilseeds productivity in India
"T 1 I I I I 1 1 I T" "T 1 1 1 r- - i 1 1 1 1 1 1 r r 1 r -
O' ^ ' ^ ' ^ ^v ^ ^' ^- ^^ ^ ^^ ^^ ^ ^ / > ^ ^^ ^^ ^^ ^ ^3 ^ T? ^ ^ ^ ^ ^^ <^^ #
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Chart 3 : Trend in production of oiiseeds in India
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T — 7 ~ i — - ~ i 1——T 1—-T——I \ 1 1 ) r 1 r——I 1 1 1 1 \ 1 r- -1 1 1 r-
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CHAPTER 2
OILSEEDS PRODUCTION STRATEGY: TECHNOLOGY, INPUTS AND EXTENSION
2.1 OVERVIEW
2.1.1 This Chapter deals wi th the strategy for accelerating the production of oilseeds, through two broad measures : the first, to develop more efficient technology and secondly, reaching such technology as well as the needed farm inputs and services to the farmers, so that the latter can utilize them for more efficient and cost effective oilseeds production. This Chapter begins with the identification of strengths of the oilseeds sector, which help to achieve the above objectives and the weaknesses that need to be removed for that purpose.
2.1.2 Modern agr icu l ture is techno logy dr iven. The precise object ives of oilseeds research are ident i f ied , so tha t purposive scientif ic plans can be drawn up to achieve each one of them. The Chapter then proceeds to set out how the different tasks are allotted amongst the specialised research insti tut ions and how their activit ies are coordinated to yield the most productive packages of scientif ic practices for the farmer to fo l low. The actual advances in oilseed cult ivat ion are then set out, particularly for the rational expansion of oilseeds cult ivation area, crops zoning, use of improved seeds, eff icient irrigation and nutrient use practices and overall crops management. The crops yield increases, upon application of these scientif ic practices in demonstrat ion plots laid by scientists, are then analyzed for the 9 oilseeds crops. It is found that substantial yield increases in the 9 oilseeds crops were demonstrated by scientists, ranging from 3 5 % for niger to 1 3 5 % for s u n f l o w e r .If all t hese technologies were applied by all oilseeds farmers, an 8 0 % increase in oilseeds output wi l l take place in the country.
2.1.3 Oilpalm development has revolutionalised global vegetable oil scenario, wi th an annual oil yield of 4 to 6 tonnes per hectare, as against an average of about one tonne per hectare globally for other oilseeds crops. Section 2.6 sets out the research
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conducted in India by ICAR in developing a profitable technology for oilpalm cultivation under Indian conditions.
2.1.4 This Chapter then proceeds to outline the steps taken to bring the improved technology and requisite inputs like high-yielding seeds etc to the farmers during the S"" and S**" Plans. The results of the concurrent evaluation of the oilseeds crops developments, by an expert agency engaged by the TMO, namely the Agricultural Finance Corporation, are also outlined. The scope for increasing oilseeds area and yields are also set out.
2.2 STRENGTHS AND WEAKNESSES OF THE OILSEED SECTOR
2.2.1 A strategy for enhancing oilseeds production has to be built for augmenting its strengths and overcoming its weaknesses. The existing strengths include the following:
(i) A tested strategy that has worked well to develop wheat, rice and cotton sectors.
(ii) A good network of research organizations. (iii) A well established infrastructure for supply of inputs
and services. (iv) Proven success of oilseed cooperatives on the Anand
pattern in Gujarat. (v) Successful price support operations by the Food
Corporation of India in the 1970's and 1980's, in preventing price crashes, soon after harvest of food crops and in maintaining incentive prices for the cereal farmers,
2.2.2 The oilseed development strategy has to overcome the following weaknesses:
(i) 85% of the oilseed crops are grown as rainfed crops without irrigation on mostly poor soils.
(ii) A large majority of oilseed farmers are small and marginal farmers without a capacity to invest in costly inputs.
(iii) Susceptibility of oilseed crops to pests and diseases. (iv) Technology not as profitable as that of wheat and rice
for which high yielding varieties have been evolved.
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(v) Exploitation by middlemen and speculators,
(vi) Inefficient storage and processing infrastructure.
2.3 MINI-MISSION I ON OILSEEDS RESEARCH : OBJECTIVES
2.3.1 Min i -miss ion I was charged w i t h the responsib i l i ty of improving oilseeds crops production technology, under the leadership of Indian Council of Agricultural Research (ICAR), through a mult i -dimensional research strategy, w i th the fo l lowing seven objectives:
i) Increasing oilseed crops yield potential by a range of 2 0 % to 5 0 % .
ii) Reducing crops duration by a range of 5 to 25 days,
iii) Breeding disease and pest resistant varieties,
iv) Increasing oil content by 6% to 2 5 % . v) Exploiting tissue - culture techniques in coconut and
oilpalm.
vi) Producing nucleus and breeder seeds for subsequent large scale multipl ication of quality certif ied seed.
vii) Deve lop ing app rop r ia te c rops p r o d u c t i o n and protection technologies.
2.4 ORGANIZING OILSEEDS RESEARCH
2 .4 .1 . To fulfil the above objective. Mini-mission I, headed by Director General ICAR functioned through the national agricultural research system, comprising research organizations under the ICAR and the 26 State Agricultural Universities. The ICAR's Directorate of Oilseeds Research (DOR), situated at Hyderabad, (Scientific Staff 43) spear- headed these research activities: it set up four National Research Centers; one each for groundnut, soybean, rapeseed mustard and oi lpalm, employing 106 scientists. DOR also funded and worked w i th the State Agricultural Universities, to carry out research on oilseeds of importance in their respective areas of operation, through All-India Coordinated Projects. The objectives and operations of these projects were jointly developed and approved in annual All India Research workshops; 1 59 scientists at the field level were employed by the Universities on these projects. The results of the trials and experiments were discussed in annual
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2.4.2
scientific workshops; and detailed guidelines were developed for use by extension agencies in each state for each oilseed crop. The total budget of the DOR during the VIII Plan (1992-97) was Rs.21.31 crores. Mini-mission I reviewed periodically the recommendations of the DOR for wider application in the country. This Mini-mission, headed by the Director General of ICAR, had as its members the Director of the TMO, Dy Director General (Crops) as well as the Senior Scientists and Project Coordinators dealing w i th di f ferent oilseeds crops and supporting scientific disciplines.
Mini-mission I allocated specific responsibilities to several research organizations in respect of the fol lowing different areas of specialization:
a) Basic Research Support on Oilseeds
b) Crops Research for: Groundnut, Soybean, Rapeseed Mustard, Safflower, Sesamum, Niger, Sunflower, Castor, Linseed, Coconut and Oilpalm
c) Dryland Farming
d) Agronomic Experiments
e) Soil Science
f) Agricultural Engineering and Post - harvest Technology
Directorate of Research, Hyderabad
9 All-India Co-coordinated Research Projects at various locations, under Directorate of Oilseeds Research, Hyderabad, National Research Centre for Soybean, Indore.
Central Research Institute for Dryland Agricul ture and All-India Co-ordinated Research Project, Hyderabad.
All-India Co-ordinated Agronomy Project, Modipuram (Uttar Pradesh)
Central Soil Salinity Research Institute, Karnal; All-India Coordinated Research Project on Micro-nutrients, Ludhiana, and Coordinated Soil Test Crops Response Project, Hyderabad.
Central Institute of Agricultural Engineering, Bhopal, and All-India Co-ordinated Research Projects on Implements and Machinery and Post-harvest Technology, Bhopal.
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2.4.3 The ICAR works closely with the Food & Agricultural Organization of the United Nations at Rome, which is the global inter-governmental organization to improve food and agricultural systems in its member countries like India. FAO holds international meetings to review the progress of science and technology in enhancing yields and values in different crops. ICAR is also a partner with the International Crops Research Institute for Semi-Arid Tropics (ICRISAT) situated at Hyderabad, with groundnuts as one of its main agenda crops for improvement. The genetic material and improved techniques made available by such international organizations are tested at different research stations of ICAR to evaluate their utility for Indian conditions and to finally extend to Indian farmers those seeds and techniques which are found applicable and useful.
2.5 ADVANCES IN OILSEEDS CULTIVATION TECHNOLOGY
2.5.1 It is now proposed to consider profitable technological options for significantly enhancing (even doubling in same cases) oilseeds output cost- effectively in the light of the researches carried out by the ICAR system. They are considered under four heads; (i) area expansion; (ii) improving yields through crops zoning as well as more efficient use of seeds, moisture and plant nutrients; (iii) crops management; and (iv) policy support. They are dealt with in the following paragraphs.
2.5.2 The scope for expansion of area exclusively under oilseeds is in general very lirrrtted; the demand for land for producing different commodities will continue to rise to meet the needs of our expanding population and increasing purchasing power. Oilseeds area expanded in the last 12-13 years, mostly by replacement of less-remunerative crops like millets and minor food crops. Area expansion has occurred in favour of those oilseed crops (a) which have either shown a higher g row th rate of p roduc t i v i t y due to techno log ica l development, (b) whose relative prices with competing crops have moved in their favour or (c) higher growth rates in yields were combined with higher prices, resulting in sharp increases in their total profitability. For example, under
27
receding moisture conditions in post-rainy season, safflower performs better than sorghum, wheat or chickpea. Under short growing seasons, crops like sesame and sunflower f i t wel l . Replacement of less-remunerative crops wi l l continue where the oilseeds have an edge over such crops in terms of price .
2.5.3 Besides exploiting limited opportunities for expansion of area under oilseeds as sole crops, large potent ia l exists to introduce oilseeds as intercrops in several major crops. In India, about 45 million hectares of land is available w i th widely spaced crops, where introduct ion of oilseeds as intercrop is possible. Even in crops like wheat , intrjoducing a row of mustard after 8 or 9 rows of wheat has proved more profitable than sole wheat in most of the irrigated wheat -growing regions. Even in high rainfall regions of Eastern India, intercropping groundnut and soybean in rice in up lands , dur ing khar i f season, has proved h igh ly remunerative. In addit ion, oilseeds can also be introduced as intercrop in less remunerative, tradit ional staple food crops like rainfed wheat, chickpea, etc. whose complete replacement is not possible.
2.5.4 Ident i fy ing newer areas and seasons for cul t ivat ion of oilseeds can help increase oilseeds production. Rice-fallows, especially in Eastern India, are the potential general areas for many oilseed crops like sunflower, rapeseed-mustard, groundnut and sesame. Oilseeds, being more salt tolerant than pulses and many cereals, have better chances of success in large tracts of saline areas. Likewise, under situations of limited water availability for the second crops of rice or in tail-end areas of canals, oilseed crops are better opt ions; w i th less than a third of water needs of rice, a good crop of oilseeds like sunflower, sesame and groundnut can be harvested.
2.5.5 Oilseed crops like sunflower and sesame may also be better options under contingency planning, where the season for regular cereal crop is not conducive or they have fai led. They can also f i t well as catch crops in the period left between t w o cereal crops. Value addition to some of the
28
main and by-products of oilseed crops wil l further increase their profitabil i ty and help expand the area. This wi l l also arrest constant decline in area observed in some oilseed crops like linseed, saff lower, etc., in recent years.
2 .5 .6 . Al though India holds an important position in the wor ld oilseed scenario, the productivi ty of oilseeds in India is only 935 kg/ha (1998 -99 ) as compared to wo r l d average productivity of 1632 kg/ha. Except in castor, the productivity in most of our oilseed crops is only 40 to 6 0 % of the wor ld product ivi ty. Five measures: crops zoning, seed, irr igation, nutrient supply and crops management need to be carried in this context, to improve the situation. They are taken up one by one.
2.5.7 Crops Zoning: Cultivation of most of the oilseeds is marked by varying product iv i ty levels in di f ferent areas. Crops ecological zoning is one of the important strategies for eff icient production of oilseeds. Delineating eff icient zones for each oilseed crop helps in realizing potential yields w i th high input use eff iciency. All our efforts for increasing area under oilseeds need to be dovetailed to these crop ecological zones. Supporting services like input supply, marketing and processing have to be linked to these eff icient crop zones.
2.5.8 Improved Seed: Usage of quality seeds of improved varieties and hybrids is one of the most important measures for increasing oilseeds produc t iv i t y . Nearly 2 5 0 improved varieties/hybrids have been developed in annual oilseeds crops during the past t w o decades, which have shown 9 % to 3 8 % yield superiority over the local cult ivars and w i th better resistance to pests and diseases. Wi th the exception of sunf lower and to some extent in castor , the seed production is primarily left w i th public sector agencies that have many inbuilt limitations. While there is enough or excess breeder seed production in most of the oilseed crops except groundnut and soybean, fur ther mul t ip l icat ion th rough foundation and certif ied seeds is the key constraint for the supply of adequate quality seed to the farmers. The seed replacement ratio in all the annual oilseed crops is far f rom satisfactory.
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2.5.9 Efficient Irrigation: Oilseed production in the country is marked by a high degree of annual variat ion, as nearly 7 4 % of the oi lseed area is ra infed and thus sub jec ted to uncertainties of moisture availability. With the exception of rapeseed-mustard and castor, the irrigated area in other oilseed crops varies from less than 1 % in saff lower and niger to about 1 9% in groundnut. The production of oilseed crops can be stabi l ized and s igni f icant ly increased by extending irr igat ion fac i l i ty . The water requirement of oilseeds in general is low; and they respond remarkably to limited irrigation inputs at critical stages. Productivity of crops like saff lower can be almost doubled w i th just one .protective irr igation. Oilseeds provide highest profitabil i ty
per unit of water used under limited irrigation situations. Thus, these crops must be encouraged when water supplies are l imited.
2 .5 .10 Nutrient supply: Oil seeds are energy-rich crops; but in India, they are mostly grown under energy-starved condit ion. Low or no use of plant nutrients is one of the most important fac tors for low product iv i ty of oi lseeds. The nutr ient requirement of oi lseeds, in general, is high for all the nutrients, which need to be supplied in adequate quantities for high yields. Some of the cropping systems involving oilseeds may remove as much as 400 to 800 kg nutrients (NPK)/ha/year under high product iv i ty condi t ions. The estimated nutrient removal by oilseed crops during 1998-99 was 3 . 4 9 mi l l ion tonnes (N, PjOg, K jO , S); the contr ibution to nutrient uptake by fertilizer application was only 13%.of this quanti ty. There is growing deficiency of secondary and micronutrients, such as Sulphur, Calcium, Zinc, Iron and Boron, due to intensive cropping w i th use of h igh analys is fe r t i l i ze rs . The l im i t ing secondary and micronutrients need to be applied along w i th fertilizers for achieving desired productivi ty.
2 .5 .11 Groundnut and Soybean, being leguminous oilseeds, can great ly benefi t f rom the use of appropriate Rhizobium cultures. As these t w o crops together account for more than 5 0 % of the area under oilseeds, there is need for promoting Rhizobium to economise the use of Nitrogen.
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These crops, in sequence w i th other non-legumes, can help in saving Nitrogen to the extent of 30 to 40 kg /ha. In a country where the general consumpt ion of plant nutr ients is very low and stil l lower in oilseeds, the residual fer t i l i ty build-up due to legumes is obviously a major contr ibut ion w h i c h must be fu l ly exp lo i ted for increasing oi lseed product ion.
2.5.1 2 Biofertilizers like Azotobactor, Azospiri l lum and phosphorus solubil ising bacteria can also play an important role in achieving economy in chemical fertilizer use. These need to be promoted in different oilseeds along w i th Rhizobium for leguminous oilseed crops.
2.5.1 3 Fertilizer management has to be practised on a system basis rather than on individual crops or field basis for achieving higher eff ic iency and economy, which leads to greater sustainability. Specific attention needs to be given to harness the residual effects of fertil izers containing phosphorus, potash and sulphur. Sound fert i l izer management for intercropping system, which can meet the nutrient needs of component crops, wil l go a long way in enhancing the productivi ty of the system.
2 .5 .14 Crops management: Oilseeds are cult ivated for commercial purpose and the by-products of these crops are of litt le value, w i th the exception of groundnut. An oilseed grower is supposed to make arrangements for his food requirements by either producing them in a separate area, or purchasing them out of earnings from oilseed production. In either case, p ro f i t max im iza t i on is the pr ime mo t i ve for o i lseed production. Profitable oilseed production lies in efficient crop management practices, many of which involve non-cash or low-cost inputs.
2.5.15 Efficient crops management practices, starting from adoption of proper crops rotat ion, t imely planting, adequate plant stand through adjustment in seed rate and th inning, t imely weed management, life saving irr igation, balanced plant nutr i t ion and need-based plant protection : all these have great influence on productivity of oilseed crops.
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2.5.16 The c o u n t r y - w i d e exper ience , t h r o u g h the f ron t l i ne demonstrations in oilseeds organized by ICAR, for the last ten years across wide growing condit ions, clearly indicates a large scope for increasing oilseed product ion. Different components of crop production activities can substantially add to the present yields: improved varieties (7 to 5 7 % increase), use of biofertilizers (12%), chemical fertilizers (19 to 48%) , need- based plant protection (18 to 73%) , appropriate planting t ime (54%), correct sowing method (30 to 35%) , adequate plant stand (19 to 65%) , thinning (22 to 84%) , life saving irrigation (49 to 186%) , t imely weed control (21 to 426%) , etc. There exists a commercially exploitable yield reservoir to the tune of nearly 7 6 % of the existing national average yield which could be harnessed by the adoption of currently available improved technologies (see table 2.1)
2.5.1 7 It is useful to review the results of the last f i f teen years of research as demonstrated in frontl ine field demonstrations laid out by the ICAR and the Agricultural Universities from 1 983-84 to 1997-98. The fol lowing table sets out the basic facts in this connection.
Table 2.1 : Exploitable Yield Reservoir in Oilseeds SI.
No.
Crops Mean
realizable
yield wi th
IT* (Icgfha)
National
average
yield (kglha)
11998-99)
Yield gap
(kg/ha)
(%)
National
production
(OOOt)
(1998-99)
Expected
production
(OOOt)
SI.
No.
Crops Mean
realizable
yield wi th
IT* (Icgfha)
National
average
yield (kglha)
11998-99)
Yield gap
(kg/ha)
(%)
National
production
(OOOt)
(1998-99) Additional Total
1 Groundnut 1989 1174 815(69) 8980 6220 15200
2 Rapeseed- mustard 1595 894 701(78) 6130 4808 10938
3 Soybean 1852 1099 753(69) 6940 4753 11693
4 Sunflower 1388 590 798(135) 1180 1596 2776
5 Castor 1973 1144 829(72) 1000 725 1725
6 Sesame 629 354 275(78) 670 521 1191
7 Linseed 886 361 525(145) 280 407 687
8 Safflower 1341 616 725(118) 330 389 719
9 Niger 403 298 105(35) 170 60 230
Total - - - 25680 19479 45159
* Mean of 15 years data from improved technology frontline demonstrations (1983-84 to 1997-98)
Source: Souvenir of National Seminar on Oilseeds and Oils Research 2000, Indian Society of Oilseed Research, OOR,
Hyderabad - 500 030.
3 2
2.5.18 It is evident from the above data that the yield gap, between the mean realizable yield w i th improved technology and the actual national average yield, varies between 3 5 % for niger to 1 4 5 % for l inseed. For the major oilseeds also, it is substantial : 6 9 % for groundnut, 7 8 % for rapeseed mustard, 6 9 % for Soybean and 135% for Sunflower. It should be possible to add 1 9.5 million tonnes, to the actual output of 25 .7 mil l ion tonnes in 1 9 8 8 - 9 9 , if the farmers adopt t e c h n o l o g y in f u l l , as p r a c t i s e d in t h e f r o n t l ine demonstrations between 1983 and 1998.
2.6 OILPALM DEVELOPMENT
2.6.1 Two kinds of edible oils, emanating from oilpalm, namely palm oil and palm kernel oi l , account for 2 7 % of global edible oil production, second only to the output of 24 .6 million tones of soybean oil which accounts for 3 0 % of global output. Malaysia and Indonesia are the world leaders in palm oil production. Oilpalm resembles the coconut tree. It is the highest oil yielding plant today in the wor ld , w i th an annual yield of 4 to 6 tonnes per ha and w i th a l ifespan up to 30 years. The palm oil is derived from the f leshy mesocarp of the fruit (45 to 5 5 % oil content), whi le the palm kernel oil is obtained from its stony seed (which has 5 0 % oil content). An expert committee appointed by the Ministry of Agriculture identif ied a total of 8 lakh ha in 11 States, as suitable for palm cult ivation . Four-fifths of this area is situated in the three Southern States of Andhra Pradesh, Karnataka and Tamilnadu. Oilpalm needs irrigation faci l i ty of high standard, because of the extremely high moisture requirement of this crop, which has large quantities of green matter and which yields 20 to 25 tonnes of fresh fruit bunches annually, after the age of f ive years.
2.6.2 The Department of Biotechnology in the Government of India, in collaboration wi th the State Governments of Andhra Pradesh, Karnataka and Maharashtra establ ished three demonstration units of 1000 ha each during 1990-91 to demonstrate the feasibility of growing oilpalm under irrigated condit ions. In AP and Karnataka, it is the small holders w i t h
33
suitable lands who participated; and in Maharashtra, the participant has been the Konkan Development Corporation.
2.6.3 The Indian Council of Agricultural Research (ICAR) has supported research on oilpalm at the National Research Centre on Oilpalm, at Pedavegi, w i th four coordinating field c e n t e r s , at V i j aya ra i (AP) , A d u t h u r a i (TN) , Mu lde (Maharashtra) and Gangawati (Karnataka). Considerable progress has been made in several aspects:
• Crops improvement , inc lud ing germ plasm bank, identif ication of high-yielding Tenera palms, improved germination techniques, and study of climatic factors influencing oil palm yield.
• Crop produc t ion , including i r r igat ion and fert i l izer schedules, nutrit ional requirements of oilpalms, inter cropping possibilities and economizing on the cost of cult ivat ion.
• Crop protect ion, including studies on insect pests, poll inators, diseases and their management.
• Post harvest technology, including developing efficient processing mills of different capacities and mushroom cult ivat ion using oilpalm factory wastes etc.
2.7 PRODUCTION OF BREEDER SEEDS
2.7.1 As noted earlier, the ICAR is the fountainhead of improved oilseeds cult ivation technology in India. It is also charged wi th the responsibility of producing breeder seeds, wi th close to 1 0 0 % purity and germinabil ity. These breeder seeds are suppl ied to the seed indus t ry for mu l t i p l i ca t i on in to foundat ion seed; the latter would be the parent of the certif ied seed for the use of the farmers.
2.7.2 The regimen for the production of breeder seed is very exacting : Plants growing the breeder seeds have to be comple te ly free f rom pests and diseases, apart f rom conforming ful ly to the genetic qualities specified for that seed. The ICAR has laid down rigorous quality control for breeder seeds, since any defect in the breeder seed wil l be mul t ip l ied mani fo ld in the succeeding generat ions of
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foundation and certif ied seeds, reducing the yield potential of these seeds. In 1997-98, the ICAR together w i t h the Agricultural Universities produced 7554 quintals of breeder seeds of var ious k inds of o i lseed c rops , fo r f u r t he r mult ipl ication. The highest ever production of breeder seeds of oilseed crops was in 1 997-98 , at 10 ,654 quintals, which helped produce 100 times more, i.e. 10 lakh quintals of certi f ied quality seeds, for use by the oilseeds farmers.
2.8 SUMMING UP ON OILSEEDS RESEARCH
2.8.1 The Indian Council of Agricultural Research and its Directorate of Oilseeds Research continue to work with the 26 Agricultural Universities in the country for the development of better oilseeds technology for oilseeds crops of different kinds, focusing on the seven objectives set out at Para 2.3.1 Improvement of crops technology is a long-term process. The application of such improved technology has led to a 5 3 % increase in the average oilseeds yields, over 12 years, from 619 kg/ha in 1987-88 to 955 kg/ha in 1998-99, against an increase of only 21 % in the preceding 12 years 1976-88.
2.9 MINI-MISSION 3: TECHNOLOGY AND INPUT SUPPORT TO FARMERS
2.9.1 Mini-mission 3 deals w i th technology and input support to oilseed farmers. The strategy of this mini-mission is fourfold:
• S t rengthen the ex tens ion sys tem for t rans fe r of technology and input supply to the oilseed farmers, through specific projects.
• Streamline the production and distr ibution of improved oilseed seeds.
• Rationalize the supply and distr ibution of fert i l izers, pesticides and implements.
• Arrange for distribution of credit through cooperatives, regional rural banks and commercial banks.
2.9.2 Mini-mission - 3 is chaired by the Director of Technology Mission on Oilseeds in the Union Dept. of Agriculture and Cooperation
35
and has, amongst its members, officials of the Agriculture and other Ministries dealing with extension services, as well as inputs and services like seeds, fertilizers, plant protection and credit. It reviews progress made in timely planning and implementing the supply of these inputs and services.
2.9.3 The National Oilseeds Development Project, introduced during the Seventh Plan, covered 180 districts in 17 important oilseed- growing States wi th a total budget of Rs. 170 crores, out of which Rs. 100 crores were borne by Govt, of India. The latter bore half the cost of many components such as demonstration of improved technology, distribution of seed minikits (for trial by farmers), subsidies on seeds and rhizobium culture (a bio fertilizer), plant protection and farm equipment. The project also provided 100 per cent assistance to the ICAR for production of breeder seeds, which were distributed to State Governments for mult ipl icat ion eventually into registered or high quality seeds for farmers' use.
2.10 OILSEED PRODUCTION THRUST PROGRAMME (OPTP)
2.10.1 A new scheme was introduced in 1987-88 for providing special thrust to four out of nine oilseeds, which accounted for 85 per cent of the total oilseed output, namely groundnut, rapeseed mustard, soybean and sunf lower. The project provided for 100 per cent central aid to the States to strengthen the key components like seed production, plant protection field demonstrations, application of sulphur to enhance oil content etc. A total of 246 districts in 1 7 states, including 151 NODP distr icts, received assistance of Rs. 54 crores during the first t w o years 1987-89.
2 .10.2 The National Bank for Agriculture and Rural Development (NABARD), the apex rural refinancing agency, provided credit support to Cooperat ive Banks, Commercial Banks and Regional Rural Banks for financing oilseed farmers. Such credit support to central co-operative banks rose from Rs. 41.3 crores in 1986-87 to Rs. 243.16 crores in 1988-89.
2.10.3 Oilseed crops are far more susceptible to pests and diseases than cereals. Thus plant protection measures are very essential
36
for ensuring a good harvest. The following are the thrust areas in the plant protection compaign for oilseed crops:
• Use of healthy and disease-tolerant seed varieties.
• Seed treatment to prevent seed-borne diseases.
• Pest surveillance and monitoring in endemic areas.
• Integrated pest control campaign.
• Arrangements for t imely supply of pesticides, sprayers and dusting machines.
• Training of extension field functionaries on pest behaviour in endemic areas.
• Publicity campaigns on the above through media and technical bulletins.
2.11 NDDB PROJECT ON OILSEEDS
2.11.1 The NDDB undertook an integrated oilseeds development project in the 1980 's . It promoted Oilseed Growers' Cooperative Federations in seven States: Gujarat, Maharashtra, Andhra Pradesh, Karnataka, Tamilnadu, Madhya Pradesh and Orissa. These federations supported establishment of 3415 oilseed growers' cooperative societies, w i th about 5 lakh members, cultivating nearly 12 lakh ha of land. The cooperative societies provided quality seeds, fertilizers, storage facil ity, etc. to their members to enable them to increase oilseed production. When the produce was harvested, the societies procured them by paying the farmers attractive prices; profits earned by the cooperative benefited farmers, as investment for additional facilities as well as dividend. Many Cooperative Federations set up oilseed processing facilities. As seen earlier, the policy change to favour import of cheap edible oils has affected the viability of oilseed support measures undertaken by many oilseed societies and federations, leading to losses.
2.12 THE N A T I O N A L OILSEEDS AND VEGETABLE OILS DEVELOPMENT BOARD PROGRAMME
2.12.1 The National Oilseeds and Vegetable Oils Development Board (NOVOD) was constituted under the National Oilseeds and
37
Vegetable Oils Development Act 1983, for promoting the integrated development of oilseeds and the vegetable oils industry. The main functions of the Board are the development of oilseed crops and vegetable oils industry through financial and other assistance for increasing oilseed production and processing of oilseeds. The Board also extends assistance for improving marketing of vegetable oils and their quality control. The Board seeks to achieve integration betwieen production, processing and marketing of oilseeds.
2 .12.2 Starting w i th only t w o oilseed crops in 1 986 -87 , the Board has been gradually increasing its promotional act ivi t ies. Dur ing the year 1 9 8 8 - 8 9 , it t o o k up d e v e l o p m e n t programmes on soybean, rapeseed mustard, saf f lower, summer groundnut and summer sunflower. These include popularizing soybean in Orissa and the adjoining areas of West Bengal and Bihar, rapeseed mustard in place of rainfed wheat, popularising safflower cultivation in Madhya Pradesh, U t t a r P radesh , Bihar , Ka rna taka and M a h a r a s h t r a , encouraging cultivation of summer groundnut in the Northern and Eastern parts of the coun t ry and recommend ing sunflower in fields vacated by potatoes, toria and sugarcane. In addition to these programmes, the Board has also been assisting various agencies in marketing, storage etc.
2.1 2.3 The Board supports promotional activities like demonstration of improved production technology and minikit programme to popu lar ize improved var ie t ies of o i lseeds c rops , part icularly in non-OPP distr icts areas. However, some components like power-driven farm implements such as threshers, decort icators, seed drills and harvester-cum-reapers are so designed as to support the OPP. The NAVOD Board had no doubt been set up before the TMO; it is however better to integrate it w i th the TMO, rather than allow it to work as a separate organization, w i th the same objective as the TMO.
2.13 CONCURRENT EVALUATION
2.13.1 The Agricultural Finance Corporation, Mumbai, a consultancy organization owned by commercial banks, was entrusted
38
wi th the task of undertaking concurrent evaluation of the implementation of the Oilseeds Development Projects, w i t h a v iew:
(a) to ascertain the t imeliness of supply/d is t r ibut ion/ pos i t ion ing of var ious inputs l ike seeds, p lan t protection chemicals, improved farm implements, and sprinkler sets for use in rabi/summer groundnut areas;
(b) to identify the various constraints in the availability of inputs and services inc lud ing ex tens ion and research support;
(c) to measure the ex tent of awareness, adop t ion , utilization and application of improved oilseeds inputs and techno logy by the farmers w i t h par t icu lar reference to marginal and small farmers, scheduled castes and scheduled tr ibes;
(d) to assess the adequacy, eff icacy and quality of the package of assistance;
(e) to assess the compatibi l i ty of support activit ies w i th the production-oriented schemes and availability of funds from the States as well as Government of India;
(f) to assess the effect iveness of co-ordinat ion and implementat ion arrangements for NODP and the ac tua l i m p a c t of the p r o g r a m m e on o i l seeds product ion, product iv i ty and potent ial for fu tu re development.
2.13.2 The AFC did an excellent job of evaluating the impact of programme elements at the grassroots level in the project States and came up w i th valuable recommendations for improving the programme implementation both in Kharif and Rabi seasons. The TMO then made appropriate changes in its working procedures in consultat ion w i th States, leading to fur ther progress in enhancing oilseeds yields in the farmers' f ields.
2.13.3 Remarkable Success and Sharp Decline
As a result of the thrust given to the programme, the output of oilseeds rose by 9% over the period 1983-87 to 12.65
39
million tonnes even in the drought year 1987-88, when only 40% of the meteorological subdivisions received normal rainfall, as against an average of 75% subdivisions over the period 1 983-87. In the year 1988-89, the monsoon was excellent; and the oilseed output increased substantially, by 43% over the preceding year, to 18.03 million tonnes; this exceeded even the next year's target of 16.5 million tonnes!. The promotional measures initiated by the TMO had begun to bear fruit. The output of oilseeds reached the peak of 24.39 million tonnes in the year 1996-97. In the year 1992-93, the oilseed sector became a net earner of foreign exchange, with import of edible crashing down to Rs. 167 crores and the exports of oilseeds sector reaching Rs. 1794 crores. Under pressure from consumer lobbies, the Government reduced import duties sharply from 65% to 15%. In the year 1997-98, the value of exports of oilseeds sector reached a peak of Rs. 4740 crores while the value of imports also rose to Rs. 2765 crores. The highest oilseed production, till 2001, was reached in the year 1998-99, with 24.7 million tonnes; in this year, the imports of edible oil also soared to Rs. 7589 crores, due to the reduction of import duties. The Oilseeds sector has not recovered even in 2002 from the impact of this adverse policy, though the import duty on edible oils has been enhanced to over 90% in 2001.
2.14 OILSEED PROMOTION DURING 8*' AND 9'^ PLAN
2.14.1 Over the course of years, the components of oilseed development programme have undergone changes, in the light of emerging technologies capable of increasing oilseed yields. Thus, during the 8* Plan, assistance of the order of Rs. 444.60 crores was extended to State Governments by the Govt, of India, to support 25 different activities, which had the potential of increasing oilseeds yields, directly or indirectly, on cost effective basis. The 8" Plan sought to increase oilseed production from a level of 17.5 million tonnes in the pre-plan year to 23 million tonnes in the final year 1996-97. The actual achievement was even higher : a remarkable 24. 86 million tonnes.
40
14.2 Table 2.2 sets out the pattern of central assistance to states for 25 different activit ies to help enhance oilseed crops product ivi ty directly or indirectly.
Table 2.2 : Pattern of Assistance for Different Activities during VIII Plan for Boosting Oilseed Production
SI.No. Name of Component Pattern of Assistance during VIII Plan
1. Production of Breeder Seeds
on 75:25 basis
Total cost be to reimbursed and to be shared by Central &
State Govts.
2. Production of Foundation Seed At the rate of Rs.2001-per qtl.
3. Production of Certified seed Rs. 2001- per quintal
4. Distribution of certified seed Rs. 3001- per quintal
5. Road Transport Subsidy Not applicable
6. Distribution of Seed minikits Free of cost to the farmers at the sharing pattern of 75:25
between Central and state Governments.
7. New Retail Outlets Rs. 50001- as one time grant
8. Infrastructure Development Based on the State Govt, proposals
9. Block Demonstration 50% cost of Inputs
10. Seed Treatment 50% cost of chemical
11. Integrated Pest Management (IPM)
including Rodent Control
Rs. 15001- per hectare
12. Root Grub Control Rs. 5001- per ha
13. Pheromone Traps Rs. 5001- for Demonstration for 2.0 ha
14. Micro-nutrients Rs. 1001-per ha
15. Improved farm implements 50% of the cost or Rs. 15001- per implement
16. Distribution of GypsumjPyritelSingle
Super phosphatelMussoorle Rock Phosphate
Rs. 2001- per ha.
17. Distribution of Sprinkler sets (i) 90% of the cost of set or Rs. 250001- per ha
whichever is less, for SCISTIWomen farmers.
(ii) 75% of the cost limited to Rs.25000l- per set.
18. Farmers Training Rs. 100001- per training camp.
19. Staff and contingencies As per requirement of State Govt.
20. Supply of Rhizobium Culture or Phosphate
Solubilizing bacteria
50% of cost or Rs.251- per ha
21. Grant to Agricultural Finance Corporation for concurrent evaluation: As negotiated.
22. Assistance to ICAR for Frontline As per requirement.
Demonstration
23. PP Chemical spraylha. 50% cost of the chemical, or Rs. 1001- per spray limited to two sprays
24. Weedicide •do-
25, PP Equipment 50% of the actual cost of the equipment, subject to the
maximum limit of 6001- for manually operated ones & Rs. 15001-
for power sprayers and dusters.
Source : Technology Mission on Oilseeds, Pulses & Maize: Profile of Progress. 1986-98, page 44, Dept of Agriculture and Co-operation, New Delhi, 1998.
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2.14.3 In the course of the 8** Plan (1992-97), a sum of Rs. 155.10 crores was allocated for the Oilseeds Production Programme, but Rs. 133.95 crores were utilized. The following table explains the progress in implementation in financial and physical terms.
Table 2.3 : Indicators of Achievement in Oilseeds Production Programme (OPP)
SI Mo.
Components Financial Allocation (Rs. In crores)
Financial Expenditure (Rs. In crores)
Financial Utilisation %
Achievement %
1) Seed Related component 44.25 376.76 85% 88%
2) Demonstration 67.80 56.76 84% 91%
3) Farm Implements 20.00 15.49 77% 267%
4) Farmers' Training 21.41 25.61 120% 131%
5) Others 11.64 18.33 158% N.A.
155.10 133.95 87.1% I\I.A
Source: Ministry of Agriculture, Nov. 1998, P. 45 Technology Mission in Oilseeds, Pulses & Maize - Profile of Progress 1986-98''.
2.14.4 The Tenth Plan seeks to increase oilseeds production from a base of 24.39 million tonnes in 1996-97 to 30 million tones in the f i f th year 2001-2002, through the Oilseeds Production Project - OPP. This was implemented in 396 districts of 28 states wi th a budget of Rs. 100 crores, of which 75 crores is the GOI share. In addition, the GOI made an additional allocation of Rs.13 crores for ICAR (Rs. 3 crores); the National Seeds Corporation and the State Farms Corporation of India received Rs. 4 crores for seed development, and Rs. 4.6 crores for minikit distribution as well as Rs. one crore for a crash programme for quality seed production of groundnut and soybean; and Rs. 40 lakhs were earmarked for evaluation studies.
2 .14.5 The main components of the programme are:
• production of quality seeds of recommended seed varieties though a chain of seed production from breeder to certified seed;
• subs idy on d i s t r i bu t i on of ce r t i f i ed seeds and promotion of seed treatment measures;
• subsidy on distribution of other production inputs like micro-nutrients, gypsum/pyri tes;
• promotion of plant protection measures through IPM, demonstrations, distribution of pheromone traps, rodent
4 2
control measures and subsidy on plant protect ion chemicals;
• irrigation support through subsidy on sprinkler sets;
• infrastructure development (assistance for irrigation facil i t ies, storage and threshing f loors);
• extension support - through block demonstrat ions, assistance to ICAR for frontl ine demonstrat ions and farmers training in application of new technologies.
2.14.6 A study of the evaluation reports of Agricultural Finance Corporation and of the TMO reveal the fol lowing strengths and weaknesses in the implementation of OPP:
Strengths:
• Wide agro-climatic base and bio-diversity;
• Good impact of development programmes on area expansion and productivi ty increase;
• Strong base and infrastructure for research (ICAR, CSIR and their fami ly of ins t i tu t ions, SAUs and Research Centres);
• Availabil ity of crop production technologies capable of product iv i ty increase both under rainfed and irrigated cropping systems;
• Large processing capacity for processing of oilseeds and oil cakes, vegetable oil refining and hydrogenation;
• State and national level network of input supply agencies for seed, ferti l izers, plant protect ion;
• Strong network of oilseed growers ' cooperatives in nine States;
• Special line of credit for oilseed growers in areas covered by OPP through Cooperative Banks, from NABARD.
Weaknesses:
• Narrow irrigation base (only 2 6 % area under oilseed is irrigated).
• Rainfed oilseeds mainly grown in hot arid, hot semi-arid and hot sub-humid tracts (These tracts account for 7 2 % area under oilseeds).
43
• Soil erosion, moisture and nutrient stresses limiting product ivi ty.
• Biotic constraints of oilseed crops like dearth of varieties suited to mixed or inter-cropping and/or for problem areas (dryland, saline/alkaline or acidic soils), vulnerability to pests and diseases, presence of anti-nutritional factors in oilseeds like trypsin inhibitor in soyabean, oxalates in sesame, high uric acid and glucosinolates in rapeseed-mustard, wildlife menace in U.P., Bihar, Madhya Pradesh and Haryana, etc.
Weakening of Financial Support to OPP
2.14.7 Of late, the performance of OPP has not been encouraging. Due to resource crunch, the programme is virtually abandoned in several states viz. Assam and Bihar. Its impact in North Eastern States and Kerala is poor. There is no visible impact in Orissa and West Bengal. Even among major oilseed producing States like Andhra Pradesh, Gujarat, Karnataka, Haryana, Madhya Pradesh, Maharashtra, Tamilnadu and Uttar Pradesh which had shown good performance earlier, programme implementation is showing a downward trend due to these states' inability in providing the 25 per cent matching share. Central assistance released during the years 1997-2001 has been only Rs. 404 crores against the Five Year Plan allocation of Rs. 585 crores. The per tonne GOI support has declined from Rs. 43 in 1997-98 to Rs. 34 by 1999-2000.
Basic Weaknesses of Oilseeds Extension Programme
2.14.8 Over the course of years, the limited impact of subsidies for inputs in oilseed crops promotion is becoming increasingly clear. The soundest extension strategy consists of demonstrating the higher productivity and profitability of superior breed of seeds, other inputs and other agronomic practices through field demonstrat ions. Subsidising the cost of scienti f ic demonstrations wi th genuinely new technologies is justified for a limited period of t ime. Once the profitability of the demonstrated technology is clear to the farmer, he will take it up himself. Subsidising each and every input leads to wastage of public resources. Very often, the benefit of subsidy is
44
siphoned off by ill-guided members of the extension system, or unscrupulous input trade. A sound credit support system tailor-made to the farmers' needs should also tie up with timely supply of good quality inputs and profitable marketing of output; anything else runs the risk of wastage of public resources. The OPP needs fundamental changes from this perspective.
2.15 OILSEEDS OF TREE ORIGIN
2.15.1 Seeds of more than 100 species of plant/ tree are found wild or cultivated inside as well as outside of the forest areas, containing sizeable amounts of vegetable oi l . has been estimated in India. They include tree species like sal, mahua, mango kernel, kokum, neem, kusum, karanja, ratanjyot, tung etc. A potential of seven lakh tonnes, consisting of 5 lakh tonnes of edible and 2 lakh tonnes of non-edible oils, remain largely unexploited, because of inadequate awareness about their usefulness and scientific know-how about their collection, processing, storage and market ing. Their distr ibut ion is scattered; and except in case of sal, the collection season is short. With proper credit support and coordination among organizations involved, the share of their contribution to the oilseed sector can improve. The following steps need to be taken for promoting oilseeds of tree origin, which also has the advantage of helping the economically backward girijans:
* Identification of potential pockets for specific oilseed of tree origin.
* Establishment of model seed procurement centres in potential pockets.
* Development of pre-processing faci l i t ies like de-pulper, drier, decorticator, graders, etc.
* R&D in value addition in oil, de-oiled cake and other products.
* Marketing linkage between marketing centres and oil industry.
* Publicity and awareness campaign.
* Establishment of seed gardens and plantations of such tree borne oilseeds.
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2.16 SCOPE FOR OILSEEDS AREA INCREASE
2.16.1 The area under cult ivated oilseeds has reached a plateau level of 25 million hectares or 14 per cent of the gross cropped area. However, there is considerable potential for expansion of area under these crops both in rice/cereal-based cropping systems and under rainfed condit ions. A view is gathering momentum among economists that the undu ly h igh suppor t pr ices for cereals have led to uneconomic increases in the production of cereals, putt ing pressure on price support agencies like the Food Corporation of India, and leading to the neglect of crops like oilseeds. In fact excess production of rice and wheat is now posing a problem in marketing of these crops. There is also a need t o change paddy -paddy and p a d d y - w h e a t c ropp ing sequences, for avoiding excessive depletion of nutrients and for improving soil health. Crops like oilseeds, pulses and mil lets, w i th emphasis on legumes, can restore soil health. The TMO is now recommending oilseeds-based cropping systems for areas where rice/cereal-based systems now predominate, to promote their long-term sustainabil ity.
2.16.2 In Bihar and Orissa there is also scope for raising these crops as inter-crops wi th upland paddy in the North Eastern region. Soybean has a good potential in kharif fal lows, as inter-crops w i t h maize/cot ton/baj ra / red gram in Madhya Pradesh, Rajasthan, Uttar Pradesh, Andhra Pradesh, Karnataka, Tamilnadu and Orissa. Similarly, other oilseed crops like sunflower, rapeseed/mustard, sesamum and safflower can be taken up in kharif fal lows as catch crops or mid-season contingency crops. Mustard particularly has a potential in Diara tracts in North Eastern India. Sesamum can be cultivated as a summer crop in Eastern States after paddy/potato.
2.16.3 There is also scope for expanding area under oilseed crops in irrigated condit ions. Traditional Rabi summer groundnut can be grown in tail-end areas of canals and in commands of minor irrigation/tank schemes. Toria can be grown as a catch crops and mustard in place of wheat in Northern India. In situations where water is available for shorter duration in Rabi summer season, sunflower can be taken as a catch
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crop in South and Central India. Saff lower offers itself as an alternative crop, where only one to t w o irrigations are available and also in alkali/saline sites of Maharashtra, Karnataka, Andhra Pradesh, Madhya Pradesh and Gujarat.
2 .16.4 If advantages are taken of such broad possibi l i t ies of increasing area, it should be possible to extend the cultivation of oilseeds to around 30 million hectares by 2006-07 from the present level of 25 million hectares.
2.1 6.5 Comparative Advantages: Oilseeds sector in India appears to have developed overall comparative advantages over some other nations. Measured in terms of cost per tonne, for example, Indian groundnut tends to be notably cheaper than those of China, Senegal and the USA. Although other oilseeds do not have this per tonne cost advantage, they are cost competitive on a per hectare basis. Low yields for oilseeds other than groundnut are balanced by low cost of cultivation per hectare. Another measure viz. Nominal Protection Coefficients (NPCs) indicates that Indian soybean production which was price competitive, progressed without benefit of protection. In contrast, other oilseeds like groundnut, rapeseed/ mustard and sunflower benefited from high protection levels, particularly in the late 80s ' , raising concern about India's comparative advantage in their production. The 1991 devaluation of the rupee improved India's competitiveness in oilseeds production, as indicated by the corresponding decline in NPCs. However, the lower NPCs since 1991 also reflected higher world prices. By 1994-95, the NPCs for all four oilseeds except sunflower had fallen below one, showing India's international price competitiveness .
2.17 POTENTIAL FOR VERTICAL GROWTH
2.17.1 The peak level of productivity reached was 944 kgs/ha, as against the average of 1 580 kgs/ha front line demonstrations over the years. The yield gap is thus 40 per cent between the potential and actual levels. It might be mentioned that against the potential level of 1580 kgs/ha already realized under front line demonstrations, the actual world average yield is 1638 kgs/ha for the tr iennium ending 1998.
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2.17.2 The yield target set for the terminal year of the 9'* Plan (2001-2002) was 998 kgs/ha and that envisaged for the terminal year of the lO*'' Plan is 1276 kgs/ha. The 10*^ Plan yield target is considerably lower than that already achieved under front-line demonstrations; and as such it seems a feasible goal, provided the supply of adequate quantities of recommended seed varieties could be made available to the cultivator at prices within his reach.
2.17.3 To sum up, considering the progress made on the production front of oilseeds, the strengths and weaknesses of the sector and the opportunities for further expansion in area and vertical growth, the feasible target for the 10**" Plan appears to be 30 million tonnes under these crops, against the peak level production of 25 million tonnes already attained; this would imply an annual growth rate of 6.3 per cent in production of oilseeds, as a result of area expanding at the rate of 1.3 per cent and productivity at the rate of around 5 per cent.
2.18 OIL PALM DEVELOPMENT
2.18.1 India imports large quantities of palm oil and palmolein from Malaysia and other countries. An Expert Committee was appointed by the Govt, of India in 1987 to identify the potential areas for this crops. This Committee reported that the crops could be efficiently cultivated in about eight lakh hectares of irrigated land in Andhra Pradesh, Karantaka, Tamilnadu, Maharashtra and Kerala. A comprehensive Oil Palm Development Plan was drawn up and is being implemented since 1991.
2.18.2 Under the 8" plan, a target for covering 80,000 hectares was set, with an allocation of Rs. 214.7 crores. The coverage by the terminal year of that Plan was only 34,500 hectares. By 1998-99, the coverage had increased to around 49,000 hectares. However, of late, a considerable area, estimated at around 14 thousand hectares, has been withdrawn from the crops mainly due to non-receipt of breakeven prices for the produce by the oil palm cultivators.
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2.18.3 The Oil Palm Development Programme (OPDP) provides assistance to the farmers for purchase of seedlings (Rs. 3720 per hectare) besides a cultivation subsidy of Rs. 1 2500 per hectare for four years i.e. gestation period of the crops. This cost is shared by the Centre and the State in 75 :25 ratio. However, production subsidies alone did not lead to the desired level of coverage under this crops, unless the possibilities for its marketing at remunerative prices is also assured.
2 .18.4 The Programme might have met wi th greater success had it been initiated earlier during the 'closed' foreign trade regime and if the delays in se t t ing up processing plants by entrepreneurs and zonalisation by State Governments had been avoided. Another inhibit ing factor was the init ial reluctance of farmers to shift f rom traditional crops to new long gestation plantation crops, that too wi th costly irrigation suppor t . In Malaysia and Indonesia, much of palmoi l plantation was situated in perennial rainforest areas, wi thout the need for large-scale irrigation. A better extension effort to demonstrate the economics of the crops could have helped.
2.18.5 Apar t f r om subsid ies to fa rmers , another main cost component in the programme is of seed gardens for this tree crop. Three seed gardens planted during the 8*^ Plan have come up to yielding stage. They are located in Andhra Pradesh, Karnataka and Kerala. Three old seed gardens are also still in business. The production of sprouts during 1999-2000 was 4.7 lakhs rising to 21.5 lakhs by 2003 . There are 10 functioning processing units in the country w i th a tota l capacity of around 93 tonnes per hour. Capacity util ization is low because of late arrivals of frui t bunch.
2.1 8.6 The high import of cheap vegetable oils in recent years has adverse ly a f f e c t e d f a r m e r s ' m o t i v a t i o n to inc rease product ion of palmolein. Govt, of India has, belatedly, announced a duty hike on raw palm oil f rom 35 per cent to 65 per cent and on refined palm oil f rom 45 per cent to 65 per cent f rom November 2000 . The raised level of duties is far below the GATT bindings (300%). These duties were
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further enhanced in 2 0 0 1 , rather too late. To safe guard the interests of our oil palm cult ivators as also those of other oilseed cult ivators, a close watch on import levels needed to be kept and duty levels reviewed to moderate the volume of imports to reasonable levels, wi thout grossly ignoring the question of comparative advantage.
2.18.7 Farmers lost interest in the crops because they could not realize the announced prices for fruit bunches. A minimum price of Rs. 2750 per tonne is essential for inducing farmers to take up this crop. Problems of inadequate and erratic power supply persisted, making efficient Irrigation difficult. These adversely affected the production and processing of oil palm.
2 .18.8 The Agr icu l tura l Finance Corporat ion has advised the Technology Mission on Oilseeds to develop strategies for long, medium and short terms, for building up the oil palm sector. They are outlined below.
2.18.9 Long term strategy
(a) Agro-climatic conditions over large areas in the country offer conducive environment for oil palm development. The crops can be grown on both laterite and black soils w i th provision of drainage. Although rainfall is good in States w i th major potential, it is concentrated in four months of the year. Hence, long-term strategy is required for development of irrigation sources, where oil palm cult ivation is proposed on large scale. Canal command areas can be exploi ted as envisaged in Gujarat. Ground water development can also be taken up in a concerted manner. For installation of medium deep tube-wells, shallow tube wel ls, cavity wells and bore wel ls. State Minor Irrigation Departments must be involved in the OPDP as a stakeholder. Like-wise, State Electricity Department should also be involved so that power connections are not delayed and power supplies are regular as far as possible.
(b) There is good potential for oil palm development in wastelands. Water conservation techniques such as inter-row, inter-plot harvesting of water and appropriate
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tillage for storage of rainwater in soil profile wil l enhance ef f icacy of rainfall in crop product ion and prolong availability of water supply even after rains. Harvesting of water outside the soil profile in ponds and dugouts, as well as diversion of water from drains and rivulets, wil l go a long way in improving water availability; this will help reduce the cost of artif icial i rr igat ion, through development of minor, medium and major sources of irrigation. These mini and micro water/irrigation facilities will also bring down the use of fossil fuel and electric power. Government of India has already included oil palm in the f inancia l pat tern for was te land cu l t i va t ion programme from 2001-2002, by placing 15% of OPDP funds. Irrigation, which is the most crucial input, has also received attention by way of provision of subsidy for pumping units in addition to drip and micro jet irrigation units in the fields. The programme is likely to get a boost in the coming years if the use of wastelands for oil palm cultivation comes up. Continuous thrust from the Central Government in this direction will be necessary.
(c) We must aim at economically, ecologically, technically and socially sustainable oil palm -based cropping system for the country. Mixed and intercropping will go a long way to augment income in a larger coverage under this valuable oil crop, with coconut, arecanut, pepper etc. as mixed stands. Cocoa, coffee, banana etc. can be sown as inter crops. Sugarcane and pulses in suitable rotation in the initial 3-4 years can be the annual crops to economically support the oilpalm farmers, till oilpalm comes to harvestable age. F lowers, aromat ic and medicinal plants in the cropping system can further augment the income of the growers.
2.18.10 Medium term strategy
(i) Agriculture research should be self-evolving to the needs of farming community. Reduced fertilizer need, lower irrigation water requirement, maximized use of rain in crop production, suiting genotypes to agro-climatic conditions: these are universal needs. Areas which require adaptive research are crop diversification, high yielding varieties,
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pest and disease control, packages of practices for optimized production, healthy planting material, reduction in yield fluctuations over the years, etc.
(ii) An enabling network should be created for carrying the findings from laboratory to land. Extension should be given due to priority.
(iii) Extension staff from all States should be regularly trained at NRC-OP. Middle level departmental officers need to be exposed to cross-country experiences. Companies can l i ke -w ise depu te the i r s ta f f fo r ope ra t i ons management for improved efficiency of oil extraction and waste minimization. Farmers can be deputed for inter-state exchange visits and State Government and entrepreneurs should reward farmers wi th high yield.
2.18.11 Short-term strategy
(i) Realistic targets should- be set for area expansion. The approach should be 'slow with concrete achievement' rather than 'fast with unsure achievement'. Target can be fixed on 5-year plan basis but should be modified up or downwards each year on the basis of experience gained,
(ii) Abi l i ty of the farmer to invest in agriculture in the country is limited and this becomes the major constraint if the crops are input and labour intensive. Adequate short-term credit should be provided to the farmers, especially the marginal, small, backward and scheduled castes/tribes farmers for procuring the inputs to meet the recommended fertilizer doses. Target should be f ixed on realistic basis for co-operative and commercial banks for disbursement of loan for oil palm cult ivat ion. The Lead Bank of the area should be assigned the monitoring responsibility and accountability for reporting progress. Likewise, Horticulture officers at taluka levels should monitor progress,
(iii) Price stabil i ty should be guaranteed to the farmers. A minimum support price for fruit bunches should be f ixed. If crude oil prices fall below the level that affect ability of companies to pay the minimum price to the farmers. Government must provide support through market intervention.
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CHAPTER 3
PROCESSING OF OILSEEDS AND OILS
3.1 INTRODUCTION
3.1.1 This chapter outl ines the features of the Indian oilseeds processing industry and the constraints it faces. It then profi les the efforts made by the Technology Mission on Oilseeds to improve processing techno logy . Finally it cr i t ical ly examines the performance of the processing industry.
3.1.2 A sound policy f ramework for the processing industry has to balance the interests of four constituencies:
• an incentive price for farmers, which only an efficient processing industry, w i th low costs of operation can secure;
• an affordable price for consumers, because eventually the consumer of edible oil and its products, would have to afford consumption of these products of oilseed sector;
• reasonable profit margin for industry, which should have the incentive to modernize and reduce costs of processing;
• reasonable conformity to public interest, ensuring satisfactory levels of employment, income, exports and public revenue.
3.1.3 As wil l be seen in this section, an optimal balance is yet to be struck by the policy makers in oilseeds processing sector. Efficiency and economy have been sacrificed at the altar of employment creation in the Indian oilseed sector. The denial of modernization to the oilseeds processing industry, on the ground of protecting jobs in the small scale sector, looks irrational, while the processing of paddy and wheat (whose output is 7 times that of oilseeds) has been th rown open to the most modern and economical technology.
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3.2 PROFILE OF OILSEEDS PROCESSING INDUSTRY
3.2.1 Tradit ional ly, vegetable oils were obtained by crushing oilseeds in small village machines, called "ghanis". At the beginning of the 2 0 * century, the vegetable oils industry was based on some 5 lakh bullock-driven ghanis, producing about 8 ,00,000 tonnes of oil . Gradually, in addition to these ghan is , power -d r i ven ghanis , impor ted expel lers and imported hydraulic press plants were deployed to crush oilseeds.
3.2.2 Around this t ime, many European countries and the USA had established huge solvent extraction plants for recovering d i rect ly almost all the available oil in cot tonseed and soybean. The first small-scale solvent extraction plant came to be established in India in 1945, at Bhavnagar in Gujarat.
Table 3.1 : Segments of Edible oil Industry
SI. No.
Segment Number of Units
Total Installed Capacity (Lakh tones)
Percentage Capacity used
1. Mechanical Crushing a) Ghanis b) Expellers
132,000 20,000
20 530
10% 30%
2. Solvent Extractors 421 267 34%
3. Oil refiners 130 12 50%
4. Vanaspati hydrogenation 194 31 30%
N.B.: The number of units of 1,2,3 and 4 above may at present be lower in actual operation, as several of them are reported to have closed in recent years, having become non-viable.
3.2.3 The edible oil industry in India comprises four segments; mechanical crushing, solvent extract ion, oil refining and hydrogenation. The installed capacity and capacity utilization of these segments are given in Table 3 , 1 .
3.2.4 The total oil output in India is currently estimated at around 7 0 lakh t o n n e s . Mr. Dorab E M is t r y of M/s Godrej International Ltd. (U.K), an expert in this f ield, holds that butter as fat is the single largest edible oil ( 1.38 million tonnes) , fo l lowed by rapeseed mustard oil (1 .32 MT), groundnut oil (1.2 MT) Soybean oil (0.7 MT), cot ton oil (0.5 MT) coconut oil (0.365 MT), rice bran oil (0.35 MT), castor oil (0.33 MT), sunflower oil (0.27 MT), sesame oil
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(0.15 MT) and others (0.44 MT). India is the fourth largest edible oil producing country in the wor ld ; but ironically, it is also the largest importer of edible oils at present. The oilseed processing industry primarily suffers from inefficient capital machinery and from low util ization of installed capacity.
3.2.5 Apart from low capacity utilization in the processing industry, there is pervasive sickness particularly among oil mills and solvent extraction units. Most of these are outdated and in need of renovation and modernization. Shortages of oilcakes and deoiled meals are hitt ing the poultry and cattle feed industries, which use them as raw materials; import of these raw materials is not viable for these industries. The import duty on these "oil bearing materials" is too high.
3.2.6 India's oilseed processing industry is one of the largest and most complex in the wor ld , ref lect ing the special condit ions in India, including the large geographical spread, seasonality and diversity of oilseeds, consumer preference for raw expeller oils and the unhealthy price relationships b e t w e e n o i l cakes and v e g e t a b l e o i l s . A v a r i e t y of technologies are being used by the industry: mechanical crushing/expell ing and solvent ext ract ion. The crushing of groundnut and mustard seed (which const i tu te 7 0 % of oilseed output) is reserved for small-scale industries sector: the per unit investment in plant and machinery cannot exceed the ceiling of Rs. 60 lakhs. Al l this has led to widespread ineff iciency in the industry w i t h low rates of uti l ization of installed capacity, low oil recoveries and high unit costs. There is lack of integration between expell ing and solvent extract ion industries. Consequently, only 3 0 % of the oilcakes recovered in the expelling units are currently subjected to solvent extract ion for fur ther recovery of oi l . This alone is est imated to cause a staggering loss of half a mil l ion tonnes of oil annually in India of the value of about Rs. 1500 crores.
3.2.7 The current status of oilseed processing technologies in the country leaves much to be desired, due to large technological gaps (as indicated here), regarding three important oilseeds accounting for over 8 0 % of total output in India. In the
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processing of groundnuts, the expellers made in India suffer f rom obsolescence in design, high wear and tear of critical parts, high power consumption, low extraction eff iciency and frequent breakdowns. They leave a high level of 8 to 1 2 % residue oil in the cakes. Regarding rapeseed mustard, the material is currently crushed wi thout removing husk, which imparts a dark colour to the oil and meal, increasing crude f ib re in the cake and leav ing behind 1 4 - 1 6 % unextracted oi l . Regarding sunflower seed processing, their commercial varieties contain about 40 to 4 5 % oil; however, their hulls weighing about 2 5 % of seed weight , retain 12 to 1 4 % of the oil after expelling. The resultant oil has a high amount of wax, between 2 .5% to 3 % and a dull colour, which is derived from the hulls, holding down values.
3.3 MINI-MISSION ON POST HARVEST TECHNOLOGY
3.3.1 This Mini-mission, set up in 1988, addressed itself to the deve lopment of e f f ic ient post -harvest techno logy for oilseeds, particularly for the small scale processing industry; the existing policy framework had reserved processing of oilseeds for the small-scale sector. This Mini-mission focused on developing the fo l lowing:
• Modern integrated processing technology for better oil recovery;
• Improvement of "ghanis" and expeller units and the quality of resultant oils, oilcakes and extract ions;
• Technology for minor and unconventional oil bearing materials.
3.3.2 The Director General of the Council of Scientific and Industrial Research (CSIR) leads Mini-mission 2. Amongst the participants in the Mini-mission are the Director of TMO Directors of Central Laboratories CFTRI, RRL, CMERI & IICI, representatives of ICAR, Dept of Biotechnology, Ministry of Food Processing, Presidents of trade and industry associations like SEA, OTAI, IMA and COOII etc. The CFTRI (Central Food Technological Research Institute, Mysore City) is the flagship of CSIR in the development of processing technologies.
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3.3.3 The focus of this Mini-mission has been recently reoriented for the development of the fol lowing technologies.
• Efficient and modern post-harvest and processing technologies for conventional oilseeds.
• Technologies suitable for small scale industr ies processing oilseeds and for the development new value - added products, f rom the by-products of oilseeds.
• Modernization of huller rice mills for production of edible grade rice bran oil.
• Mechanization of bulk handling facil it ies at selected ports for enhancing efficiency in the export of oilseed extractions.
3.3.4 Amongs t the achievements of Min i -miss ion 2 are the development of fol lowing technologies by CSIR laboratories.
(i) processing of oilpalm fresh fruit bunches in small scale (2.5 to 10 tonnes per hour) at Regional Research Laboratory, Thiruvananthapuram;
(ii) rice bran stabilizers (5 to 25 kg per batch capacities) for stabilization of rice bran to prevent increase in free acid, for production of edible grade rice bran oil as well as thermal stabilizers (one tonne per day capacity);
(iii) dehul l ing of black sesame seed as we l l as for producing confectionery grade bright sesame seeds wi thout dehull ing;
(iv) expelling oil (capacity 10 tonne per day) wi th better efficiency than the conventional oil expellers, reducing residual oil content in cake to 7% wi th uncooked oilseeds and to 5% w i th cooked oilseeds (i.e. an additional 2 % recovery of oi l , and w i th additional advantages like better quality in oil and cake, low wear and tear of critical parts, higher energy efficiency and higher reliability, at MERADO, Ludhiana;
(v) more efficient drying of toria / mustard/ rapeseed (capacity 10 tonnes per day) using solar-cum-agro waste energy, for use at farm / mandi level;
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(vi) fluidized bed drier of capacities varying from 500 kg/hour to 2000 kg/hour for drying oilseeds like rapeseed mustard, sunflower, groundnut, sesame etc;
(vii) decor t i ca to r for dehul l ing sun f lower seeds (capacities 0.5 & 6 tonnes/hr), producing better quality of oil and cake, reduction in refining steps as well as in wear and tear of critical parts, at MERADO, Ludhiana.
3.3.5 Mini-mission 2 has been supporting new initiatives during the 9*" plan for further refinement of processing technologies, for developing new oilseed products (like high protein food and snacks) and improving the nutritional values in edible oils.
3.4 PROCESSING RICE BRAN FOR OIL
3.4.1 India is the second largest producer of paddy (150 million tonnes of paddy annually), next only to China. If this entire paddy is subjected to scientific processing, 6 million tonnes of rice bran can be produced, yielding 0.9 to 1.0 million tonnes of rice bran oil. Rice bran oil (RBO) has several superior qualities, particularly its capacity to reduce high cholesterol. It has also other favourable minor constituents such as phyto-sterols, squaline, tocopherols etc. which provide protection against diseases of the heart, cancer, stroke etc. RBO has good shelf life and satisfactory frying qualities. The processing of rice bran also yields several useful by-products : hard wax for use in shoe polish/car polish, and soft wax for use in confectionery products, fruit coating, cosmetics etc. It can also be blended with palm oil and mustard oil. The disadvantages of rice bran oil include high free fatty acid, bran fines and pigments, as well as poor taste due to saturated fatty acids.
3.4.2 The rice bran oil industry faces several constraints, like high refining losses, at Rs.60/65 per 10 kg RBO produced, compared to Rs. 35/40 per 10 kg for sunflower oil. The quality of oil needs to be upgraded and colour of the oil needs to be lightened. The hulling machines often used for
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processing paddy do not separate the bran; it is necessary to expedite the modernization of paddy processing industry into shelling machines (80% recovery of bran) and into modern milling (100% bran recovery). In West Bengal, the paddy grown is generally of superior variety, capable of yielding good quality rice bran . But as against the potential for 9 lakh tonnes of rice bran, actual production is only 1.3 lakh tonnes i.e. 14%, due to the above-mentioned constraints.
3.4.3 A major challenge before the vegetable oil industry, part icular ly the solvent extract ion industry, is the development of rice bran collection mechanism on a sustainable and economic basis. Individual solvent extraction plants could take up reworking of sheller units for rice bran collection and give incentives to the intermediate persons involved. The Government could facilitate and supplement the actions of the solvent extraction industry by appropriate policy guidelines and other support to popularize such arrangement.
3.4.4 Based on the results of studies including nutritional and toxicological studies carried out on rice bran oil, the Government of India has declared it an "Edible Oil" and included it in the Prevention of Food Adulteration Act and the various statutory orders. Realizing the importance of RBO in the edible oil economy of not only India but also of other Asian Countries, Government of India has taken up the matter in international fora for developing regulations on RBO under the jo int FAO/WHO Food Standards Programme Codex Committee on Fats and Oils.
3.5 ECONOMICS OF THE PROCESSING INDUSTRY
3.5.1 The most significant trend in the processing industry has been the rapid expansion in the solvent extraction (SB) share of the market. The factors responsible are: the desire of the private sector to find an area of activity free from capacity ceilings, tax incentives given for the use of non-traditional oils in the manufacture of Vanaspati, investment and sales tax incentives offered by State Governments, and realization
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by a few processors of the possibilities to circumvent Small Scale Industry I reservation by installing expanders, linked to Solvent Extraction ( S.E.) units. Despite very low utilization rates, investors continue to enter this sector attracted by the special investment incentives offered by the State Governments and by the access to export earnings from meal export sales. Capacity utilization rates improved from 30 per cent in 1 987 to 38 per cent at the start of 1 990s but fell back in 1994.
3.5.2 Despite these favourable factory, the processing industry, except for groundnut, falls far below the international technical performance in oil extraction rates. Judging by comparisons with processing costs in four other countries and using average utilization rates of 50 per cent, 30 per cent and 25 per cent, Indian S.E. factory costs, at 30 per cent rate prevalent now, are about 90 per cent higher than the US factory costs, and 40 per cent higher than Chinese factory costs. Raising capacity utilization rates to 50 per cent would lower average fixed costs to the level of Chinese factories, but still leave Indian processors' costs about 40 per cent higher than those in U.S.
3.5.3 The high processing costs and low rates of capacity utilization argue for systematic modernization. However, factors which resist modernization are: the organized sector of the industry accounting for just a third of crushing capacity and raw edible oil product ion, geographic imbalances, habitual illegality and above all government restrictions on market development. These factors keep the technical performance of the industry low and expose them to high risks in oilseed-crushing margins.
3.5.4 The higher the earnings of processors from their sales of oilmeal, the higher the prices they can afford to pay to oilseed growers and the lower the prices charged to the consumers of edible oils. However, in the Indian oilseed sector, these revenues fall far short of their true potential due to three main reasons:
(i) poor development of the domestic market for high quality animal feed;
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(ii) high costs of exporting de-oiled cakes (DOC) which reduces the net return to domestic producers;
(iii) low quality of Indian DOC, which is reflected in large discounts for some meals on the export markets.
3.5.5 The inefficiency in the transport system adds to the cost of meal expor ts . Inadequate domest ic t ranspor t and port infrastructure mean a higher cost for DOC exports. The costs of land and sea transportat ion, of port operations and of wastage en route are extremely high, up to 50 per cent of the ex-factory of the DOC. These problems can be solved by introducing an efficient system for the bulk transport of DOC inside the country and the rapid loading of bulk cargoes directly into the hold of export vessel: they could save exporters around Rs. 570 per tonne. It is estimated that the DOC transport losses from Madhya Pradesh to the t w o main Gujarat ports of Bedi and Kandia are three t imes greater than those incurred between Illinois and New Orleans in the U.S. Losses during handling are very high and are built into the Indian import and export contracts. Overall weight losses between the processing plant and the ship can go beyond three per cent, including moisture loss of up to one per cent result ing f rom the gradual drying of the DOC. During t ranspor ta t ion , mul t ip le handl ing is t yp i ca l , w i t h DOC delivered to the port in bags which are often moved once or tw ice at the port, before being put on barges for eventual loading on board the export vessel.
3.5.6 Port procedures, which are slow and unreliable, subject Indian imports and exports to a much higher ship charter cost than would apply to more eff icient freight-handlers. It is estimated that an equivalent of almost U S $ 1 0 per tonne is added to the Indian freight costs solely to compensate ship owners for the slow loading rates for DOC cargoes.
3.5.7 Small-scale processing and domestic market failures affect export quality. The average Indian solvent plant is small in scale and it is necessary to combine the export sales of a large number of extractors (with out-turn ranging from 1000 to 2000 tonnes each) in order to obtain a cargo large enough to fil l the vessel, generally around 10,000 tonnes. Because
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this requirement makes it extremely diff icult to standardize quality, all exports tend to be tarnished by the indifferent reputation of Indian DOC for unacceptably high levels of aflatoxin in groundnut - due to poor post-harvest handling and glucosinolates in rapeseed due to the unsuitable variety cult ivated. Rice bran extractions are also poorly received by many foreign buyers, since Indian shipments tend to have high silica and sand content. This resistance abroad reflects the failure of domestic markets to reward quality as a result of Indian consumer indifference, inadequate q u a l i t y and hea l th s t a n d a r d r e g u l a t i o n s , and poor enforcement of intellectual property rights.
3.6 REFORMING THE PROCESSING INDUSTRY
3.6.1 The World Bank published in 1999 a detailed study entit led " T h e I nd ian O i l seed C o m p l e x : C a p t u r i n g M a r k e t Opportuni t ies". The study observes that f i f teen years of protection and three years of partial trade liberalization had brought to a crit ical juncture the millions of Indians, who grow, store, crush, refine, transport and trade oilseeds, oil meals and edible oi ls, along w i t h the off ic ials who regulate their activit ies . The report holds that the oilseed indust ry faces a choice, be tween (a) moderniz ing for international competi t ion in which it can have signif icant advan tages , and (b) pe rpe tua t ing an ine f f i c ien t and fragmented structure. The inefficiencies and penalties of such fragmented structure are largely borne by growers, who receive lower than international prices at one end of the product ion chain, and consumers who pay higher than international prices.
3.6.2 The Wor l d Bank Report recogn izes t ha t t he impor t subs t i tu t ion s t ra tegy, pursued unt i l 1 9 9 5 , did del iver significant benefits. Overcoming a once rising deficit in the supply of edible oil for domestic consumption, India has seen the o i lseed o u t p u t double and s tab i l i ze . Mos t importantly, there has been diversification into new crops like soybean and sunflower, which have spread to rainfed regions, where poor farmers typical ly face more limited
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g row th oppor tun i t ies . India had become v i r tua l ly self-suff icient in edible oils by the early 1990s. India had also become a major exporter of oilseed meal, a high protein animal feed for which demand was increasing in regional markets. But since mid-1 990s, cheaper edible oil and faster economic growth are accelerating the growth in edible oil demand, which is increasingly been satisfied w i th imports, which were liberalized in 1994. Inefficiencies in marketing and processing of oilseeds are preventing growers f rom capturing a larger share of the market opportunit ies. The Report makes four recommendat ions to remove these diff icult ies. They are dealt w i th in the fol lowing paragraphs.
First recommendation: Removal of Artificial Barriers Regarding Processing, Storage and Movements
3.6.3 Art i f icial barriers imposed by such government policies, as the small scale industry reservation, the controls on the movement and storage of oilseeds and oils and the RBI's Selective credit control , militate against establishment and operation of large and eff icient processing units, which can pay incentive prices to farmers, due to their manufacturing eff iciency. These policies have succeeded in ensuring the predominance of a large number of small scale processing fac tor ies , w i t h high unit costs of processing and low uti l ization rates. The "Small Scale Industry Reservation Policy" had been adopted long ago w i th the social goal of encouraging employment in small towns and the countryside, where the majority of the poor l ived. Now, this policy is hindering processors' efforts to exploit economies of scale and to minimize losses, through vert ical integrat ion of production.
Second Recommendation : Movement and Ottier Restrictions
3.6.4 Movement and storage restrictions, together w i th restricted access to work ing capi ta l imposed by the RBI credi t guidelines, have led to further reduction of the scale of processing operations, as well as util ization rates of Indian oilseed processors. Attractive tax concessions and backward area incentives offered, irrespective of economic viabi l i ty, stimulate investment throughout the country : they provide,
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in effect, financial compensation for low capacity utilization rates. The processing industry, as it is, suffered from low oilseed yields and poor transport infrastructure; the distorted pol icy made th ings worse for t hem. Industry sources estimate the optimal crushing factory size to be in the vicinity of 1200 tonnes per day - four to six times larger than today's average.
Ttiird recommendation : Remedying tiie Current Sub Optima/ Processing Tectinology
3. 6.5 There are three reasons for the prevail ing sub optimal processing technology: (i) the SSI reservation for oilseed crushing equipment; (ii) the SSI reservation for oilseed crushing, which encourages the private sector to adopt expanders, a far-from-advanced processing technique; and (iii) RBI investment credit restrictions that also encourage processors t o remain techno log ica l l y i ne f f i c ien t . RBI investment credit guidelines stipulate the appropriate capital costs for a particular scale of processing plant; they take no account of the increased capital costs associated w i th more advanced technologies. The ef fect is to reward compan ies t h a t chose cheap, l oca l , l ow t e c h n o l o g y machinery in the hope of f inancing their investment almost entirely through bank credit.
3.6.6. A failure of enforcement often causes more damage than intrusive regulation. Such failure enables processors to make up in taxes they evade to compensate for their low productivi ty and low capacity uti l ization. Although gross crushing margins are often actually smaller than a law- abiding processor 's tax burden, widespread avoidance of tax payments makes it possible for many a processor to remain in business, even while processing seeds for as few as one or t w o months of the year. Such a regime creates unfair competition between the tax-abiding oilseed processor who is largely in the organized, modern and large scale segments of the industry, potentially more efficient on the one hand and the small-scale oilseed processors on the other hand; the latter operating largely out of the unorganized sector. Trading profits, rather than technical excellence, are the secret to their survival and their success in the oilseeds processing sector.
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Fourth Recommendation : Better Monitoring of Environmental Standards
3.6.7 Fourthly, efficient government capacity to rigorously monitor and e n f o r c e e n v i r o n m e n t a l c o n t r o l s and s t a n d a r d s contr ibutes, amongst other things, to eff icient use of the solvent hexane and prevention of environmental hazards.
3.7 CONCLUSIONS
3.7.1 An eff icient oilseeds processing industry is a basic prerequisite for maximising economic returns to the oilseed farmer and indeed to the society, as well as for providing a fair deal to the consumers. This was realised by the Government in the case of paddy and wheat, leading to the removal of all kinds of restrictions on the scale, technology and loca t ion of mi l l ing uni ts for these cerea ls . But , unfortunately, several kinds of restrictions continue against the processing of major oilseeds, including groundnut and mustard seed, in terms of scale and technology. This has held d o w n ef f ic iency of processing and expor t s , and eventually reducing the earnings of the farmers. The t ime has come to do away w i th all these restr ict ions. Better integration between the expelling and solvent extract ion sections of the industry can save the country values of the order of Rs. 1500 crores annually.
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CHAPTER 4
MARKETING OF OILSEEDS AND OIL: THE DOMESTIC SCENE
4.1 RECONCILING THE INTERESTS OF PRODUCERS AND CONSUMERS OF OIL SEEDS AND OIL
4.1.1 As was the case w i th many other kinds of agricultural products, the prices of oil seeds in 1 970s and 1 980s tended to decline sharply in the market soon after harvest and rise inordinately a few months later in the lean season; the difference used to be far more than the holding costs of storage, interest and reasonable profi t , w i th the result that both the farmers and the consumers were the sufferers at the hands of the oilseeds and oil trade. The Government of India had established an Agricultural Prices Commission (renamed Commission on Agricultural Costs and Prices ) in 1 965 to advise the Government on minimum support prices for essential food crops (particularly cereals, pulses and oilseeds) so that public agencies like the Food Corporation of India and National Cooperative Market ing Federation (NAFED) could offer price support to farmers and buy the relevant commodit ies is the open market, whenever the market prices declined below the declared support prices for a sustained period. This was an important measure undertaken to encourage the adoption of modern crops technology by the farmers who should not suffer losses, after adopting new productive technology and expanding crops output.
4 .1 .2 The methodology used by the Commission on Agricultural Costs and Prices (CACP) for estimating the cost of cultivation has been re f i ned over a per iod of t i m e , based on recommendations by expert committees. State Agricultural Universities collect the basic data. Cost accounting method is used; all paid-out costs i.e. expenditure incurred on purchased inputs and hired labour, as well as imputed costs like cost of family labour, rental value of owned land, interest on f ixed and working capital, deprecation etc., are taken
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into account for determining the cost of cult ivat ion. The CACP makes recommendations for both the Kharif and the Rabi seasons for crops of importance.
4 .1 .3 Mini-mission 4 of the Technology Mission on Oilseeds (TMO) is charged w i th three fold responsibil i ty of ensuring that (a) oil seed farmers are given the benefit of price s u p p o r t ; (b) t h e o i l seed i n d u s t r y , w h e t h e r in t he cooperat ive, public or private sector, improves eff ic iency of storage, processing and marketing and (c) consumers get edible oil at affordable prices. To this end, the Mini-mission strives to secure :
(a) t i m e l y d e c l a r a t i o n of s u p p o r t p r i ces by t h e Government of India on the advice of CACP;
(b) efficient procurement operations by designated public or cooperative agency ensuring that oilseed prices in the market do not dip below the declared support prices to the detriment of farmers;
(c) expansion and modernization of storage facilities for oilseeds and oi l ;
(d) creation and expansion of processing facilit ies in the private and cooperative sectors;
(e) modernization of the marketing systems;
(f) fair prices to the consumer;
(g) introduction of safe and efficient packing systems.
4 .1 .4 In t he in i t ia l years of t he T M O , the Nat iona l Diary Development Board bui l t a large ne twork of oi lseeds cooperatives wi th storage and processing capabilities. It took the init iative to organize market procurement operations which provided price support for oilseed farmers. However, w i th the substantial expansion of oilseed output and liberal import of edible oil to meet the gap between output and consumption, the supply situations eased and the NDDB withdrew from this funct ion. The initial thrust given by NDDB in its price support operations was a critical factor for the success of the TMO till the mid 1990s.
4 .1 .5 A recent study made by the Agricultural Finance Corporation, Mumbai (Special Study II on Pricing, Marketing and Returns
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4.2
4.2.1
to farmers, November 2000) indicates that in the years 1996-99 , the farm harvest prices were higher than the minimum support prices fixed for groundnut and mustard ; this shows that the farmers did get satisfactory prices in the market soon after harvest. However, the peak season prices tended to be 56 to 6 2 % higher than the realization by the farmer at the farm gate, indicating that the farmers w i th holding capacity could reap very sat isfactory prices.
DEMAND SUPPLY BALANCE-SHEET
The following demand supply balance sheet has been included in the Ministry of Agriculture's TMO Action Plan for increasing production of oilseeds during the Tenth Plan (2003-2008).
Table 4.1 : Demand Supply-Balance Sheet of Edible Oils (Lakh tonnes)
SI.
No.
Particulars Years SI.
No.
Particulars
1997-98 1998-99 1999-2000
1. Estimated Demand a) Normative
(7.3 kg per capita per annum)
b) Behaviouristic@
64.0
66.0
66.40
73.60
67.60
77.40
2. Domestic supply gap a) Based on normative demand b) Based on behaviouristic demand
(-) 6.89 (•) 4.8
(-)6.21 0.99
2.60 12.40
3. Actual imports* 14.16 (16.6)
23.79 (24.7)
41.96 (39.2)
4. Total availability 85.05 96.40 106.56
5. Per capita availability 9.7 10.6 11.5
@ High alternative adopted by MOA assuming 7% GDP growth rate and a per capita consumption elasticity of 0.72. * Figures in brackets indicate Imports as per cent of total.
4.2.2 The sharp reduction of import duty f rom 6 5 % to 1 5 % and the resultant large import of palmolein had reduced the market price levels of edible oils to unprecedented low levels, leading to sizeable increase in consumption in 1999 -2000 . The imports in 1999-2000 rose to three t imes the level recorded only t w o years earlier. The deep recession in oil exporting countries of Malaysia and Indonesia and the sharp devaluation of their currencies contr ibuted to a precipitous fall in the prices of palmolein, leading to a three-fold increase
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in imports by India. This has practically destroyed India's infant palm oil plantations. But the remedial steps, in terms of a sharp increase in import duties, came only in 2001 and wil l take some time to make their impact.
NCAER Projections on Edible Oils Demand
4.2.3 The country 's demand for edible oils is expected to more than double f rom the current level, in the next 1 5 years, according to the projections made by the National Council of Applied Economic Research (NCAER). Using a mult i -variable econometr ic regression model and taking into account the expected per-capita income growth and income elasticity of demand, the NCAER had projected the demand for edible oils under three scenarios, of per capita income growing annually by four per cent, f ive per cent and six per cent respectively as under.
Table 4.2 : Edible Oils - Demand Projections
Per capita use 1999-2000 200405 2009-10 2014-15
Low estimate* 9.81 11.55 13.95 16.00
Medium estimate 9.89 11.63 14.83 18.16
High estimate 9.97 12.10 16.17 20.60
Low estimate 10.10 13.30 17.40 22.80
Medium estimate 10.20 13.90 19.00 25.90
High estimate 10.30 14.60 20.70 29.40
4.2 .4 India's per capita income growth averaged around 4.8 per cent during the nineties. Under the low growth scenario, the NCAER had projected the aggregate edible oils demand to go up from 10.1 million tonnes in 1999-2000 to 13.3 million tonnes in 2004-05 and 22.8 million tonnes in 2014-15. In the medium growth scenario, the demand in the next 1 5 years would go up to 25.9 million tonnes, wi th this growing up to 29 .4 million tonnes in the high growth scenario, i.e. an almost three fold increase from the existing levels (Table 4.2). The projected demand growth is on account of both increase in population (from 1,029 millions in 1999-2000 to an estimated 1,147 millions in 2004-05 and 1,425 millions in 2014-15) as well as higher per-capita consumption.
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4.2.5 In the base scenario of per capita income growing by four per cent annually, an average Indian's yearly edible oil requirement is slated to rise f rom 9.81 kg in 1999-2000 to 16.00 kg by 2015 . The per capita edible oils demand wil l go up to 20 .60 kg i.e. tw ice the current level, in the coming 15 years. Consider ing tha t the per capi ta edible oi ls consumption has gone up from a mere 4.5 kg in 1982-83 to 5.5 kg in 1990-91 and to 9.5 kg in 1998-99 , a further doubling in another 15 years, assuming a 4 per cent rise in per capita income, does seem a feasible proposit ion.
4 .2.6 The NCAER has worked out the income elasticity of demand for edible oils i.e. the rise in the per capita oil consumpt ion, for every unit increase in the country 's per capita income, at 0 .83024 . Interestingly, their data clearly reveals that the demand for oils is more responsive to changes in the levels of income than changes in prices. This suggests tha t estimates of future demand of edible oils can be built up exclusively on the basis of income elasticity.
4.2.7 If one assumes an average oil recovery of 30 per cent f rom major oil seeds, it would mean that the country 's oilseeds production would have to be anywhere between 76 mill ion tonnes and 98 million tonnes by 201 5, if the projected edible oils demand between 22.8 MT. (low estimate scenario) and 29 .4 MT. is to be met. Given that oil seeds output in 1 999-2000 amounted for a mere 21 .18 MT, this would indeed be a tall order requiring efforts much beyond what is being ostensibly pursued now under the aegis of the Technology Mission on Oilseeds. Wi th area under oilseeds currently in the region of 26 million hectares, significant accretions are unlikely to take place. The average crops yields would have to at least triple from the current level of 850 -900 kg per hectare in the next 15 years*.
4.3 TEN MEASURES FOR STRENGTHENING THE MARKETS OF OILSEEDS, OILS AND OIL CAKES
4.3.1 The World Bank report "The Indian Oilseed Complex" (1999) recommends the fol lowing 10 measures for strengthening
* Ref: Solvent Extractors Association News circular. Vol. 3, Issue 7, dated Oct. 7, 2000.
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the marketing of oilseeds, oils and oil cakes, so that they can enhance the incomes of farmers, processors and traders in an eff icient manner, while augmenting the efficiency and the product ivi ty of the oilseed sector :
(i) Better enforcement of regulated markets.
(ii) Strengthening the cooperative marketing institutions.
(iii) I n t roduc t ion of f o rwa rd market ing and con t rac t farming.
(iv) Promoting market integration.
(v) Price incentives for edible oil storage.
(vi) Better management of price f luctuation risks during storage.
(vii) Improving quality of information and eff icacy of its dissemination.
(viii) Rewarding better quality in produce.
(ix) Strengthening regulations & regarding quality.
(x) Enhancing earnings from the oil cakes and oil meals.
4.4 BETTER ENFORCEMENT OF REGULATED MARKETS
4.4.1 9 0 % of the total output of oilseeds (which varied between 20.9 and 24.7 million tonnes in the last f ive years) is taken by farmers either to the ghanis producing oil for own consumpt ion, or sold to the local regulated market yard or mandi , or sold to a local trader, or sold to a cooperative. The farmer is found to keep 1 0 % as seed for the next season. The law sett ing up regulated markets provides several facil i t ies and safeguards to the farmer, on payment of a fee which is 1 % to 2 % of the value of the produce. The quantum s6ld in mandis is less than half the output in most states: for example 3 0 % in Andhra Pradesh and 4 5 % in Madhya Pradesh. The sale of the remainder is technically illegal and to the disadvantage of the farmer. Better market extension and training would convince the farmers to sell at the regulated market, where he stands to get a better price for quality and for correct quant i ty.
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4.5 STRENGTHENING COOPERATIVE MARKETING INSTITUTIONS
4.5.1 Of the four marketing options indicated in paragraph 4 . 4 , 1 , cooperat ives seem to be losing out ; their procurement dropped from 4 ,89 ,000 tonnes in 1990-91 to 63 ,000 tonnes in 1994-95. The bulk of the cooperative procurement is concentrated in only t w o States: Gujarat and Madhya Pradesh. This is surprising, considering the several faci l i t ies accorded by the Government to the co-operatives in all states, such as exemptions f rom:
(i) Mandi fees.
(ii) SSI reservations.
(iii) Storage control under the Essential Commodities Act .
(Iv) Selective credit control of RBI.
Lack of adequate w o r k i n g capi ta l has been a major constra int . The cooperat ive market ing societ ies should regear themse lves to take advantage of the severa l concess ions avai lable to t hem and help the f a r m i n g community to a larger extent to get better realisations f rom the oilseed market.
4.6 I N T R O D U C T I O N OF FORWARD M A R K E T I N G A N D CONTRACT FARMING
4.6.1 Supply contracts between farmers and private processors are not common. Traders, rather than mi l lers, provide occasional credit or advances for inputs, in return for the right to buy the resulting crops. The only tangible evidence of contract farming or forward purchase by mills is f rom the fledgling oil palm sector in Southern India. The oil palm processing mills have to be necessarily situated close to the oil palm fields, to be able to process the freshly harvested f r u i t bunches soon a f te r the i r ha rves t fo r a v o i d i n g de te r i o ra t i on in t he oi l qua l i t y . Such p r o x i m i t y a lso encourages larger term contractual links between the t w o parties. The prices prevailing in the local mandis become the reference point for sales outside these mandis; and hence
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the prices at the mandi are important for all players. While forward marketing for more than 11 days is illegal, contracts for larger periods do occur, though defaults take place, w i thout any legal remedy.
4.7 PROMOTING MARKET INTEGRATION
4.7.1 Market integration reflects the effectiveness w i th which markets move homogenous goods across space and t ime at the lowest possible cost. Markets are integrated wel l when pr ices in d i f fe rent locat ions move toge ther , in response to changes in demand and supply and other economic variables. The analysis made in the World Bank report quoted here shows that market integration is poor in the short run; it is weakest in markets separated by large d is tances and stronger w i th in regional markets , relat ive to nat ional markets . Regardless of d is tances, stronger integration generally comes linked to the traditional reference markets, like Mumbai for groundnuts and Hapur for rapeseed mustard. The study also shows that most pairs of oilseed, oil and oilmeal markets were co-Integrated in the long run, though there were except ions. Improved integration in the market structure promotes predictabi l i ty and encourages businessmen to take rational decisions on purchase, stocking and sale, which would be in the farmer's interest.
4.8 PRICE INCENTIVES FOR EDIBLE OIL STORAGE FOR LEAN SEASON
4.8.1 While storing edible oil for sale in the off season should not receive super profits at the expense of the consumer, there should be, on the other hand, adequate margin to cover the cost of storage and interest and for a reasonable margin of profit. The World Bank study found that the margin of profit f rom storage to the lean season did not cover the cost of capital, storage and a reasonable profit margin after mid 1990s. The cause could be reduction in the amplitude of price range due to increased diversif ication in domestic supplies, more even f low of imports and greater competit ion
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among the larger number of oil seed processors and bidding prices up at harvest. As the market in tegrat ion and predictabi l i ty improved, the costs and returns wi l l f l ow more natural ly; and there wi l l be a fair incent ive , but not super prof i t , for those who stock for sale in the lean season.
4.8.2 The World Bank study fi l tered out the seasonal trends and cycl ical components of price movements for measuring appropriately the degree of price instability in oilseeds and their products. It was found that w i th the exception of rapeseed in the late 1980 's , other oilseeds like groundnut, soybean and sunflower and oil from groundnut and rapeseed exhibited only a small degree of instabil i ty. The remarkable s t a b i l i t y in o i l seed p r o d u c t i o n , a c h i e v e d t h r o u g h diversification of production over seasons, regions and rates, clearly contr ibuted to the reduct ion of price instabi l i ty observed.
4.9 REDUCING COST OF STORAGE
4.9.1 In order to control the consumer prices of oil seeds and oils and to discourage black market ing, the Government has imposed l imits on the oilseed stocks that can be held by traders. The Reserve Bank of India took steps to deny credit faci l i t ies for stock holding except by cooperat ives. As a result , intra seasonal t rading of oi lseeds and its products by private trade (outside cooperative sector) is highly restr icted. The upshot is that l i t t le or no investment has been made by the private sector in modernising bulk storage faci l i t ies. On the other hand, cooperat ives, wh ich are exempt f rom these restr ict ions and wh ich are provided w i th credit facil i t ies for building storages, have fai led to play a significant role. As a result, storage of small capacity is scattered all over the States w i th credit support for storage of oil seeds. The high cost of ef fect ive storage eats into the prices paid to the farmer which is just the opposite of the intent ion behind prevention of hoarding of oil seed s tocks . The law and regulat ions need to be reviewed to make this work in favour of farmers.
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4.10 ALLEVIATING OVER-REGULATION OF MARKET AND INTRODUCTION OF FUTURES MARKETS
4.10.1 Oilseed economy of India is now gradually opening up to wor ld markets . Whi le t rade l iberal izat ion creates new economic opportunit ies, it also poses new challenges. Price volati l i ty and the capacity to cope w i th it are becoming major policy concerns. Price volati l i ty creates uncertainty and risks, which can threaten agricultural performance. It can negatively impact income and welfare of farmers and the rural poor. Indian policymakers have tradit ionally coped w i th the uncertainty and the risk associated w i th price vo la t i l i t y by resort ing to s t rong pol icy inst ruments to minimize or eliminate price volat i l i ty, resulting in a virtually closed external trade regime, extensive Government controls on private sector activit ies, extensive market interventions and crops insurances. These are costly instruments wi th doubtful benefits; and the Government of India has decided to stop using them. The Kabra Committee appointed by the Government of India has recommended in September 1994 the introduction of futures contracts in many commercial crops and products, including oil seeds, oils and oil cakes.
4 .10 .2 In its report "Managing Price Risks in India's liberalized Agriculture ; Can Futures Markets Help" (Report No, 15453-IM, the World Bank, published by Allied Publishers Ltd. , Mumba i , 1999) , it is observed that there has been in existence in India a long, wel l establ ished t radi t ion of regulating and operating commodity futures marketing. But the uti l i ty of these futures markets is reduced in India due to selective and restr ict ive implementat ion, as wel l as Government in tervent ions in the physical commod i t y markets. The Report urges that the futures markets would not hinder the existing policy goals, if Government policies on physical markets fol low a few sensible rules. The Report also recommends complementary introduction of groundnut oil and rapeseed oil futures wi th corresponding seeds futures contracts in a few regional exchanges.
4.10.3 The Government of India has granted recognition to the Bombay Oilseeds and Oils Exchange Ltd. in 2000, under the
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law governing forward markets, for conducting futures trading in RBD palmolein, groundnut, sunflower, sesame seed, rice bran, cottonseed, safflower as well as their oils and oil cakes.
4.10.4 Futures trading provides on opportunity to oil millers to purchase in advance oilseeds futures contract for the next 4-5 months. They thus acquire, for a fee, immunity against any price rise in oilseeds due to factors beyond their control. In case the price of oilseed rises in ready delivery market, they can sell their futures contracts; the loss which they would be incurring in the procurement of raw material at a high cost would be adjusted against the profits earned on futures contracts. However if the price of raw material falls, they would not earn any abnormal profit; the futures contract would result into a loss while in the ready market they would get benefit by procuring raw material at a lower price. It is evident from the above that while the entrepreneur would be losing any abnormal profit, he would be safeguarding against abnormal loss which is more important for his survival. Similarly, the entrepreneur can enter into oils future sales contract so that he can be protected against any fall in the prices of his finished products. This entire process is called "hedging".
4 .10.5 Hedging can be defined as "a non-speculative exercise, normally used by the trade to transfer or reduce risk by locking in margins preferably as far as possible to maximize processing capacity". It is dist inct from speculation. On the contrary, non- hedging of position in an uncertain wor ld compels the businessman to gamble on chance and expose his business to risks outside his control .
4 .10.6 The basic objective of an oil seed processor would be to gain long-term growth and not the volatile short-term prof i t and loss. Another important objective is to have the abil ity to accurately project profits and more reliable cash f l ow . Both these objectives are achieved through "commodi t ies f u tu res " . By reducing the risk element and enhancing stabil i ty, the futures system provides the oilseed processors the necessary confidence in making large investments in oilseeds processing, industry to reap economies of scale, which eventually wi l l benefit the edible oil consumer.
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4. 11 REWARDING BETTER QUALITY IN PRODUCE
4.11.1 By and large, Indian edible oil markets do not reward quality. Price differences in Indian market do not eff iciently reflect quality, for example, between different kinds of refined oils (such as rapeseed vs. soybean oil). Prices do not often have any relationship to quality, because nationally recognized quality standards either do not exist or are weakly enforced. In short, grading is haphazard; oil blending is often done for product adulteration; consumer safety is a low priority; and the mult ipl icity of regulations invites confusion and charges of harassment.
4.11.2 A rational marketing system should reward better quality in a commodity wi th a higher price. This does not take place scientifically in oilseeds markets in India. Trading by traders in the mandis is largely done by visual inspection of colour, content, moisture level and foreign matter level. No testing equipment is used. The definition of fair average quality (FAQ) in oilseeds differs from place to place. Criteria of importance on health grounds, which exist in many countries, like levels of erucic acid, glucosinolate and aflatoxin are neglected. This has discouraged the use of improved seed varieties which are free from these contaminations.
4 .11 .3 Blending standards are not rigorously enforced. Blending of t w o pure oils is permitted, provided the package labels declare this fact. Reports are often heard of adulteration of ghee wi th Vanaspati (which is also whi te in colour) as well as of edible oils w i th castor oil. The Prevention of Food Adulterat ion Act needs to be enforced rigorously.
4 .11 .4 Serious heal th hazards exist when g roundnu ts carry af latoxin, or erucic acid; likewise when mustard seeds carry glucosinolates. Indian deoiled cakes often suffer lower prices in f o r e i g n m a r k e t s due t o t h e e x i s t e n c e of such contaminations. The remedy lies in the introduction of seed varieties, which are free from those contaminants and in the str ict enforcement of quality in export cargoes.
4.12 STREAMLINING REGULATIONS REGARDING QUALITY
4.12.1 The fo l lowing regulations regarding quality control have
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overlapping rules and conflicting jurisdictions of enforcement agencies.
(i) Vegetable Oils Products Control Order 1947.
(ii) Solvent Extracted Oil, Deoiled Meal and Edible Flour (control) Order 1967.
(iii) Prevention of Food Adulteration Act 1954.
(iv) Weights and Measures Act .
(v) The Packaged Commodities Order 1 9 7 1 .
(vi) The Blended Edible Vegetable Oils Grading and Marketing Rules 1 9 9 1 .
4 .12.2 This mult ipl icity of rules and the consequent overlapping jur isd ic t ions of enforcement agencies and inspect ions increase the transaction costs for traders and processors. Steps need to be taken to rationalize the system.
4.13 ENHANCING EARNINGS FROM OIL CAKES AND OIL MEALS
4.13.1 The more the processors earn from their sales of oil meal, the higher would be the prices they can pay to oilseed farmers and the lower would be the cost of edible oil to the consumers . If the three cons t ra in ts g iven be low are overcome, the greater would be these benefits to the oilseed farmers and edible oil consumers:
(i) Restrictions on the livestock industry which depress oil cakes demand.
(ii) Inefficient transport system which adds to the cost of oil meal export.
(iii) Low quality of exported oil cake.
Removal of Restrictions on Livestocl< Industry
4.13.2 India has become a net exporter of deoiled cake (DOC) despite a potentially large domestic market for high protein animal feed. The market for DOC has remained low, because the use of concentrate feed is uneconomical in Indian livestock industry; Government restrictions in the dairy industry have suppressed prices of milk. This makes the use of concentrated feed in
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dairy farm uneconomical. These restrictions on dairy industry include foreign trade restrictions on dairy products, reservation policy for cooperative dairy plants and administrative barriers to private sector investments in the dairy industry. Moreover, the reservation of poultry feed manufacturing to small-scale industries has led to increased unit costs and lower quality of feed. The withdrawal of this reservation in 1997-98 budget is expected to lead to efficient and economical production of feed and to an increase in domestic demand.
Need to Improve Transport Economics for Animal Feed.
4.13.3 Another cause of high cost of DOC exports is the inadequate domestic transport and port infrastructure. It is estimated that the costs of land and sea t ranspor ta t ion, of port operation and of wastage en route is as high as 5 0 % of ex-factory price of DOC. As much as Rs. 570 per MT (nearly 5 0 % of current export costs) can be saved by introducing bulk transportation of DOC inside India and rapid mechanical loading directly into the holds of vessels in Indian ports. Inefficient transportation causes several kinds of unavoidable costs : physical losses in t ranspor t , p i l ferage, mult ip le handling costs and costs of delays in loading export cargoes.
Improvement Needed in DOC Quality
4.13 .4 Since the average Indian solvent exaction plant is small in scale (1000 to 2000 tonnes), many of them have to combine to make up a typical shipload of 10,000 tonnes for export. Under the circumstances, it is dif f icult for an exporter to standardize the quality of exported material. Indian DOC has failed to get a good price in export markets due to percept ions of high levels of a f l a tox in in g roundnu t extractions caused by poor post harvest handling. Rapeseed mustard oilseed prices have been discounted due to the presence of glucosinolates derived from the poor variety of seed planted. Rice bran extractions also suffer lower export prices on the grounds of high silica and sand content. The remedial measures include rewarding quality in domestic markets and enforcement of intellectual property rights w h i c h wou ld lead to sale of high qua l i ty seeds and enforcement of quality and health standard regulations.
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4 .14 CONCLUSION
4.14.1 This chapter has sought to analyze the constraints in the domestic marketing of oilseed and its products which deprive the main players: farmers, processors and marketers, of their legitimate incomes. This chapter then spelt out ten measures for enhancing value for all the three players. These measures embrace ac t ions in the c u l t i v a t i o n , t r a d e , processing and transport of oilseeds and its products like oil and meal . They also call for rev iew of rules and regu la t i ons , f a rm ing p rac t i ces , t echno log ies used in processing and trading procedures. A holistic v iew has to be taken for enhancing benefits to all participants in the oil seeds value chain.
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CHAPTER 5
LIBERALISING TRADE IN INDIA'S OILSEEDS ECONOMY
5.1 TRADE STATUS IN INDIA'S OILSEED ECONOMY
5.1.1 India is the f i f th largest producer of oilseeds in the world next to USA, China, Brazil and Argentina. It is the largest producer of mustard seed, second largest of groundnut and third largest of rapeseed and cottonseed. Naturally its share in the world trade is significant. Its export of oil, meals and extractions const i tutes 7 to 7.5 per cent of the wor ld trade in the commodity. During 1999-2000, India paradoxically was also the largest importer of edible oils. The share of oilseed sector in the total agricultural exports of the country in 1999-2000 was 17 per cent and in agricultural imports 62 per cent.
5.1.2 However, the volume of exports and imports of oilseeds and their products has varied greatly during the 1990's as seen below.
Table 5.1: Foreign Trade in Oilseeds, Oils and Oil Cakes during the 1990's: Peaks and Troughs
I Quantity in Lakh tonnes) (Value in crore rupees)
Particulars Maximum Quality Value Minimum Quality Value
A. Imports
i) Edible oils 41.96 (1999-2000)
7984 (1999-2000)
1.03 (1992-93)
167 (1992-93)
B. Exports II) Oil cakes / extraction
ill) Oils
43.41 (1995-96)
2.78 (1995-96)
36.26 (1988-89)
986 (1995-96)
26.77 (1992-2000)
0.60 (1992-93)
1542 (1992-93)
101 (1992-93)
Source: Oilseeds Situation, A Statistical Compendium 2000, Directorate of Oilseeds Research, Hyderabad - 500 030
5.1.3 The main objective of setting up the Technology Mission on Oilseeds was to make a bold and concerted effort towards self-reliance, particularly in the context of soaring imports of edible oils, which in 1978-88 had touched a high of 19.45 lakh tonnes of the value of Rs. 969 crores. Import duty on edible oil was raised to 6 5 % and quantitat ive restrictions were imposed. There were however market distort ions. The
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imported oil, meant for the poorer sections of consumers under the public distribution system, at concessional prices 40% to 80% below market prices, was largely (estimated at 55% ) diverted to the " black market". Moreover, bulk of these shipments arrived at the domestic harvesting season, depressing the market prices of oilseeds unduly, to the detriment of the oilseeds farmers' interests.
5.1.4 When the Technology Mission on Oilseeds was launched in 1986, India had, under the prevailing international trade regime, many options including quantitative restrictions on imports. When the new trade agreement of 1993 came into effect, India had to amend its protectionist policy and liberalize the import of edible oils. The inflationary pressures in the early 1990s also called for special efforts like the sharp reduction of import duty from 60% to 15%, though the Uruguay Round (UR) agreement permitted a tariff protection up to 300%. The economic crises in late 1990s in the palm oil-exporting countries led to a fall in the price of palmolein from $696 per tonne in Jan. 99 to $ 204 per tonne in Feb. 01 . As a result, the quantum of imports in the four years 1996-2000 shot up to fifteen times the level of the preceding four years 1992-1996, and the increase in import value in dollar terms was nearly seven times. The imports reached a peak of Rs. 7964 crores, in 1999-2000, for 4.2 million tonnes, which amounted to nearly half the total domestic consumption of oil in the country. The prices of oilseeds crashed in the country and the oilseed farmers reduced their investment in inputs like fertiliser in these crops. As a result, the output of oilseeds in 2001-2001 fell by 28% from the peak of 24.7 million tonnes in 1998-99.
5.1.5 It can be logically argued that the Government of India was within its rights under the UR to raise the import duly on palmolein in 1999 and thereafter, when the incredibly cheap imports began to destabilize Indian oilseed and oils economy and damage the newly promoted oil palm plantations under a Government of India support scheme. The inaction of the Government of India for four years has practically suffocated the edible oil sector. The following table sets out the belated enhancement of vegetable oil import duty from Dec. 99.
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Table 5.2 : Revision of Vegetable Oil Import Duties (% GIF)
Name of the edible oil From 30112199 From 1210612000 From 2111112000 From 28/0212001
Crude palm oil (for use in vanaspati industry) 16.5% 16.5% 25.0 % 75%
Refined, bleached and deodorised palm oil 27.5 % 44.04 % 71.6% 92.4 %
Rapeseed, sunflower crude oils 16.5% 27.5 % 35.0 % 35.0%
Crude soybean oil 16.5% 27.5 % 35.0 % 45.0 %
5.1.6 In would be useful to note the fo l lowing composit ion of oil imports, totall ing 4 .494 million tonnes from November 1 999 to October 2000 .
Table 5.3 : Composition of Edible Oil Imports
RBD Palmolein - 49.3 %
ii. Crude palm oil - 18.5%
iii. Soybean oil - 15.3%
iv. Sunflower oil - 12.8%
V. Rapeseed oil - 2.2%
vi. Cottonseed oil - 1.4%
vii. Refined soybean oil - 0.4%
TOTAL - 100.00%
Nearly 70 % of imports came from Malaysia and Indonesia.
5.1.7 Valiant efforts were made by Indian oil seed processing industry to enhance the export of oil seed products taking advantage of the surge in the production of oil seeds and processed oilmeals. The annual average export of four kinds of oil cakes / oil meals rose from 6.4 Lakh tonnes in the period 1980-85, to 13.8 Lakh tonnes in 1986-90 and to 30.8 Lakh tonnes in 1991-95. The average annual export during the five-year period 1995-2000 was 42 Lakh tonnes, of the average annual value of Rs. 3707 crores. The peak year of export was 1997-98, yielding Rs. 4740 crores as detailed below.
Table 5.4 : Details of Export of Oil Seeds and Products in 1997-98
Items of export Quantity (in thousand tonnes) Value (Rs. In crores)
Oil cakes & extractions 4170 3236
Minor oils 1 fats 5 3
Oilseeds 414 923
Oils 199 550
Total 4788 4712
Source: p. 3111312 Oilseed Situation : A Statistical Compen^lium, 2000, Directorate of Oilseeds Research, Hyderabad-500 030.
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5.2 GLOBAL SCENARIO IN PRODUCTION AND IMPORTS OF EDIBLE OILS
5.2.1 This section seeks to examine the position of the oilseeds economy globally in the 1990 's and the f irst few years of the 21=* century. Consumption of edible oils is growing at a very fast pace globally, from 85 million tonnes in 1993-94 (oil year Oct-Sept.), to 107 million tonnes in 1 998-99 : about 5% annually: one amongst the fastest sub sectors of food industry. The fol lowing table presents the global production and export / import of oils and fats over 35 years.
Table 5.5 : Global Production and Export / Import of Oils and Fats (1964-98)
Source of oils Production of oils and fats Imports of oils and fats
1964 1993 1998 1964 1993 1998
A- Vegetable oils 18.1 67.0 85.3 3.2 22.0 29.9
1. From oilseeds 12.7 46.4 53.6 1.8 8.8 14.3
2. Tree crops 5.5 20.4 26.7 1.4 13.1 15.6
3. Palm oil 1.3 13.8 19.3 0.6 10.3 12.6
4. Soybean 3.7 18.3 24.6 0.7 4.3 7.7
B- Animal fats 12.9 20.2 21.6 3.1 3.7 3.8
Total A + B 33.2 85.1 106.9 6.8 25.7 33.7
Source : Solvent Extractors Association (SEA) News Circular, Vol VIII, Issue 2, May 2000.
5.2 .2 . It is seen f rom the table 5.5 that whi le the output of tradit ional edible oils from annual oilseeds plants has grown about 4 t imes, f rom 12.7 mill ion tonnes to 53 .6 mill ion tonnes in 35 years, the output of palm oils has grown by 1 5 t imes f rom 1.3 mill ion tonnes to 1 9.3 mil l ion tonnes. It is also the single largest kind of oil being t raded, far exceeding the growth of trade in oils and fats of annual crops or ig in and animal or ig in . The economics of its product ion are extremely favourable, particularly in the evergreen forest areas of Malaysia and Indonesia which receive rainfall round the year. As seen in Chapter 2, India also made a beginning w i t h oil palm under i r r igated condit ions. Since we did not have the equatorial lands wi th round the year rainfall, this was done mostly in irrigated tracts wi th moist environments in Karnataka, Andhra Pradesh and Kerala. But the large-scale import of inexpensive palm
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oil (which was made even cheaper due to the devaluation of Malaysian and Indonesian currencies after their economic crisis of 1996) and the reduction of import duty from 6 5 % to 1 5 % have knocked out the viabil ity of the nascent oil palm plantations in India. In 1998-99, India's import of 4 .2 million tonnes of palm oil was as high as 3 0 % of the global output of that commodity. An attempt was made since 2001 to remedy this situation by raising the tari f f as explained on paragraph 5.1.5.
5.3 INTERNATIONAL COMPETITIVENESS OF INDIAN OILSEEDS SECTOR
5.3.1 Eminent economists like Professor Ashok Gulat i have furn ished evidence to show that India does not have comparat ive advantage in the cul t ivat ion of oilseed crops vis-a-vis cereal crops like paddy and wheat in many States. They have argued that it is more economical to import the cheaply available edible oil rather than import -subst i tu te a commodi ty in wh ich India does not have a s igni f icant comparat ive advantage. It is highly desirable that Indian oil seed sector become internationally compet i t ive as soon as possible, even though there are many abnormal features in the international market place, like the high protect ion offered to the oil seed sector in Europe, disregarding several provisions of the WTO and the unusual case of oil palm in Malaysia and Indonesia. Indian oilseed sector however has been t ry ing to cut down on its unit cost of product ion by more eff ic ient application of technology in the cu l t ivat ion, processing and trading of oil seeds. In a fast- integrat ing international economy, Indian agriculture should certainly t ry to become globally compet i t ive in the cul t ivat ion of oilseeds.
5.3.2 During the period 1979-2000 , area expansion contr ibuted to 5 9 % of the total incremental outputs of oilseeds, whi le the yield increase contr ibuted 2 1 % ; and the interact ion between the t w o contributed 2 0 % . However, the influence of yield ef fect was signif icant in groundnut (96%) and rapeseed mustard (35%). In the course of these 31 years,
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the influence of yield cum interaction effect sharply varied in three sub periods : 6 7 % during 1980-87, 3 3 % during 1987-93 and 7 4 % during 1993-2000.
5.3.3 As India is a net importer of edible oi ls, the nominal protect ion coeff icient (NPC), under importable hypothesis for different oil seeds, gives an indication whether any undue protection is being given to domestic production of oilseeds, at the cost of public interest. On the basis of realistic assumptions, NPC was found to be above unity (i.e. 1) for all edible oilseeds, t i l l 1991-92; since then, it has fallen below unity, except in the case of mustard. The fol lowing table (5.6) illustrates the fall of NPC, reflecting improvement in production eff iciency for all major oilseeds during the period 1988-99.
Table 5.6 : Nominal Protection Coefficients of Major Oilseeds
Period Rapeseed mustard Groundnut Soybean Sunflower
1988-89 1.56 1.08 0.88 0.89
1991-92 1.28 1.08 1.01 1.28
1998-99 1.15 0.81 0.76 0.76
Source: Artha Vijnana., Vol. XLII, No 3, Sept,.2001, "Competitiveness of Indian Oilseeds, under WTO", Professors Gurudev Singh and S R Asokan, IIM, Ahmedabad
5.3.4 The picture is different for the NPCs of edible oils, set out at Table 5.7 below.
Table 5.7 : Nominal Protection Coefficients for Major Edible Oils
Period Rapeseed mustard Groundnut Soybean Sunflower
1988-89 2.34 1.69 2.20 2.22
1991-92 2.26 1.83 2.47 2.16
1998-99 1.19 1.11 1.21 1.21
(Source : Artha Vijnan, Ibid..)
5.3.5 The NPC for the four major edible oils has been consistently above unity in 1988-89, but it fell substantially by a range of 5 0 % to 9 5 % for different oils over ten years. This shows that Indian edible oil prices are adjusting to international prices, though there is lot more to be done to improve eff iciency. The higher NPC of edible oi l , relative to NPC of
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oilseeds, indicates that there are inefficiencies beyond the farm gate, in act iv i t ies such as processing, t ranspor t , marketing etc., contr ibut ing to the high cost of product ion of oils.
Domestic Resource Cost Ratio
5.3.6. Domestic resource cost ratio (DRCR) indicates the domestic resource use efficiency. The ratios for all the four oilseeds in the table (5.8) below are less than unity in 1998-99 in the States producing those oilseeds.
Table 5.8 : Domestic Resource Use Efficiency
SI. No.
Oil seed State Domestic resource cost rates
1. Soybean Madhya Pradesh 0.51
2. Sunflower Maharashtra 0.77
3. Mustard Haryana Punjab Rajasthan
0.53 0.83 0.45
4. Groundnut Andhra Pradesh Gujarat Maharashtra
0.39 0.29 0.30
Source: Artha Vijnan, ibid.
Thus, f rom a social welfare point of v iew, product ion of these oilseeds is justi f ied in those States, since they consumed resources eff iciently in the production of oilseeds.
Review of Protection Levels
5.3.7 In 2 0 0 1 , the import tar i f f levels were enhanced across the board for all edible oi ls. Though the current level of protect ion may be suff ic ient, it may not hold true for the fu ture, as exporters to India like Malaysia and Indonesia may change their economic policy f ramework to fur ther reduce export prices. As India imposes an ad valorem tar i f f , the effective import tax is reduced w i th the fall in the import prices. It wou ld thus be desirable to have a tar i f f band, wh ich would help pol icy makers to respond quickly to changes in the border prices for imports. In the long run, however, it is the higher and cost-ef fect ive crops y ie ld , higher oil content and more eff ic ient processing, t ransport
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and marketing which would increase the competi t iveness of India's oilseeds sector.
5.4 IMPLICATIONS OF THE URUGUAY ROUND (UR) OF GATT FOR OILSEED AND OIL TRADE GLOBALLY AND WITHIN INDIA.
5.4.1 This section examines the implications of the UR on oilseed and edible oil trade globally in general and for India in particular. It also considers the impact of the current trade regime on domestic price stabil ity and explores alternative mechanisms for managing the price risks associated wi th a more open trade environment.
Impact on Trade in Farm Products
5.4.2 The UR has called upon developing countr ies, including India, to takes four measures : (i) convert non-tariff barriers into bound dut ies; (ii) bind all tar i f f and tar i f f equivalents; (iii) reduce the newly bound tar i f fs as wel l as the tar i f fs agreed to earlier by at least 10% per tar i f f item and by 2 4 % on a simple unweighted average over the ten years 1995 -2004 and (iv) establish by 1995 , for commodit ies subject to tar i f f icat ion, minimum access opportunit ies at 2 % of 1986-88 consumpt ion, rising to 4 % in 2 0 0 4 .
5.4.3 The UR agreement defines non-tariff measures to include quanti tat ive restrictions, minimum support prices, variable import duties, discretionary import licensing regimes, non-tariff measures applied through state trading enterprises, voluntary export restraints and similar border measures, other than ordinary cus toms dut ies . These non- tar i f f measures have to be replaced by a tariff equivalent : a percentage of customs duty which wi l l provide the same level of protection as the erstwhile non-tariff measures.
5.4.4 Developing countries had also the option of setting maximum ceiling bindings, instead of tariff equivalents of existing non-tariff measures. In lieu of reduction commitments, they had the choice of binding of all tariff items at the established maximum levels. Moreover, if the option of maximum tariff cei l ings is chosen, the count ry is exempted f rom the minimum access commitments.
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5.4.5 India chose for its agriculture the option of establishing max imum cei l ing b ind ings, in conver t ing quan t i t a t i ve restr ic t ions into tar i f f for all agr icul tural commodi t ies , including oilseeds and edible oils. For most products, India is also not required to reduce the tariff during the 10 year implementation period (1995-2004) . However, India would not be allowed to introduce any new non-tariff measures, unless they can be justi f ied under WTO provisions. Since India also exercised this opt ion, it is also exempted f rom minimum access commitments.
FIVE IMPLICATIONS OF WTO RULES FOR THE OILSEEDS SECTOR TRADE
5.4.6 There are f ive implications of UR rules on oilseeds sector in India:
(i) India's commitment of maximum tariff level.
(ii) Domestic support measures,
(iii) Reducing export subsidies,
(iv) Limited use of trade restrictions.
(v) Exceptional safeguard measures.
(I) INDIA'S COMMITMENT OF MAXIMUM TARIFF LEVELS
5.4.7 The fol lowing table sets out India's current tari f f levels and the commitment given to GATT of the maximum tariff levels that wi l l be resorted to .
Table 5.9 : Current and Ceiling Binding for Important Oilseeds and Edible Oils.
SI. No.
Commodities Current tariff rates (%) GATT final bound rate |%)
1. Sunflower,rapeseed soybean and groundnut 50 100
2. Copra and linseed 50 100
3. Soybean oil 45 45
4. Rapeseed oil, mustard oil 78 45
5. Palm oil, coconut oil 75 300
6. Groundnut oil, sunflower oil and other vegetable oils 92.4 300
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5.4.8 Government wi l l have the discretion to canalise oilseeds and oil imports through state corporations like State Trading Corporation. The Govt, of India however has th rown open imports, under open general licenses, in order to introduce competi t ion in the import of oils. The relatively low ceiling of 4 5 % for soybean oil wil l influence the import of other oils at t ract ing higher duty levels, since there is a high substi tutabi l i ty amongst imported oils, particularly in the production of vanaspati.
(ii) DOMESTIC SUPPORT MEASURES
5.4.9 India wi l l not be required to reduce domestic support levels for agriculture, since India's aggregate measure of support (AMS) for the farm sector as a whole is estimated to be negative. It is a paradox that India's general economic policy imposes, on Indian farm sector, a negative subsidy (or economic burden ) of Rs. 19,600 crores (equivalent to 2 2 % of the value of agr icul tural ou tpu t ) , as calculated by Professors Gulati and Sharma in 1994 ; even though oilseed sector may have received posit ive support in terms of research, ex tens ion and subsidised input supply , the economic policy frame work took out far more out of the oilseed sector than it had put in.
(iii) REDUCING EXPORT SUBSIDIES
5.4.10 WTO requires that developing countries should reduce export subsidies by 2 4 % in 10 years, from the base period 1986-90. This however does not apply to India, which does not grant subsidies to any farm exports.
(iv) LIMITED USE OF TRADE RESTRICTIONS
5.4.11 WTO rules permit member countries to use quanti tat ive restrictions (QR) on imports in special si tuat ions, including cases where the member country faces balance of payment diff icult ies and temporary market disruptions. This however does not apply to India at present, since India has adequate foreign exchange reserves to cover more than 1 2 months ' import requirements.
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(v) EXCEPTIONAL SAFEGUARD MEASURES
5.4.12 This safeguard provision allows India to impose tari f fs or quantitat ive restrictions on imports for a limited period of t ime, if they cause or threaten serious injury to the domestic oilseed and edible oil industry . This provis ion permits safeguard act ions d isc r im ina t ing against suppl iers in exceptional circumstances, when imports f rom a member c o u n t r y i n c r e a s e s d i s p r o p o r t i o n a t e l y . B u t , s u c h discrimination is exceptional and carefully control led.
5.5 MANAGING GLOBAL TRADE AND PRICE RISKS
5.5.1 Recent trade liberalization in India has helped capture emerging opportunities in the world market, e.g. export of soybean extractions. On the other hand, there is an apprehension that it will expose domestic economy to the risks of world market prices. How far is this apprehension correct?
5.5.2 The World Bank Study on "Indian Oilseed Complex" (1 999) has prepared instabil ity indices for (a) oilseeds wi th in India and (b) oilseeds globally. The t w o statistical price indicators employed are (a) co-eff ic ient of variat ion (c.v.) and (b) standard percentage deviation from trend for the period 1960 to 1 995. It is found that for each of the five kinds of oilseeds (g roundnut , rapeseed mus ta rd , copra , sun f l ower and soybean, which together account for 9 0 % of Indian oilseed output) , the co-eff icient of variation for Indian domestic prices was higher than that for the wor ld prices. The arithmetic average c.v. of such domestic prices was 6 2 % , while that for the world prices was 5 6 % . Likewise, the arithmetic average of the standard variation of domestic prices of these f ive oilseeds was 3 0 % , whi le it was 2 4 % for the same five oilseeds' world prices.
5.5.3 The coefficients of variation in India, as well as standard deviation for wor ld prices of a larger commodit ies group of several oilseeds plus edible oils and meals, were also found to be smaller than these indices for the wor ld price of only oilseeds. It is reasonably clear that the degree of volat i l i ty of edible oil sector of the global level is smaller than wi th in India's domestic edible oil sector.
93
5.5.4 In principle, trade liberalization would thus reduce the extent of insulation of domestic markets, thereby enhancing the risk-spreading role of international markets. The conversion of non-tariff barriers into fixed tariffs (tariffication) would contribute to the reduction of instability of both international and domestic prices, in relatively open economies like India's. This is particularly relevant for India in the case of oilseeds, since domestic prices have been more volatile than the world prices.
5.6 CONCLUSIONS
5.6.1 India, w i th one sixth of global population, has a signif icant, if not proport ionate, share of global oilseed economy, in terms of oilseeds production, processing and exports, as well as in terms of edible oil imports. Wi th its per capita income increasing at 4 . 5 % per annum as against 2 % globally, India's consumption of income-elastic oilseeds products is also accelerating fast. A NCAER study forecast the doubling of edible oil consumption in fifteen years ending 2015 .
5.6.2 There has been a general trend of liberalisation in India over the last 25 years, particularly in industrial products and services. But, the reduction of tariffs has been extremely slow in agricultural products, even in developed countries, particularly in Japan and Europe. The protection of livelihood of rural folks and of the environment has been the actual reason even though various technical pretexts like health and the quality of agricultural imports have been cited as the cause. While Indian agriculture as a whole suffers an effective " taxat ion", and deprivation in international terms, many developed countries in Europe as well as USA and Japan in effect "subsidise" their agricultures to a substantial extent, by protecting them against imports.
5.6.3 India had imposed a tariff of 62 per cent on edible oils in the late 1 980 's and had gone on slowly reducing this level to about 4 5 % in mid-90s. This protection enabled the India oilseed complex to enhance output from 10.8 million tonnes in 1985-86 to 24.7 million tonnes in 1998-99. The import duty was then reduced to 1 5% in 1997; this coincided wi th
94
the international depression, which hit the dominant edible oil exporting countries like Malaysia and Indonesia very hard. They had to reduce their prices of palmoil f rom $696 per tonne in Jan. 99 to $204 in Feb. 2001 wi th a view to preserving and expanding their exports. As a result, the import of edible oil by India shot up from 1.06 million tonnes of the value of Rs. 2260 crores in 1995-96 to 4.2 mill ion tonnes of the value of Rs. 7984 crores in 1 999-2000.Th is hit the domestic oilseed economy extremely hard, particularly the f ledge l ing o i lpa lm p lan ta t ions and i ndus t r y . The Government of India took five years to respond to the appeal of the oilseed farmers and processors before it enhanced the import duty on palmolein in stages to 9 2 % .
5.6.4 It has been argued by certain experts that India should uni lateral ly reduce import duties on edible oi l , so tha t distort ions caused in Indian agricultural sector by undue protect ion are removed and farmers deploy their land resources in an "internationally optimal and efficient " manner for developing their economy efficiently. In an ideal wor ld , where every country might observe this principle, this can be accepted. But, unfortunately, the richest countries do not practise what they preach, so far as their agriculture is concerned. There is no reason why India as a developing country, should be a sacrificial lamb, at the altar of global efficiency. The well known journal, London Economist, has reported in May 2002 that the US Congress seeks to increase farm subsidies by 8 0 % to about 180 billion dollars, which amounts to about one-third of India's national income. India is quite within its rights to impose an import duty of 9 2 % on palmoil (maximum bound duty under WTO by India is 3 0 0 % , and 4 5 % on soybean oil). It is however desirable that efforts be made to increase efficiency of oilseed cultivation and reduce the degree of protection, to the extent to which the global economies move in that direction.
95
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106
CHAPTER 6
CONCLUSIONS AND RECOMMENDATIONS
6.1 INTRODUCTION
6.1.1 The oilseeds group of crops rank next only to food crops in importance in Indian agriculture, occupying 1 4 % of the tota l cu l t i va ted area. Amongs t the ten impor tan t o i lseeds, groundnut, rapeseed mustard and soybean together account for 8 0 % of the total oilseed output. India presently accounts for nearly 7 % of the global oilseed output, 5 .6% of the global oilmeal output, 4 . 2 % of the global oilmeal export and 5 .7% of the global edible oil output. The Indian oilmilling and processing industry is estimated to employ about one million persons. Indian oilseed sector accounts for a domestic turnover of Rs. 60 ,000 crores and an export- import trade of Rs. 11 ,500 crores. Recently, the import of edible oil had been rising steadily reaching 5 million tonnes in the oil year ending Oct 2001 (recording a 26-fold increase in 6 years). Edible oils have become the third largest item in India's import bil l, next only to petroleum and gold.
6.1.2 The fortunes of the oilseed sector have enjoyed great surges and have suffered sharp declines. The ballooning import bill for edible oils in mid 1980 's caused such concern to the policy-makers that a crash programme was introduced in the shape of Technology Mission on Oilseeds integrating several initiatives to improve the status of oilseed cult ivation and processing technologies, supply of farm inputs and marketing services. The import duty on palmolein, the most important import i tem, was raised to 6 2 % . Consequently, the output of oilseeds went up f rom 10.8 mill ion tonnes in 1985-86 to 24 .4 million tonnes in 1996-97 . As a result, the imports of edible oils declined from a peak of 1.95 million tonnes in 1987-88 to 0.1 million tonnes in 1992-93 . The exports of oilseed products shot up f rom Rs. 232 crores in 1987-88 to Rs. 4 7 4 0 crores in 1997 -98 . T w o fac tors radically changed this scenario. The economic recession in
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late 1990 's hit the leading exporters of palmoil-Malaysia and Indonesia - leading to the crash of the price of palmoil f rom $696 per tonne in Jan. 1999 to $204 in Feb. 2 0 0 1 . At about the same t ime, the import duties on edible oil in India were sharply reduced from 6 5 % ad valorem to 15%, leading to a sharp increase in the import of palmoil to Rs. 7589 crores in 1999-2000 - a sharp disincentive to the Indian oilseed farmers and processors. It was only in late 2001 that this was reversed and the import duty raised to 9 2 % by the Government of India. It is too early to say in 2002 how far the Indian oilseed complex would recover f rom its precipitous decline.
6.1.3 Technology Missions as policy instruments represented a remarkable departure in the public administration of India. Traditionally, the Ministries were designed to work wi th each other to achieve common objectives; but, the actual coordination turned out to be mostly inadequate. Application of modern technology was minimal. For the f irst t ime in the history of Indian administration, the Prime Minister himself took the in i t ia t ive in 1986 to moni tor the in tegrated development in six subsectors which could make a difference t o I n d i a ' s s o c i o - e c o n o m i c d e v e l o p m e n t : l i t e r a c y , immunisat ion, telecom, drinking water, oilseeds and dairy. A high-powered advisor on these Missions to the Prime Minister was appointed w i t h credentials in technology, management and social sensi t iv i ty holding the rank of Minister of State. He was effect ive when working w i th concerned Ministries as well as wi th the leaders of private sectors in forging a common strategy. Never in India did the Ministries work as hard as they did then to achieve the goals of these six Missions. Never did the Centre win such w i l l i n g c o - o p e r a t i o n of t h e S t a t e G o v e r n m e n t s in implementing these six Missions. Never did the private sector come forward as they did then to join hands w i th the Government in achieving the common goals of these six Missions. Unfortunately, this common endeavour faltered after a few years. Such Technology Missions still have the potential to achieve their objectives, if the fol lowing essential ingredients are assembled effectively : the spirit of common
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purpose, streamlined administrative procedures, creative appl icat ion of science and techno logy , who le-hear ted partnership between the Centre, the States, the private sector business, the scientific community and the beneficiaries.
6.1.4 A sound policy framework for the development of oilseed sector has to focus on t w o basic objectives: (a) to enhance economic ef f ic iency and reduce unit costs ; and (b) to promote social equity, by making products available to poorer sections at affordable prices. It has to utilise tools available by science and technology for enhancing farm yields and increasing processing eff iciency. It should secure greater involvement of the private sector in providing services to the farmer, the processor and to the trader. The import tariff policy should strike a sound balance between the promotion of ef f ic ient domest ic product ion and the advantage of inexpensive imports. The interests of consumers in terms of reasonable price and quality, cannot be overlooked. In brief, the interests of the farmer, the processor, the trader, the consumer and the exchequer have to be del icately balanced to maximise satisfaction and to minimise costs to all stakeholders as a whole. The fo l lowing sections seek to present how this can be done.
6.2 OILSEEDS RESEARCH STRATEGY FOR ENHANCING YIELDS
6.2.1 A sensible oilseeds production policy wil l focus on enhancing eff iciency through a strong technology base and a robust farmer support system for exploiting such technology. This sec t i on examines h o w e f f e c t i v e l y these t w o po l i cy ingredients have been developed under the Technology Mission on Oilseeds.
Agricultural Technology Policy
6.2.2 A sound farm research policy requires a sharp def ini t ion of its objectives, specified in terms of yield potential , opt imal period of crops durat ion, breeding parameters, attr ibutes in terms of target yields and contents of fat and prote in, app l ica t ion of modern techn iques l ike t issue cu l tu re , p roduc t ion of h igh qua l i ty breeder seeds as we l l as
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development of optimal plant production and protection techn iques . Al l these have been a t tended to by the Directorate of Oilseeds Research under the guidance of the Indian Council of Agricultural Research., as indicated in paragraphs 2.4 to 2.8. Paragraph 2.5.18 outlines how these newly developed technologies have been demonstrated by the Directorate of Oilseeds Research ( DOR), through the Agricultural Universities. In 1998-99, the actual oilseeds output rose to 25. 68 million tonnes. But, if the technologies developed by the DOR had been fully applied by all the oilseeds farmers in India, the oilseed output would have reached 4 5 . 1 6 mi l l ion tonnes . The Nat ional Oilseeds Demonstrations are the real test of the effectiveness of technologies developed by the DOR of the ICAR. However the research policy is realistic enough to note that many small and marginal farmers would not have the wherewithal to purchase and apply the inputs on the scale recommended and the actual increments in yields would be smaller than the potential levels actually established in the research trials or the ICAR/DOR trials laid by the Agricultural Universities.
6.2.3 The DOR has fol lowed a sensible policy of associating itself w i th several sister institut ions as indicated in para. 2 .4 .2 , in certain special ised discipl ines like dryland fa rming, agronomy, soil science, agricultural engineering and post-harvest technology., so that their respective specialised skills and knowledge are available for improving the oilseeds technology. Needless to say, the ICAR/DOR policy has been sensible in associating the 26 State Agricultural Universities in the development and independent trial of new technologies for their specific regions and condit ions. This would also enhance the acceptability of these new technologies locally by the scientists and farmers of the respective regions serviced by the Agricultural Universities.
6.2.4 Section 2.5 sets out the advances achieved in the oilseeds cult ivation technology by focusing on four approaches:
* area expansion;
* improving yields through crops zoning as well as more eff icient use of seeds, moisture and plant nutrients;
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* crops management;
* policy support.
These are obviously rational approaches and have borne good research results .
6.2.5 The ICAR has done well to develop appropriate technology suitable for Indian conditions for successful oilpalm cultivation. The world has seen oilpalm cultivation mostly in "rain forest" condit ions of assured rainfall round the year. ICAR has innovated the cultivation of this crop demanding very heavy moisture support, but under irrigated conditions. Para 2.6.3 sets out the research strategy fol lowed in this connection.
6.2.6 It is clear tha t the research and deve lopment po l icy implemented by the ICAR and extended to farmers by the Technology Mission on Oilseeds has successfully led to the acceleration in actual oilseed crops yield increases in Indian oilseed sector - a 5 3 % increase in the average yields over the 12 years f rom 619 kgs in 1987-88 to 955 kgs per hectare in 1998-99 , as against an increase of only 21 % in the preceding 12 years 1976-88.
6.3 FARMER SUPPORT POLICY FOR EXTENDING OILSEEDS PRODUCTION
TECHNOLOGY
6.3.1 The basic fact of Indian agriculture is that more than three fourths of Indian farmers cult ivate t w o hectares or less, w i th only one third of their land receiving irrigation and they are mostly risk averse at such margin of subsistence. An energetic farm support policy is called for if the production of any specific crops like oilseeds has to be promoted w i t h a judicious mixture of technology extension, input supply and price support for the output. This section deals w i th the f irst t w o and section 6.5 w i th price support for the output.
6.3.2 Paragraph 2.9.1 has set out the four-fold strategy of Mini-mission 3 dealing w i th technology and input support to o i lseed f a r m e r s . In pu rsuance of t h i s s t r a t e g y , t he Government of India has been implementing special oilseeds
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projects in successive Five year Plans, variously called National Oilseeds Development Project, Oilseeds Production Thrust Programme and Oilseeds Production Programme. Large sums of money, (Rs. 445 crores during the 8*^ Plan) had been allotted to support some 25 different activit ies, which had the potential of increasing oilseeds yields, directly or indirectly, on cost-effective basis (see para 2.14.2) . In most of them, the Governments of India and of the States subsidised the oilseeds farmers in the demonstration and application of yield-enhancing technologies . Chapter 2 sets out the details. Considering that an overwhelming percentage of oilseed growers are small and marginal farmers, and that oilseeds are generally risky crops susceptible to pests and diseases, there is some just i f icat ion in subsidising field demonstrat ions to accelerate the adoption of improved technology. But, continuation of input subsidies for proven technologies over a long period is not just i f ied. The support policy therefore needs to be continuously reviewed to weed out subsidy elements whose continuation is not just i f ied.
6.3.3 It is commendable that the TMO had set up an independent concurrent evaluation system through an outside expert agency, like the Agricultural Finance Corporation, owned by the commercial banks of India. The TMO needs to consider AFC's recommendations seriously for improving the eff iciency of its farmer support policy and measures.
6.3.4 The fertile irrigated areas in the North Western parts of the country are running the risk of destruction due to prolonged rice-wheat crops rotation, supported by unduly high price support for these cereals. The Food Corporation of India has been forced to acquire and hold more than three times the optimal quantit ies needed for India's food security. The G o v e r n m e n t of Ind ia shou ld a c c e p t t h e sound recommendations of the Commission for Agricultural Costs and Prices in this regard. The over-exploitation of land is upsetting the ecological balance leading to undue rise in the ground water and chemical imbalance in the nutrient status. Strong policy initiatives are needed to reverse this destructive trend. Cultivation of crops like oilseeds and pulses using less water, in the kharif season, will restore the ecological balance.
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6.3.5 Section 2.1 6 sets out a strategy for expanding oilseeds area by 5 million hectares, w i thout reducing the output of any other crops and through sound economic and environmental approaches. Oilseeds policy needs to introduce incentives for carrying out these recommendations. Paragraphs 2.18.9 to 2 . 1 8 . 1 1 out l ine the long, medium and shor t te rm s t r a t e g i e s t h a t need to be a d o p t e d fo r t h e s o u n d d e v e l o p m e n t of o i l p a l m s e c t o r . These p o l i c y recommendations need to be implemented.
6.3.6 Government of India, which had assiduously nursed the infant oilpalm cultivation complex unfortunately took certain steps which made it sick - drastic reduction of import duty on palmoil f rom 6 2 % to 1 5%in late 1 990s. Nearly one third of the area under o i lpa lm, involv ing several crores of investment, has consequently gone off cu l t ivat ion. The remedy, in the shape of increase in the import duty on palmoil, has come rather late. This may not effectively meet its purpose if the GIF cost of imported palmoil goes down . The import duty has to be so designed as to escalate appropriately when the GIF cost of the imported oil goes down , so that the degree of protection can remain at a predetermined stable level.
6.3.7 The oilseeds extension programme should pay greater attention to the farm credit support system, so that the farmers get t imely credit f rom cooperative and commercial banks for purchasing critical inputs and services. NABARD has t aken ac t i ve s teps to suppo r t coope ra t i ve and commercial banks in this regard.
6.3.8 Para 2.1 5.1 outlines the potential for the production of 6 to 7 lakh tonnes of vegetable oils (edible 5 lakh tonnes and the rest non-edible, industrial uses), out of the seeds of more than 100 plants/ trees found in the wi ld mostly in forest areas. The tribal people are the main contr ibutors and beneficiaries. The Government of India has supported the National Tribal Go-operative Federation in this act iv i ty. Oilseeds Policy has to ensure the continuation of efforts to exploi t this opportuni ty in an imaginative and ef f ic ient manner.
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6.4 POLICY SUPPORT FOR EFFICIENT PROCESSING OF OILSEEDS AND OILS
6.4.1 As indicated in paragraph 3 .1 .2 , a sound policy framework for promot ing processing industry has to balance the interests of four constituencies: a productive technology and an incentive price for the farmer, an affordable price for the consumers, reasonable profit margin for the trade and industry, and finally a reasonable contribution to the job market, exports and public revenues. The greater the eff iciency of processing, the larger wi l l be the income for the oilseed farmer.
6.4.2 Indian processing industry suffers from several maladies : low rates of utilisation of installed capacity, low oil recoveries, and high unit costs. The lack of adequate integration between expelling and solvent extraction units alone is costing the country Rs. 1 500 crores. Reservation of 8 0 % of the output of oilseeds for small scale processing industry is depriving the consumers, the farmers and the processors the benefit of modern processing technology, which represents much lower costs of processing, coupled with much better quality of output. Just as the milling of paddy and wheat is thrown open to modern processing, it is essential to withdraw the reservation of oilseeds processing to small scale sector and al low modernisation of their processing. The reservation policy needs immediate change.
6.4.3 The Council of Scientific and Industrial Research ( CSIR), which leads Mini-mission 2 for developing oilseeds processing, has done useful research and development work for improving the e f f i c iency of oi lseeds processing. But these t imes of l i be ra l i sa t i on and i n te rna t i ona l c o m p e t i t i o n cal l fo r internationally competitive processing standards, which reduce the cost of processing and enhance quality and value of products like processed oil and oilcakes. Major policy changes are needed here, as China has done, to remove undue restrictions and modernise oilseeds processing industry.
6.4.4 There is cons iderab le scope for deve lop ing r icebran processing industry, which can provide nearly a million
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tonnes of oi l , particularly for blending w i th more popular oils. The Government of India should pursue, in close coordination w i th other paddy growing countries of the wor ld , the development of standard regulations for rice bran oil, under the Joint WHO-FAO Food Standards Programme Codex Committee on Fats and Oils.
6.4.5 The solvent extraction industry has expanded speedily because of relative absence of Government regulation, but its low capac i t y u t i l i sa t ion at about 3 0 % has made it s ick . Modernisation can be accelerated by removing geographical imbalances, preventing habitual breaches of the law, and above all, reducing Government restrictions on market development.
6.4.6 India exported a peak of Rs. 3236 crores of deoiled cakes in 1997-98. It is possible to further build up this export trade, if the quality of oilcakes can be improved through use of better technology and if the high cost of exporting can be reduced. The remedial measures include improved system of bulk transport, rapid loading directly into the holds of vessels at port, which wil l also reduce the losses in transport and handling. Improved port procedures leading to speedy loading can save as much as $10 per tonne. Quality awareness has to be created in the post-harvest operations to reduce af latoxin levels in the groundnut meals and glucosinolates in the mustard meals; high levels of these toxins and impurities reduce export price realisation. A strong public awareness campaign amongst the oilseed sector players is needed.
6.4.7 The fol lowing four recommendations made in the World Bank Study "The Indian Oilseed Complex: Captur ing Market Opportunit ies" (1999) deserve acceptance and action by the Governments of India and of the States:
(i) removal of art i f ic ia l barriers regarding process ing, storage and movement of oilseeds and products;
(ii) encouraging larger scale processing operations, typically of 1 200 tonnes per day and rationalisation of RBI Credit Guidelines;
(iii) removal of small scale industry reservations for oilseed crushing and processing equipment; and
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(iv) i m p r o v i n g t h e e n f o r c e m e n t and m o n i t o r i n g of environmental guidelines, standards and controls for avoiding wasteful use of solvents like hexane.
6.5 POLICY REFORMS RELATING TO DOMESTIC MARKETING OF OILSEEDS AND OILS
6.5.1 A sound policy framework for efficient domestic marketing of oilseeds has to fulf i l three requirements : (a) oilseeds farmers get a remunerative price, which encourages them to apply better technology and modern inputs to improve yields; (b) the oilseed industry improves the eff iciency of storage, processing and marketing; and (c) the consumers get edible oil at affordable prices. Mini-mission 4 of the TMO is responsible for co-ordinating the formulation and implementation of a sound oilseeds marketing policy.
6.5.2 A study by the NCAER shows that the demand for edible oil would go up from a range of 10.10/10.30 million tonnes in 1999-2000 to a range of 22.80 to 29.40 million tonnes in 2014-1 5, depending upon the per capita growth assumptions, varying between 4 to 6 per cent annually. This would imply a threefold increase by 2014-15 in the output of oilseeds, assuming a 3 0 % average oil content. Special measures for improving the marketing of oilseeds are needed.
6.5.3 Chapter 4 has recommended the fol lowing important policy measures for strengthening the marketing of oilseeds, oils and oi lcakes, so that they can enhance the income of farmers, processors and traders in an efficient manner, while augmenting the productivity of the oilseed sector.
(i) Better enforcement of regulated markets, so that more farmers feel attracted to use them (at present less than half), getting the benefit of higher prices and for correct quality and quantity.
(ii) Strengthening cooperative marketing institutions and introduction of forward marketing and contract farming, which wil l also help the farmer to get a better price for his produce.
(iii) Promoting market integration, which wil l also get a better price for the farmers.
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(iv) Price incentives for edible oil storage in the lean season.
(v) Reducing the cost of storage by in t roduc ing bulk storage facil i t ies.
(vi) A l l e v i a t i n g t h e o v e r - r e g u l a t i o n of m a r k e t s and introduction of future markets and hedging practices.
(vii) Rewarding better quality produce w i th better price.
(viii) Streamlining the six statutory regulations regarding quality.
(ix) Enhancing earnings from oilcakes and oilmeals through
removal of restrictions on livestock industry, improving
the transport system for animal feed and improving the
quality of de-oiled cakes.
6.6 POLICY INITIATIVES FOR OPTIMUM LIBERALISATION OF TRADE IN THE OILSEED SECTOR
6.6.1 Chapter 5 rev iews the global and Indian scenar ios in production and trade in the oilseed sector. It also examines the implications of the Uruguay Round of GATT for the Indian oilseed complex.
6.6.2 By early 1990s, the robust growth of Indian oilseed sector, w i t h a 6 2 % import duty pro tect ion, had succeeded in generating a trade surplus in the sector. But the drastic reduction of import duties to 15%, combined wi th the sharp fall in international prices of palmoil in late 1990's, completely reversed the situation. In 1999-2000, imports of oil reached Rs. 7984 crores, accounting for nearly half the domestic consumption of edible oil. Between 1999 and 2 0 0 1 , the Government of India realised the damage caused to a resurgent oilseed sector, and hiked the import duties on palmolein.
6.6.3 In international trade, the critical factor is the efficiency of production to decide whether protection is justif ied or not. Professors Gurdev Singh and Asokan , in the i r paper "Competitiveness of Indian Oilseeds under WTO" , published in the journal "Artha Vijnana"(page 240-247, Vol XLII, no 3, Sept. 2000), have analysed the competitiveness of four major oilseeds crops, which account for more than 8 0 % of total oilseeds output. They found that the nominal protection co-
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efficient, under importable hypothesis, had fallen from a range of 1.69 to 2.34 in 1988-89 to a range of 1.11 to 1.21 in 1998-99 . They have also established that the domestic resource cos t e f f i c iency— an ind icator of economic efficiency —was below unity for the four important oilseeds in the States where they are predominantly grown.(See Chapter 5.3) This clearly establishes that the efficiency of oi lseeds cu l t i va t ion has risen s ign i f icant ly and that a reasonable tariff protection is justif ied.
6.6.4 Chapter 5 also examines the degree of conformity by the Indian oilseed sector to the five basic requirements of Uruguay Round Rules and concludes that India has fulfilled them all:
* Customs duties held below India's committed maximum tariff level.
* No violation of prescribed rules on permitted domestic support.
* No export subsidy.
* No trade restrictions on BOP grounds.
* No exceptional safeguard measures resorted to .
6.6.5 Section 5.4.13 analyses how far India's oilseed economy would be damaged by global market price f luctuations. This analysis shows that the global f luctuations are less volatile than the f luctuations in the Indian market, thereby justifying further opening of Indian oilseeds market on that ground.
6.6.6 In c o n c l u s i o n , i t can be said t h a t the recen t t a r i f f modif ications have the potential to enhance the efficiency and product ivi ty of Indian oilseed complex.
CONCLUSION
6.7 India's oilseed sector faces stiff challenges in increasing the ef f ic iency in several of its sub-sectors : improving the technology in oilseed cultivation and processing, extending such improvements to farmers and processors apart from introducing policy reforms in the marketing of oilseeds and products domestically and internationally. All the players need to join together wi th the Government in a creative partnership to enhance efficiency and equity in this important sector.
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REFERENCES
1. Artha Vinjana, Sept. 2000 , "Competitveness of Indian Oilseeds under W T O " ,
by Gurdev Singh and S R Asokan, Pp. 240 -249
2. Department of Agricul ture and Cooperat ion, GOI, New Delhi, "Technology
Mission on Oi lseeds", 1988 .
3. Department of Agricul ture and Cooperat ion, GOI, New Delhi, "Technology
Mission on Oilseeds, Pulses and Maize" , 1986 -98 , published in 1998 .
4 . Directorate of Economics and Stat ist ics, Ministry of Agr icul ture, New Delhi-
1 1 0 0 0 1 , "Agr icul tural Statist ics at a Glance", 1996 , 1998 .
5. Directorate of Oilseeds Research, ICAR, Hyderabad, "Oilseeds Situation", 2000,
Damodaranand Hegde, D. M.
6. Economist, London, May 1 1 , 2 0 0 2 .
7. Indian Society of Oilseeds Research, Directorate of Oilseeds Research, ICAR,
Hyderabad, "Souveni r of Nat ional Seminar on Oilseeds and Oi lseeds
Research", 2 0 0 0 .
8. Ministry Of Finance, New Delhi, "Indian Economic Survey" , Feb. 2 0 0 1 .
9. Solvent Extractors Associat ion of India, Mumbai , "SEA News Circular",
several numbers.
10. The Hindu, Chennai, May 2 0 0 0 , "Survey of Agr icu l ture"
1 1 . World Bank, Washington DC, "The Indian Oilseeds Complex: Captur ing
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