Policy for Edible Oil Complex in India Under WTO Regime

Abstract

The purpose of this paper is to relate two important public policy aspects of edible oil sector i.e., technology and price policy options to cope with post-WTO scenario. Among all agricultural commodities, India’s edible oil sector is more open to international markets and various policy instruments are used to influence domestic demand and supply conditions. After a period of stagnation in oilseed production and surge in imports, India started Technology Mission on Oilseeds (TMO) during 1987, which increased oilseed production significantly by early 1990s, which is now widely known as yellow revolution. In the success of yellow revolution both price and non-price variables played an important role. However, this is not sustained for a long period, low international prices coupled with a reduction in import tariffs and higher domestic cost of production resulted in surge in import of edible oils to the extent of 5 Mt annually by late 1990s and pause in spread of yellow revolution. The paper argues that even though our oilseed sector is competitive, due to inefficient edible oil processing sector, edible oil complex is less competitive. Hence India imports in large-scale every year since late 1990s. Technology levels of edible oil processing sector is heterogeneous with traditional ghanies and expellers with low capacity on the one hand. Due to small-scale reservation of the oilseed-processing sector for a long period, the average size of processing units is small with outdated technology. Another obstacle for adoption of technology in oilseed processing sector is wide gap between new and old technologies, hence to up-grade technology one has to replace all equipment and fixed capital and shift over to entirely new technology and skill levels which is mostly beyond the capabilities of existing processing units (ghanies and small scale expellers). This paper also reviews the various policy options and their impact on competitiveness of producer, processor, government and also consumer surpluses. The paper used WITS simulation to assess the impact of tariff reduction in edible oil complex. The paper suggests that reducing tariffs on oilseed sector will have negligible effect on trade creation, welfare and also government revenue. While decrease in tariffs on edible oils to 30% and to zero levels will increase edible oil imports by 30% and 50% respectively over the base year. Increasing efficiency in processing sector through increased capacity utilization and modernization of oilseed processing sectors are very important to reduce cost of production of edible oils. There was a need to encourage and simplify norms to facilitate up gradation of technology and innovation in processing sector. Providing support for innovation, encouraging the spread of best practice, providing loan guarantees for small firms, and providing subsidies for investment in oilseed production centres to up gradation in ghanies and oilseed expellers is essential to make edible oil sector competitive.