<title>Oilseed and vegetable oil economy of India: Sectoral policy issues</title>
RP Aneja,
KVSM Krishna,
SJ Phansalkar and VP Gulati
INSTITUTE OF RURAL MANAGEMENT ANAND
OCTOBER, 1992
<section>Contents</section>
Chapter 1 - Introduction
Chapter 2 - Imperfections in the sector
Information imperfections
Supply estimates
Price behaviour
Market imperfections
Policy imperfections
Chapter 3 - Consumption of edible oils and nutritional perspective
Chapter 4 - Major interventions in the sector: Imports
1. Implications of issue of imports to PDS and vanaspati industry
2. Performance of public distribution system for edible oils
2.1 Spatial and temporal allocation, and leakage
2.2 Growth in Skewness
3. Impact of issuing low priced imported edible oils to vanaspati industry
3.1 Historical base
3.2 Use of Imported oils by the vanaspati industry
3.3 Price controls in vanaspati
3.4 Benefits accrued to the vanaspati industry
4. The net effect of import policy
Chapter 5 - Major interventions in the sector: NDDB and TMO
1. Oilseeds and vegetable oil project of the NDDB
1.1 Project funding
1.2 Project implementation
1.3 Project financing
1.4 Achievements
2. Technology mission on oilseeds
2.1 Achievements
2.2 Integrated policy on oilseeds
3. Market intervention operation
3.1 Objectives
3.2 Criteria for fixing price band
3.3 Implications of MIO type intervention
3.4 Progress of MIO
3.5 Achievements
4. The net effect of interventions by NDDB and TMO
Chapter 6 - Need for self-reliance
Chapter 7 - Conclusions
Policy implications
APPENDIX 1 - The role of the press in influencing market sentiments: Case of edible oils
Note
<section>Chapter 1 - Introduction</section>
India has the second largest area under oilseeds, next only to USA. However, it falls behind to the fourth place in terms of production due to comparatively low yields.1 Yields remain lower largely on account of dependence on dryland farming. During the early seventies shortages of edible oils led to substantial increase in the prices. Severe intra-year and intra-seasonal fluctuations in the prices are a common feature of the oilseed economy. Edible oil prices had contributed significantly to the national inflation levels during the recent years. Price movement in edible oils and oilseeds was perceived as a consequence of demand-supply gaps. Addressing these issue several policy options have been adopted in the last one and a half decade. Despite, the production remained stagnant until 1987-88. Only since then a resurgence has taken place.
Edible oilseeds mainly comprise groundnut, mustard, sesamum, nigerseed, safflower, soybean, and sunflower. Oilseeds contribution to GDP stands only next to cereals and milk.2 Edible oil accounts for about 5.5 per cent of the family budget occupying the third place, next to cereals and milk. India, a net exporter of oilseeds and oilseeds products for long, turned into a net importer during 1976-77 to 1987-88 consequent to edible oil imports worth about Rs.800 crores per annum. The main features of recent developments in the sector are:
i) Overall production of edible oilseeds has been steady around 17 million metric tonnes since last three oil years.
ii) Rabi production has been steadily increasing over kharif production.
iii) Mustard production has been taking rapid strides and mustard oil production has caught up with the production of groundnut oil.
iv) Contribution of South comprising Andhra Pradesh, Tamil Nadu, and Karnataka to the groundnut production has been quite high.
v) Imports of edible oils have been slashed on account of foreign exchange crunch.
vi) Price fluctuations have been substantially reduced.
vii) Difference between sowing and harvest time prices has been considerably reduced.
Table 1 shows the area, production and yield of edible oilseeds in India for the period 1971-91. From around 12 million metric tonnes in 1987-88 the production went up to 17 million metric tonnes in 1988-89 and has since then been more or less steady. At no point of time in the history of oilseeds cultivation in India, such a performance has been recorded. Further, the contribution of rabi crops have been only one and a half times. This is clearly demonstrated in Figure 1. It may be noticed that the difference between kharif and rabi production is narrowing down.This is attributed to increasing share of rabi groundnut, rabi sunflower, and safflower, and increases in the cultivation of rapeseed/mustard. A strong reason for increasing share of rabi oilseeds in the total edible oilseeds is the higher and growing in yield rates. Figure 2 depicts this trend. As the growth in the production of kharif oilseeds falls below that of the total edible oils, the growth in overall
edible oilseeds may be attributed to rabi oilseeds. Further, the growth in the yield rate is far higher with rabi oilseeds than that of kharif oilseeds.
As shown in Table 2, production of mustard has been steadily going up over the last two decades. It has increased by more than two and a half times whereas the production of groundnut has gone up by only 20-30%. In fact the ncrease in groundnut production is largely due to the shift from kharif to rabi. The yield rate of mustard has also shown a substantial improvement from 594 kgs/hectare in 1970-71 to 900 kgs/hectare n 1990-91. These figures for groundnut are 834 kg and 919 kg, respectively. However, yield being very high the growth of rabi groundnut has taken leaps and bounds. Production of groundnut and mustard and their oil equivalents for all India are shown in Figure 3. Both the curves for mustard are more steeper than that of groundnut. Further, while the differences between the production of the two oilseeds are narrowing down, the curves for oils have shown a reverse trend for the year 1991-92. This is due to the higher realisation of oil from mustard.
Productions for 1991-92 in Figure3 are estimates made by the Institute of Rural Management, Anand.
Southern India, comprising Andhra Pradesh, Tamil Nadu and Karnataka, which had more or less a stagnant production around 3 million metric tonnes between 1970-71 and 1986-87, has since then become a more important producer of oilseeds in the country (Table 3). For the last four consecutive oil years it has shown steady increment in the production and by 1990-91 reached as high as 5.6 million metric tonnes. The most interesting trend has been its contribution to groundnut production. This is clearly seen in Figure 4. Since 1984-85 the South has become dominant producer of groundnut over North. Although in 1988-89 share of North rose upto 50 per cent it steadily declined over the last two years.
Table 1: Area, Production And Yield of Edible Oilseeds (All India)
AREA (`000HA)
PRODUCTION (`000MT)
YIELD (KGsHA)
YEAR
KHARIF
RABI
TOTAL
KHARIF
RABI
TOTAL
KHARIF
RABI
TOTAL
Source: Directorate of Economics and Statistics, Ministry of Agriculture, Government of India.
Table 2: Area, Production and Yield of Groundnut and Mustard (All India)
GROUNDNUT
MUSTARD
AREA (`000 HA)
PRODUCTION (`000 MT)
YIELD (KGs/HA)
AREA
PRODUC.
YIELD
YEAR
KHARIF
RABI
TOTAL
KHARIF
RABI
TOTAL
KHARIF
RABI
TOTAL
(`000HA)
(`000 MT)
(KGs/MT)
Source: Directorate of Economics and Statistics, Ministry of Agriculture, Government of India.
Imported oils which had formed more than 30 per cent of the total available oil in the country until 1987-88 have been slashed to a mere 6.7 per cent of the total available oils for the last three years. This is largely due to foreign exchange shortages. Until 1987-88 edible oils ranked next only to petroleum products in the import bill of the country.
Given the sensitive and speculative nature of oilseed market and high variability in oilseed production, prices of oilseeds and edible oils display great erraticity even within the same season. The trend in fluctuation of prices has come down drastically by 1990-91. Figure 5 shows the intra-year fluctuations of groundnut oil prices at Rajkot market. The physical size of maxima bars shown in the figure are quite large for the period between 1985 and 1990. In comparison with these the variation in 1991 prices are much smaller.
The magnitude of intra-seasonal price variations can be understood with the help of Table 4. Normally, prices that prevail during the sowing periods get depressed by the harvest season leaving the farmers, thoroughly disappointed. Fortunately, this trend has also seen a reversal since 1988-89. Figure 6 depicts harvest time prices as percentage of sowing time prices in order to understand the phenomenon stated above. Prices of groundnut at Rajkot market have been depicted for this purpose. Harvest time prices have usually remained lower than sowing time prices, with sharpest negative variation of 10 to 20 per cent occurring during drought years of 1972-73, 1974-75 and 1987-88. The exception being 1983-84 when high imports coincided with high level of groundnut production. For the last two years of 1989-90 and 1990-91 harvest prices have remained higher than sowing price. These figures, however do not capture the "real" fluctuations in the prices as the actual differences in
prices have been lost because of averaging the prices for a month. This phenomenon is further discussed in Chapter 2.
Table 3: Production of Edible Oilseeds (South North)
Year
Production (`000 MT)
South
North
Total
Source: Directorate of Economics and Statistics, Ministry of Agriculture, Government of India.
Table 4: Intra-Seasonal Price Variation (Groundnut At Rajkot)
(Rs./MT)
Oil
Sowing
Harvest
Support
Year
Price
Price
Price
Source: Economic Times for market prices, and Commission on Agriculture Costs and Prices for support prices.
While the policy interventions to stabilise oilseeds and vegetable oil sector have a history of one and a half decade, it is only during the last three years that the sector has been showing signs of self-reliance. In the present study an attempt has been made to analyse the impact of alternative policy options that have been adopted so far in context of several imperfections in the sector. The reasons for stagnancy in the production have been investigated. While attempting to understand the viability of alternative intervention mechanisms several policy implications have been drawn in order to strengthen the sector.
Chapter 2 details the imperfections in oilseeds and vegetable oils sector. The sector is characterised by information and marketing imperfections. A long chain of intermediaries in oilseeds and oils trade operate in such a way that the market transactions are kept non-transparent so as to appropriate a maximum share in the consumer rupee. While supply uncertainties result from monsoon dependency, the non-transparent behavior of the market leads to fluctuations in availability. The study concentrates on the latter phenomenon.
Nutritionists hold the opinion that no health deficiencies can be specifically attributed to low levels of consumption of edible oils. Further, excessive consumption of edible oils and consumption of hydrogenated edible oils would lead to cardio-vascular problems. Discussions on these viewpoints in the context of management of edible oil consumption have been presented in Chapter 3. Given the imperfections of the sector and considering the nutritional perspective, the potential and actual effects of State interventions, such as imports, buffer stocking operations, etc., have been analysed in Chapter 4 and Chapter 5. Chapter 4 discusses the role of imports and Chapter 5 concentrates on the role of National Dairy Development Board (NDDB) and Technology Mission on Oilseeds (TMO). Discussions on the need for self-reliance in the context of World Bank/ FAO recommendations have been presented in Chapter 6. Chapter 7 summarises and concludes with policy recommendations.
<section>Chapter 2 - Imperfections in the sector</section>
Oilseeds and vegetable oil sector in India has been characterised by several imperfections. Broadly, these can be classified as information imperfections, market imperfections and policy imperfections.
<section>Information imperfections</section>
Reliable information on supply, demand and prices are needed for efficient management of any commodity sector. Several sources of information on these three crucial factors can be identified, the most important being the government agencies. In edible oils, the inventories being extremely low, it may be presumed that demand equals supply and to that extent market clearance price may fluctuate along with the supply trends of edible oilseeds. This leaves only supply and price factors on which information is sought. Ideally every producer has to make his cropping decisions based on the competitors' behaviour. But, as things stand in India, producers act independently unaware of the competitors' behaviour. This becomes inevitable due to non-availability of reliable and timely information on supply trends. Further, the source of information on prices being the mass media, the cropping pattern, sales pattern, storing pattern , etc., could be potentially influenced by
the long chain of intermediaries between the two end players, viz., producer and consumer. In addition to supply decisions, the policy decisions such as support prices, imports and exports, buffer-stocking operations, etc., also need information on supply and price trends. Several efforts have been made to estimate the crop size well before the harvest. Similarly, attempts have been made to establish relationships between supply and price. On both the counts, the results have been unsatisfactory. As a matter of fact, vested interests keep forecasting both supply and price in a manner so as to appropriate a maximum share in the consumer rupee through exploiting the imperfections. The efforts and progress made in providing reliable information have been discussed below.
<section>Supply estimates</section>
Three factors bear major influence on the area under cultivation of any oilseed crop.
1. Allocation of area under oilseeds such as groundnut is dependent on not only the cash returns but also on the by-products like fodder. The farmer prefers to cultivate some amount of land for groundnut even in hostile circumstances in order to have fodder for his cattle. Precisely due to this behaviour there does not exist any linear relation between price and area under cultivation.
2. Expectations about the monsoon influence the cropping pattern during kharif. The time and intensity of rainfall are the major influences on production behavior in agriculture.
3. Fertility characterstics of the farm tend to create preferences for crops.
In accordance with the suitability of land, oilseeds cultivation is concentrated in a few areas. The yield of oilseeds in kharif is entirely dependent on rainfall, however, even during rabi season the yield varies considerably across various geographical areas. Any estimation of oilseeds crop has to take into account area sown, fertility of land, rainfall, producer prices, and fodder considerations.
Five methods of estimation have been in practice: Delphi's method, census method, sampling method, remote sensing applications and mathematical modelling. Delphi's method which has been used by almost every organisation in a rather crude form gives significant variation between several estimates. For example, estimates by several agencies for 1991 mustard crop ranged between 55 and 120 lack metric tonnes. Census method which has been adopted by governments is supposed to be more accurate, theoretically. But, the final information on the results are available only after a year of the harvest of the crop. Although information on area sown has been made available by the State governments within 2 months of sowing, it is subjected to changes across the year, and beyond, through revised estimates. Arriving at all India estimates becomes further difficult as the information gathering from all States would normally take substantial time. Certainly these belated data would serve no
purpose in policy formulations as well as in anticipating production and market behaviour. However, government estimates form the base for future research. It is felt that sampling method yields better results than Delphi method and gives more timely results compared to census method. Large multi-national Corporations like Hindustan Levers Limited (HLL) and Indian Tobacco Company (ITC), other organisations like National Dairy Development Board (NDDB), Operation Research Group (ORG) , and the Institute of Rural Management, Anand (IRMA) have adopted this method for oilseeds crop estimation. However, even these estimates differ substantially from the figures published by the Government of India. For example, IRMA estimate for 1990-91 Saurashtra kharif groundnut of 4.5 lakh metric tonnes falls short of the government estimate of 8.27 lakh metric tonnes. The estimate for 1990-91 for mustard of 60 lakh metric tonnes was on the higher side over the government figure of 51.5 lakh
metric tonnes. IRMA has been attempting to have more reliable estimates through an integrated approach of sampling method, remote sensing applications, and mathematical modelling. Remote sensing has a greater potential for accurate and timely estimates of area under oilseeds. Estimates for rabi crops such as wheat and mustard have yielded better results. However, estimation for kharif becomes difficult due to the cloud coverage. And also, this method does not have sophistication for estimation of the yields. Mathematical methods have been attempted by researchers to forecast agricultural crop area and yield.3 Particularly, yield models could be very useful in forecasting. The crop cutting estimates of the state agriculture departments contain valuable information for generating realistic yield models as well as other important parameters but the `secrecy' clause denies access to any outside researcher. Unlike the U.S. Department of Agriculture, there is no in-house
economic research service to undertake such studies in India. In the process, most valuable pieces of information have remained unutilised for years.
<section>Price behaviour</section>
Attempts of modelling price behaviour remain unfulfilled due to imperfect information on price trends. While at the core, demand and supply factors influence the price of the commodity, severe fluctuations in intra-seasonal and intra-year prices of oils indicate the futility of a mere economic analysis in understanding the price behaviour. Failure to capture the market sentiments through economic models necessitates an investigation to understand the relevant influential factors. On the whole, intermediaries between producers of oilseeds and consumers of oils play a very significant role in price movements and both the end players are mere residual receivers. To a large extent, the inadequate market intelligence of the intermediaries is responsible for price uncertainty, and the unfair practices of the trade help in appropriation of both consumer and producer margins. Among others, the press has been a strong source of influence. A less than 1% variation in groundnut oil
prices has many a times been covered in some daily newspapers and business papers by giving it a three column treatment. For the consumers as well as the producers, the source of information on prices is by and large the press. It follows then that press can potentially influence the price behaviour. Cropping patterns, selling patterns, storing, etc., are largely dependent on ruling prices. Also, there is ample scope for the press to politicise the issue of price movements in order to effect certain institutional factors which may be conducive to the trade. For example, sensationalising movement in commodity prices would certainly determine the behaviour of interventions such as imports, buffer-stocking etc. When a commodity like edible oil, whose share of consumer expenditure is only around 5 per cent, is given a comparatively high priority and a large coverage, then the role of the press needs to be analysed.
Coverage given by a typical business daily on the prices of groundnut oil, wheat, and toordal at Bombay market for the oil year (Nov.-Oct.) 1990-91 was selected to analyse the role of press in influencing market sentiments. Commodities have been chosen to represent one each from cereals, oils and pulses. Fluctuations in the prices have been computed with the help of coefficient of variation and that of the treatment given by press in terms of title size as proportion to the total space provided for the title on the prices of all commodities, comment size as proportion to the total space provided for comments on the prices of all commodities, and title size as proportion to comment size. While the first two measures of treatment given by the press show the focus on the commodity concerned, the latter draws the element of sensationalisation. In conjunction with the variation in the prices, these measures would explain the extent to which undue coverage has been accorded. All
the issues of the business daily falling within the period of study mentioned above have been surveyed and then aggregated to arrive at monthly and yearly averages. Monthly averages have been analysed to check whether the yearly trends are consistent throughout.
The results of the above analysis have been presented in "The Role of Press in Influencing Market Sentiments: Case of Edible Oils" by Aneja RP and Krishna KVSM (Annexure I) wherein it has been concluded that the press has been a major factor influencing edible oil and other commodity markets which are characterised by severe imperfections. The arbitrary coverage of price movements provide wrong information to the interest groups. A 3% variation in the prices of groundnut oil would get a 50% treatment while a 15% variation in the prices of relatively more important commodities like cereals and pulses would receive less than 3% treatment. This phenomenon adversely affects the functioning of vertically integrated business as well as market intervention operations.
Groundnut oil prices are deliberately depressed at the time of harvest by the trade so as to buy farmers' produce at low prices. It is generally felt that the farmers get the same sum of rupees (after adjusting for inflation) for their product whether they produce 30 per cent more or 30 per cent less. Farmers therefore, left with no incentive to produce more. For example, during 1976 groundnut oil was available at Rs.4/- per kg. in October-November, and the same oil was sold at Rs.13/- per kg. in June-July. However, the monthly data on the fluctuations in prices of groundnut/groundnutoil does not show this phenomenon. It is therefore hypothesised that the average of prices on a monthly basis does not capture the market sentiments and their adverse effect on the oilseed growers. Bulk of the crop comes out over a short span of 2-3 months and within this period there are days when the market yards are full and prices get depressed. Ideally, one should look at daily price
fluctuations, but then there is so much data to be handled. May by, due to this very reason, figures rounded off to the monthly averages were routinely used. An attempt has been made here to look at the amplitude of the variations in price fluctuations computed at daily averages and monthly averages in order to capture the loss of value of data in averaging. This exercising was considered important because averaging of price data on monthly basis does not give a true picture of the loss suffered by the farmers.
The price fluctuations in groundnut oil in Rajkot clearly brings out the fact that until massive imports of edible oils were resorted to in 1976-77, the flutuations in daily prices were much greater than the fluctuations in monthly average prices (Figure 7). The price spread calculated on the basis of daily average has been twice as much as the price spread based on monthly averages in certain years (1968-69, 1972-73). These fluctuations could be explained to be on account of either too little availability or too much availability of edible oils.
Between 1976-77 and 1985-86 daily price fluctuations in groundnut oil have been minimised. However, even this benefit was lost during the years 1987-88 probably because of too much availability of edible oils. Besides increases in the prices of groundnut oil, the general trend seems to show that the fluctuations in groundnut pod prices (Figure 8). Groundnut pod prices continued to remain unpredictable and the widest fluctuation was reached in the year 1987-88 in spite of massive imports. For the last two years, the difference between fluctuations computed in terms of the proportional loss in fluctuations of monthly prices over fluctuations of daily prices (Table 5). Table 5 shows fluctuations in the prices of groundnut and ground oil computed over daily average prices. The loss of value of data has also been shown both in case of groundnut and groundnut oils prices. The magnitude of the loss of value of data would suggest one of the major information imperfections. This
would also suggest the intensity of intra-month fluctuations compounded to the 12 months of a year. As is clear from the table, the loss of value of data is not uniform for groundnut and groundnut oil prices. This would imply that there is no integrated movements between the prices of groundnut and groundnut oil as revealed by a number of empirical studies.
<section>Market imperfections</section>
The source of price hike and price fluctuations lies in the supply uncertainties as well as imperfections of marketing. In turn, supply uncertainties arise broadly due to cultural practices of price-related incentives/disincentives. The production behaviour of oilseeds is dependent on both, acreage and non-acreage factors such as rainfall (or irrigation during growing season), use of fertilisers and pesticides, availability of quality (or improved) seeds and the subsidy programmes, price behaviour, etc. (In India more than 90 per cent of the area under oilseeds depends on rain-fed irrigation). The farmer's response to acreage allocation of oilseeds is dependent on the relative farm price and other non-acreage factors including the yield rate. However, the continued dependence on non-acreage factors indicates the influence of institutional and technological rigidities. While the harvest time price of oilseeds is a function of the wholesale prices of edible oils, an increase
in the wholesale price was associated with less than proportionate increase in farm harvest and retail prices.4 This suggestions an unwarranted appropriation of the share in consumer rupee by the intermediaries, in this case the traders and millers. Further, it was studied that for a given increase in wholesale price the increase in farm harvest price was much smaller than the increase in retailprice5 indicating more disadvantageous distribution towards producers of oilseeds than the consumers of edible oils. In India, there is strong tendency of traders/millers of oilseeds/edible oils getting united to form collusory oligopolistic markets to raise or manipulate prices in order to appropriate the maximum share of the consumer rupee. The speculative nature of the oilseeds market helps them carry out this goal. Since the consumer price has implications for the popular vote, it s likely that the tendency of appropriation is more towards the farmers' share than that of the
consumers. To that extent, the less numerous producers are reduced to the stage of price takers than price givers/bargainers. This in turn, forms a disincentive for cultivation of oilseeds crops.
Table 5: Fluctuations in the Prices of Groundnut and Groundnut Oil (Rajkot Market)
(Percentage)
Year
Fluctions in the Prices of
Loss of Value of Data
Groundnut
Groundnutoil
Groundnut
Groundnutoil
Source: Economic Times for price data
An examination of edible oil prices and oilseed prices would reveal that there does not seem to be any parity between them. This clearly hints at imperfections in marketing and the prevalence of dishonest trade. Most farmers have the option of selling their produce through three principal channels: directly to private traders/consumers, through regulated markets, and/or through cooperative system. A high proportion of the trade by-passes the regulated market. Small traders purchase the produce at farm gate and sell through brokers to oil millers. In many cases millers themselves engage procurers from villages. Often the prices offered in these deals would appear to be slightly higher than those at regulated market yards on account of the potential for tax evasion that these deals bear. In addition, the minimisation of transportation costs and time would prompt the farmers to dispose off the produce at the farm level. Millers/traders ocassionally engage in money lending for
cultivation purposes and in lieu would demand the sales of the produce to their parties. Since a decade or so, because of the efforts made by the NDDB, cooperatives have emerged as strong players in the trade. Farmers exercise the option of selling the produce through cooperative societies. In Rajkot a certain practice known as pooling system is in prevalence. Under this system the farmer retains the option of final sale through cooperative units. The produce supplied by the farmers is sold only at the market price at any time decided by the farmers. However, the procurement levels of these organisations would be constrained by the available storage facilities, lack of parities on account of the fact that cooperatives do not engage themselves in tax evasion and adulteration, nor deviate from the prices announced before harvest, etc.
With the easing of restrictions on cash crop cultivation as a part of the `Grow More Food Campaign' in the fifties, groundnut acreage rose at a fast rate. Particularly, in Saurashtra region of Gujarat State, five districts, namely, Amreli,Bhavnagar, Jamnagar, Junagadh and Rajkot have specialised in groundnut cultivation. With the growth in groundnut acreage, number of oil mills also has gone up. Over the years millers and traders have become economically powerful through engaging themselves in speculation activities, creating artificial scarcities to rig prices, purchasing oilseeds from farmers at low prices through information manipulation etc.6
Through effective communication in newspapers and posting notices at the market yards on the overall crop size, storing capacity, price behaviour etc., farmers' selling pattern is effectively influenced by the millers/traders. Thus, having ensured purchase of oilseeds at low prices, they would again resort to the media for maximum realisation on the finished commodity. The absence of a better estimate of the crop size would help them in running a parallel economy. Parities between seed prices and oil prices have been managed through the appropriate use of 'number one', 'number two' and `number three' accounts; and the options of marketing illegally blended two-three-five or two-five-eight; (the former notation implying the amount of castor, mustard and imported palmolein in kgs. mixed in a 15 kg. groundnut oil tin, while the latter being the composition of cottonseed, mustard and groundnut oils, respectively, in a 15 kg. groundnut oil tin). Further, evading taxes, and
stealing power also helps them in managing parities. In addition to adulteration and tax evasion trading in illegal speculation insulates them from fluctuations in prices arising out of supply uncertainties. Speculation in oil business became very strong with Rajkot and Dhoraji being two important nerve centres. Speculation or illegal satta continued on even after 1965 when forward trading was banned by the government. This activity prospered in the mid-seventies when large scale exports of groundnut oilcakes and HPS groundnut took place from the region. This led to the establishment of solvent extraction plants in Saurashtra and also vanaspati plants. Most of these plants were attached to oil mills. Several investigators have presented the functioning of illegal satta in groundnut oil.7 It is important to note that a small fraction of the well off farming community has also been engaged in speculation activities. The "jangad" method of purchases by the oil mill may have
prompted these farmers into speculative trade.8 This method is similar to the pooling system of cooperatives mentioned above with an additional provison that the produce of the farmer is crushed and sold at the convenience of the miller but the deal is settled at the ruling market price selected by the farmer. This form of transactions would help tax evasion. Packing in old used tins, crushing and marketing during peak season and locking out during lean season, engaging only casual labour at relatively low wages, operating in unhieginic environment, etc., have been the other means of cutting costs by the millers. Nexus between politicians and the Telia Rajas plays an important role in safeguarding the power structure of private oil mills and trade and their brotherhood.
Brokers and commission agents play a very significant role in oilseeds and edible oil trade. The transactions between producer of the oilseeds and purchaser of the oilseeds, between purchaser of the oilseeds and oil miller, and between oil miller and wholesaler are largely carried out through brokers or commission agents. As the information on supply, demand, and price is highly imperfect, brokers are expected to assimilate information and gather the interest groups together in lieu of a certain charge or commission. But, in case of oilseeds and edible oils, brokers appear to be the price givers. The interaction of supply and demand is determined by the broker based on his knowledge. His knowledge claims, trustworthiness and the possibility of collusion cannot be ruled out. Further, quite a few brokers/commission agents do trade in the commodity, which certainly influences their role as moderators.
In important market centres like Bombay, Madras, and Rajkot brokers along with a few millers and dealers have formed associations/oil exchanges and registered themselves with Forward Markets Commission, primarily for future trading in castor seed. More than 50 per cent of the membership is normally owned by the brokers. Largely the activities carried out in these exchanges are far from being transperent. A detailed study has been conducted on the role of oil exchanges and market yards in the sector.9 In addition to the moderating role, oil exchanges, particularly the one at Bombay, provide price quotations for publication to the press. The way in which these prices are collected and the volume of trade on which the prices are based would suggest that they are not representative of the market sentiment. As the prices quoted by the oil exchange at Bombay influences the price trend in all the leading markets in the country, the few members of the exchange could dictate the
movements in supply and demand. The irrelevance of the prices quoted may be best explained by the classic example of `karad bold' variety of groundnut. Although this variety is no more existent in the country, until recently the exchange quoted its price. Either this action is an outcome of the routine nature of their task or some signals have been sent to some unknown players in the game! It has been suggest by the BODE that `karad bold' in a hypothetical base price used to arbitrate in cases of disputes.
On the other hand, Agricultural Produce Marketing Committees (APMC) were set up by the law to provide for 'fair trading practices'. The apex body of these committees will have around 15 representatives from farming community, brokers and other related bodies. Although they provide certain security to the farmers in the form of settlement of disputes, opportunity to withhold the produce in their storage facilities, etc., only between 10 to 15 per cent of the total oilseed production arrives at the market yards. The price support operations that are implemented only at APMCs have no meaning for oilseed growers because the announced support price has usually been much lower than the ruling harvest price in any given year as shown in Table 4. APMCs provide data on price and supply of oilseeds to the press as well as to the government agencies. The price trends based on the price of 10 to 15 per cent production would lead to gross approximation errors. While the practice of
open auction bears scope for forming cartels of brokers and traders/millers, provisions like keeping the sale pending and resale of the commodity within the premises of APMC helps tax evasion.
<section>Policy imperfections</section>
It has been observed that differential tax structure across states/union territories has led to massive evasion of taxes on edible oil trade through inter-state trespassing. Oils are sent on consignments to the states where taxes on the sale of edible oils are lower than the originating areas. The practice of transporting more quantity on permit for a single load would add to the gains. In several states/union territories on account of promoting industrialisation tax waivers are used for a certain period of initial years. This provision has been comfortably used by the private trade to evade taxes in the form of re-registering the company under another name immediately after the waiver period is over. Uniformal tax policy across all the states/union territories would have checked this particular type of tax evasion.
Blending of oils had been banned by the Government of India. Even more importantly, vanaspati industry is not allowed the use of groundnut and mustard oils in the manufacture of vanaspati, while the use of other oils including imported oils has been permitted. This policy decision has two interesting consequences. First, it has generated a comparative edge for those traders who adulterate preferred oils with cheap oils or even non-edible oils over cooperative units who would not deviate from the government ban on blending of oils. Second, the inter-temporal and inter-spatial imbalances in the supply of edible oilseeds could not be resolved. For example, the less risk prone crops like mustard would get a better supply response if producer prices of these crops are not severely influenced by the preferences of the consumers. Similarly, in the good crop years mustard/groundnut oils may need demand from vanaspati industry. The consumers who were used to the consumption of
vanaspati, a hydrogenated product of mixed oils, and the passive consumption of oils adulterated by private trade are not expected to find objections with the blending of edible oils. A survey conducted by NDDB reveals that about 60 per cent of the households like blended oils over preferred oils while 15 per cent were indifferent about blended oils.10
Hedging and futures trading by producers and processors facilitate better resource allocation and planning of production, sales, processing, and storage patterns. However, for the effective functioning of futures market prevalence of two conditions is necessary. First, the differences in the prices across commodity spot market should reflect only the differences in the costs accruing on account of space, time and form utilities, viz., equal minimum transfer, storage and processing costs, respectively. Second, all information on prices, demand and supply should be transparent, accessible and uniform in terms of quantity, quality, taxation, processing, etc. Instead of addressing these requirements the government has banned futures trading in edible oilseeds which has resulted in formation of illegal forward markets in many important trade centres like Rajkot, Jamnagar, Adoni, etc. In the absence of near perfect spot markets and near perfect information futures trade would
only lead to inefficient gamble on the prices of the commodity. Further, the failure to have an authorised moderator would potentially lead to the losses of weaker players. Similarly, the failure to form an integrated forward market for the commodity would lead to region based concentration of power in the commodity.
<section>Chapter 3 - Consumption of edible oils and nutritional perspective</section>
In India the requirements of edible oils are perceived in conjunction with the relationship between growth in per capita income and growth in levels of consumption across the developed countries. Inter-country analysis shows that while the world average per capita consumption of edible oils has gone up from 9.44 kg in 1958 to 14.47 kg in 1987, USA recorded 53 per cent growth at 39.72 kg and Japan recorded 248 per cent growth at 19.84 kg per capita in 1987. These are, in reality, the rate of disappearance of edible oils. In comparison with these rates India's performance of only 21 per cent growth (from 5.62 kg in 1958 to 6.8 kg in 1987) in per capita consumption of edibl oils has been wrongly perceived as edible oil deficiency.11 In addition, wide disparities have been observed in consumption across various economic, spatial and rural/urban groups. Table 6 summarises the skewness in consumption. Skewness is defined as the departure from symmetry. Analysis of the 28th round
(1973-74) of NSS on consumer expenditure shows that the consumption of edible oil was highly skewed in favour of higher expenditure groups. The coefficients of skewness for rural and urban areas for the economic groups are 1.1 and 1.42, respectively. However, the consumption across the states/Union Territories in comparison is relatively moderately skewed, in favour of those who consume more, at 0.4 for rural areas and at 0.31 for urban areas. Coefficient of skewness explains the magnitude of skewness and its sign specifies the direction. Normally it ranges from -3 to +3. The observations are weighted to the sample size for computing the coefficient. Skewness in the consumption of edible oil during 1986-87 across the expenditure groups as well as the states/Union Territories has increased over 1973-74. As against 1973-74 the coefficients of skewness across the spatial groups is now 0.99 for rural and 1.19 for urban areas. With regard to the skewness across the economic
groups the coefficients now stand at 1.2 and 1.49 respectively, for rural and urban areas.
Table 6: Skewness in Consumption*
Consumption expenditure across (rural/urban)
Arithmetic mean
Coeff. of skewness
Arithmetic mean
Coeff. Of skewness
Economic groups (r)
Economic groups (u)
Spacial groups (r)
Spacial groups (u)
Source: 28th round of NSS (1973-74), "Tables on Consumer Expenditure", and 42nd round of NSS (1986-87), published in Sarvekshana, April-June, 1990.
* Vanaspati, mustard oil, coconut oil, gingili oil, groundnut oil, linseed oil, refined oil, other edible oils and oilseeds.
The cross-sectional income data of NCAER's Market Information Survey of Households, 1987-88, shows that the households under Rs. 11,000/- income per annum category (which accounts for 61 per cent of the total population) could purchase only 17.4 kg of edible oil (excluding vanaspati) per household for the year. Consumption of vanaspati had also recorded skewness. The consumption of vanaspati (Table 7) was 48.79 and 34.16 per cent of the urban and rural households, respectively. Of the total consumer strength 27.32 per cent hail from urban areas. These households consumed 34.93 per cent of total quantity of vanaspati produced in the country. The per household consumption of vanaspati was 14.07 and 10.36 kg, for urban and rural areas, respectively. Skewness across the spatial groups was quite significant. Table 8 shows that with 2.41 and 15.9 per cent of the population of Punjab and UP, respectively, consumed 9.89 and 32.81 per cent of the total quantity of vanaspati produced
in the country. These figures for Bihar and MP, relatively poor states, were 7.71 and 8.4, and 7.34 and 7.99, respectively. Since vanaspati is a predominantly North Indian commodity only North Indian states are taken for comparison. The per household consumption significantly declines as one moves from Punjab to Bihar. Rajasthan, Punjab and UP together have consumed about 51 per cent of the total vanaspati produced in the year. The share in the consumption of vanaspati by various economic groups has been worked out in Table 9. Households earning an income upto Rs. 11,000/- per annum accounted to 61 per cent while their share in total available vanaspati was only 43.06 per cent. The per household consumption ranges from 9.76 kg for the first economic group (i.e., upto 11,000) to 20.86 kg for top economic group (i.e., above 50,000).
Table 7: Consumption of Vanaspati in Rural and Urban Areas
% households consumed
Share of the households (%)
Share in the consumption (%)
Per household consumption (kg)
Urban
Rural
Source: Market Information Survey of Households, Vanaspati, National Council of Applied Economic Research, 1988.
Table 8: Consumption of Vanaspati in Various States
State
% age of population
Share in consumption (%)
Per household consumption (kg)
Punjab
UP
MP
Bihar
Source: Market Information Survey of Households, Vanaspati, National Council of Applied Economic Research, 1988.
Table 9: Consumption of Vanaspati by Various Economic Groups
Income class (Rs)
Share of the household (%)
Share in the consumption (%)
Per household consumption (kg)
up to 11000
above 50000
Source: Market Information Survey of Households, Vanaspati, National Council of Applied Economic Research, 1988.
Perhaps, these considerations, viz., poor growth in per capita consumption and skewness in consumption, have retained the status of essential commodity to edible oils and vanaspati in the policy formulations. However, an altogether different picture emerges as one looks at the recent opinions of nutritionists on the subject.
Based on several researches across the world it has been inferred that dietary fat is the most important food item causing health hazards among affluent population. Increasing fat content in the diets of affluent people leads to coronary heart diseases (CHD) and diabetes (Type II).12 The steady expansion of middle and affluent classes in India since independence has brought abou a significant change in the dietary pattern. While the changes in life styles and dietary patterns during initial stages of socio-economic advancement are desirable to rectify energy deficits, the persistent growth in the fat component of the diets can lead to serious health complications. It has been observed that over the years affluent sections of the population have opted for increasing consumption of edible fats. An increasing preference for hydrogenated fats over vegetable oils by the middle class and for ghee by the most prosperous groups has also been noticed. Edible oils being hundred per
cent fats, the consequences of excessive consumption of edible oils on the health have been studied by several researchers. Gopalan (1988) felt that the CHD among affluent Indians has reached more alarming magnitude than their counterparts in the developed countries, possibly because of the dietary peculiarities which comprise reduction in the consumption of more fibrous cereals like millets, increased intake of edible fats and sugar, and an increase in the overall energy intake. These observations have been corroborated by findings of researches on Indian immigrants abroad. Based on these experiences experts are of the opinion that overall intake of fat should be restricted to levels which provide less than 20 per cent of the total calories.
Achaya has shown that practically every Indian food item including cereals contain invisible fat.13 Coarse cereals like millets contain around 6 per cent fat while fine cereals like rice and wheat contain around 3 per cent. Bengal gram contains around 5 per cent fat and eggs contain around 13.5 per cent. Taking the staple foods across ten states, Achaya has made an estimation of invisible fat content in Indian diets. It has been estimated that the invisible fat intake ranges from around 20 grams per day in UP and Orissa to 50 grams per day in Kerala. Adding to this, the average visible fat availability in recent years computed at 15 to 16 grams a day would keep the contribution of total fat to energy intakes at around 18 per cent in Orissa to 22 en per cent in Kerala, average being around 15 en per cent. More recent calculations indicate the invisible fat content in Indian diets at 15 en percent which would take the overall fat contribution to the total energy at 20 en
percent (Gopalan C, ibid).
On the grounds of vitamins, fats are not essential in Indian diets as vitamin A is provided by green vegetables, vitamin D is provided by the sunlight and as for vitamin E its essentiality is not yet properly understood. As regards essential fatty acids, Achaya argues that the invisible fat in Indian diet contributes around 5 to 7 en per cent of linoleic acid which is in excess to FAO/WHO recommendation of 3 en per cent. He also feels that the 0.28 en per cent of linolenic acid provided by an average Indian diet is sufficient to have a balanced ratio of n-3 (derived from linolenic) and n-6 (derived from linoleic) fatty acids. Excess linoleic acid has a potential to lower high density lipoprotein cholesterol which could lead to coronary heart disease, development of certain tumours, and suppression of immune response. Even the polyunsaturated fatty acids have been found to have questionable health properties, e.g., increased gallstones, increased serum triglycerides,
increased serum cholesterol, and decreased HDL cholesterol.
The above arguments have been acknowledged by the Indian Council of Medical Research (ICMR). In terms of nutrition, the vegetable fats necessary for a balanced diet as per the recommendations of ICMR (refer `Nutrient Requirements and Recommended Dietary Allowances for Indians', Indian Council of Medical Research, 1990) for the country as a whole comes to 3.5 MMT and 3.57 MMT for the years 1988-89 and 1989-90, respectively (Table 10). As against this, the domestic production of the vegetable oils was of the order 4.75 MMT and 4.78 MMT, respectively. In fact, the growth in the per capita consumption of edible oils by Indians cannot be attributed to growth in per capita income as over years the household budget on edible has been steadily increasing which may suggests the prevalence of low priced imported oil. A comparison of the household budget allocation on edible oil across various NSS rounds (Table 11) shows that despite the decrease in the proportion of food budget, the
expenditure on edible oil has recorded a constant increase over the period of 1972-73 to 1986-87. Given the fact that the WPI for edible oils is at no point of time more than the WPI for all commodities, the increment in the family budget on edible oils may be safely viewed as an increment in the consumption level of oil. Even a casual examination of the correlation coefficients between the availability and consumption of oils indicates that the growth in the consumption level may be ascribed to the availability of low priced imported oil. The strong and significant correlation (computed for the period 1971-72 to 1988-89) between the imported oils and per capita consumption (0.81) vis-a-vis the availability of domestic oil and per capita consumption (0.19) suggests that the availability of imported oil had a greater influence than the availability of domestic oils on the growth of per capita consumption.
Table 10: Edible Oil Requirement
(as per ICMR norms)
Year
Population (millions)
Per capita requirement
Total requirement
Domestic supply
(kg)
(MMT)
(MMT)
Source: Nutrient Requirements and Recommended Dietary Allowances for Indians, ICMR, 1990, New Delhi.
Table 11: Budget Allocation of the Households
(Percentage to total expenditure)
NSS rounds
Edible oil
Rural Food
Non- food
Edible oil
Urban food
Non- food
Source: Sarvekshana, April-June, 1989.
Another important dimension is the question of hydrogenated fats. Evidence implicating trans fatty acids as cholesterol raising substances (cis) has been reported.14 Margarine and shortenings are identified as containing trans fatty acids. Production of vanaspati converts about 50 per cent of the good unsaturated fatty acids into not so good trans fatty acids. The hydrogenation process converts naturally occurring cis fatty acids into trans fatty acids. Margarine contain about 27 per cent of trans fatty acids as against 2 to 4 per cent in butter.15 RP Mensink and MB Katan have investigated that although both cis and trans are unsaturated fatty acids, trans fatty acids affect cholesterol levels in much the same way as saturated fatty acids when compared to an oleic acid control. They found that trans fatty acids significantly raised low-density lipoprotein (LDL) cholesterol. As a result, the ratio of LDL, and high-density lipoprotein (HDL) has gone up in favour of LDL which
increases the risk for heart diseases. During the past three decades the trans fatty acids have been shown to have a serum cholesterol raising effect. Now, they have been reported also to lower the HDL cholesterol ratio. Additionally, these fatty acid isomers formed by the hydrogenation process are saturate equivalents with respect to their physical properties. In other words, consumption of vanaspati or hydrogenated fats leads to enhanced cardiovascular diseases in human beings. In response to these new data, large food corporations all over the world are highly concerned and are attempting to eliminate hydrogenated fats from their product formulations. Governments across the world have also started warning against the increasing trans fats in the diets. In fact, long ago in 1946, Gandhiji wrote in `Harijan' questioning the wisdom of manufacturing vanaspati. He felt that vanaspati would be used to adulterate ghee and that good oils would be turned into expensive and not so
good vanaspati.
Piecing together above arguments on the requirements of edible fats, it may be concluded that neither edible oils nor hydrogenated fats are essential commodities. One does not have to be alarmed by the differences between the consumption levels across the countries. Even the poor Indian diets are reasonably adequate in fat and the edible fat intake of the order observed among affluent sections are unnecessary and possibly hazardous. It is in context of the latter issue however, that dispersing the skewness in consumption needs proper attention. For some time, the Technology Mission on Oilseeds and Pulses had made some attempts to discourage excessive consumption of edible oils through advertisements in the press. This path needs to be pursued more vigourously.
<section>Chapter 4 - Major interventions in the sector: Imports</section>
Three major interventions have taken place in resolving the problems detailed in earlier chapters:
i) MASSIVE IMPORTS OF EDIBLE OILS
ii) VEGETABLE OIL PROJECT BY NATIONAL DAIRY DEVELOPMENT BOARD
iii) TECHNOLOGY MISSION FOR OILSEEDS
Imports are considered a softer option to bridge the demand-supply gap, since 1976-77. Table 12 presents the share of imports in total available oil for consumption in the country. Imports accounted for 35% of oil availability during 1987-88. However, during 1988-90 imports were slashed to the level of 9.33 per cent of the total available oil. The CIF unit value of the edible oils being much lower than the ruling domestic price in any given period, it was felt that the imports of edible oils will check the increase in the prices of domestic oils and will also bring a stabilisation in the seasonality of prices. Incorporated into an effective distribution system imported oils may be useful in correcting the skewness in consumption as well. Imported oils were by and large issued to the vanaspati industry and directly to the consumers through the public distribution system (Table 13). During the first five years (1976-81) the share of the vnasati industry in the imported oils
was quite high. It was generally felt that the vanaspati industry should be encouraged to use non-conventional/imported oils in the manufacture of vanaspati. Since 1981, the share of PDS in the use of imported oils kept on increasing. This may be due to the fact that the PDS was expected to be effective in correcting the skewness in consumption and moderate atleast the seasonal increases in prices.
Table 12: Availability of Edible Oils for Human Consumption
(`000 metric tonnes/oil year)
Year
Domestic product of edible oil
Imported oils
Total availability
Oils imported as percentage of total oils
Source: Data for 1971-72 to 1987-88 is taken from Ashok Gulati (1990). Data for 1988-89 is collected from NDDB Studies and Department of Civil Supplies, Government of India. Data for 1989-90 is taken from Economic Times, Ahmedabad, dt. 2.2.1991.
Table 13: Issue of Imported Edible Oils to Vanaspati and the PDS
(Lakh Metric Tonnes/Oil Year)
Oil Year
Oil issued to vanaspati
Oil issued to PDS
Oil Year
Oil issued to vanaspati
Oil issued to PDS
Source: The Economic Times, Bombay, dt. 1.12.1990; and Department of Civil Supplies, Government of India.
The consumer price of imported oils is fixed (after making allowance for customs duty, expenses of processing and transportation, and also some marginal surpluses to the agencies involved in PDS ) at much lower levels than the ruling prices of the domestic product. Table 14 clearly indicates that in any given oil year the issue price of imported oil to the PDS was much lower than even the minimum of the ruling market price of both the costly groundnut and relatively cheaper mustard oil sold in bulk. Even to the vanaspati industry imported oils were made available at relatively lower prices in the name of price controls. It was also believed that vanaspati industry has been given low priced imported oils ostensibly to make up for the fact that they were denied the use of groundnut and mustard oil. As shown in Table 15 imported oilswere issued to vanaspati industry at both concessional and commercial rates. However, more than 90 per cent of these oils had been supplied at
concessional rates. Only since December 1988 issue at concessional rate was withdrawn. Since vanaspati is usually sold at the prices prevailing for groundnut oil, the difference between prices of raw oils and prices of manufactured vanaspati is not expected to be as much as the difference between prices of imported oils and prices of groundnut/mustard oil whichever was cheaper. However, there is a downward trend in this difference from 1988-89.
Table 14: Issue Price of PDS Oil and the Harvest Season Market Prices of Domestic Oils
Oil year
Issue price to PDS
Min.-max. market price of
Groundnut oil (at Bombay)
Mustard oil (at Calcutta)
(Rs/metric tonnes in bulk)
Source: Reply in Loksabha dated 1.3.89, and Economic Times.
<section>Implications of issue of imports to PDS and vanaspati industry</section>
The following consequences emerge with the issue of an imported commodity at prices much lower than the domestic prices, unless balancing mechanisms are imposed.
i) depression of domestic prices of the commodity;
ii) increase in the level of per capita consumption;
iii) development of vested interests;
iv) increased foreign exchange outflow; and
v) internal generation of taxes.
The following framework is intended to explain the effect of imported oils made available for consumption through PDS and vanaspati industry on the prices of domestic oils and on the creation of undeserved profits to the interest groups. The price of oil in the open market is determined by the interaction of market demand for and supply of the local oil, and the portion of imported oil that leaks into the open market. The introduction of public distribution affects open market in two ways: i) assuming the imported oil and the domestic oil are substitutable, an increase in PDS oil will decrease the demand for local oil by the same amount, implying a decline in its price, and ii) the income of the consumers receiving the PDS oil will increase by an amount equal to the savings in their oil budget resulting from the difference between market and PDS prices for each unit of PDS oil, which increases the demand for oil. The former is the substitution effect and the latter is the
income effect, and the net effect is the market displacement effect. The net reduction in the market demand curve for local oil is determined as follows:
D = [a Qi-b Qi(P-Pi)/P];
where,
D = net shift in the demand
a = marginal rate of substitution of PDS oil for local oil
Qi= increase in PDS oil
b = marginal propensity to consume oil
P = market price of oil
Pi= issue price of PDS oil
The net result of the opposing effects is expected to be such that the reduction in open market demand because of an increase in quantity of PDS oil would be lesser than the increase in PDS oil. In other words, increased PDS oil will lead to a net increase in effective demand. Similarly, the issue of imported oils to the vanaspati industry will cut down its demand for the domestic oils.
Figure 9 captures the potential effect of imported oil distribution through the existing PDS mechanism. The values in the diagram pertain to the financial year 1987-88. In this hypothetical treatment, only groundnut and mustard oils are considered. It may be noted that groundnut and mustard oils put together accounted for 69 per cent of the total edible oil produced in the year. The price of the domestic oils is weighted by the quantities of respective oils. The domestic supply of (groundnut and mustard) oils was 2.33 MMT in the year 1987-88. Of the total 1.82 MMT imported oil, 1.15 MMT was issued to consumers through PDS. Hence, the total availability of edible oil for direct consumption was 3.48 (2.33+1.15) MMT. Using the data of NCAER's Market Information Survey of Households, 1988, it is estimated that 57.89 per cent of the imported oil issued through PDS had leaked into the open market during 1987-88. Thus, the supply of domestic oil in the open market increased,
through adulteration, by 0.67 MMT to 3 MMT. Since, in short-run the supply response to the changes in the demand is almost zero for any agricultural commodity, the supply curves in the diagram are assumed to be vertical. S1 is the supply of domestic oil, S2 is the total availability of oil which includes both domestic and PDS oils, and S3 is the total oil available in the open market which includes domestic and the PDS oil leaked into the open market. In 1987-88 imported edible oil was sold through PDS at an administered price of Rs. 13,050 per MT. The weighted average price of the domestic oil (including the leaked-in PDS oil) at which the actual transactions took place was Rs.23,080 per MT. At this price the free market was at an equilibrium where the demand curve D1 intersects the supply curve S3, and the quantity demanded was 3 MMT. Also 0.48 (1.15-0.67) MMT of imported oil was purchased by the consumers at a much lower price of Rs. 13,050 per MT. There are two possible
ways in which consumer behaviour could have been affected by the availability of low-priced oil. First, the consumers shift their demand for edible oil from open market to PDS. Second, they increase the consumption of edible oil to the extent their oil budget permits. The interaction of both the effects suggest that in the absence of public distribution, the open market would have secured an additional demand which is less than 0.48 MMT. Therefore, it is understandable that, the original demand curve for the domestic oils would have been somewhere above D1. A parallel shift in the demand curve D1 towards right will fix the equilibrium price at a point which is higher than Rs. 23,080 per MT. In Figure 9, D indicates the original (hypothetical) demand curve and Rs. 25,000 per MT as the original price. Further, the downward sloping nature of the demand curve suggests that if the PDS oil was not leaked into the open-market economy the price of the domestic oil would have been
still higher, which in the diagram works out at Rs. 30,000 per MT. In essence, what would have happened was that, given the demand curve D, the supply and demand factors would have kept the price of the commodity at Rs. 30,000 per MT. But, the leakage of the low-priced imported oil into the economy brought down the equilibrium price to Rs. 25,000 per MT. Further, the availability of oil through PDS shifted down the demand for open-market oil causing a further decline in its price. The trader can afford bringing down the price because the procurement cost of the additional quantity supplied is much lower than Rs. 23,080 per MT, somewhere between Rs. 13,050 and Rs. 23,080 assuming that the issue of PDS oil and leakage of PDS oil will take place almost simultaneously. This difference is shared by the trader on the one hand and the relevant sources of supply on the other hand. The relevant agents, including the consumers who use resale of imported oil to strengthen their
purchasing power, who supply imported oil for illicit trade as well as the traders are well-off in the deal. The losers are the domestic producers of oilseeds who are offered a much lower price in the coming years in view of the depression of oil prices, and those sections of the consumers who either due to preferences or due to non-availability of PDS oils depend on the open market for edible oils. To the extent they get adulterated oil, the consumers who consume open market oil due to preferences lose in the transaction. And the consumers who due to non-availability of PDS oil rely upon open market lose because now they are required to pay a higher price than PDS price. The lower producer price naturally forms a disincentive for the production of oilseeds. In the present analysis the total financial loss accruable to the producers of oilseeds is, equal to the rectangular area between a,b,c, and e1, which works out to Rs. 16,124 millions for one year. It may be noted that
the decline in the general price level of oils might be beneficial to the consumers of branded oils because the producers of these branded oils are also forced to bring down the prices on account of competition. This does dampen the spirit of a fair trade in the oils. However, the responsiveness of the branded oils to the movements of general price level is also dependent on their power to charge premium for purity and trustworthiness. The demand curve D2 shows the level of demand for open market oil in the absence of leakage of PDS oils. If PDS oil is not leaked into the open market the price of domestic oil may decline further. As is seen in the diagram the price now works out to be less than Rs. 22,000 per MT. In this case the loss accruable to the farmers is even more than the earlier case as the rectangular area a,b1,c1, and e1 is larger than that of a,b,c, and e1.
<section>Performance of public distribution system for edible oils</section>
PDS for edible oils had been undertaken since 1974, presumably, with a view to ensure the availability of reasonable quantity of oil at affordable prices to the needy sections of the population. PDS of edible oils as it operated in the country, may be characterised by the following features: i) unusually low prices, ii) higher allocation to surplus states (in terms of oilseed production), and iii) untimely releases. Apparently, these features led to a) increase in aggregate demand for edible oils, and b) leakage of PDS oils and consequent adulteration of domestic oils. Fluctuations in edible oil prices however remained as high as 80-100 per cent. PDS is not restricted to weaker sections whose consumption of edible oils is much lower.
<section>Spatial and temporal allocation, and leakage</section>
Unlike in other basic commodities like cereals, there are gross inequalities in the consumption expenditures on edible oils across income categories. Given this context, the provision for low priced oil either increases the aggregate demand or creates a scope for leakage of the imported oil from the intended beneficiaries who often sell it out for want of purchasing power, or both. In addition to the leakage from intended beneficiaries the leakage due to the skewed spatial and temporal allocations of PDS oils would result in adulteration of the domestic oil which brings down the producer prices as well as causes social injustice to those sections of population who rely upon free market edible oil either due to the preferences of specific oils or due to the habit of excessive use of oil. The share of PDS oils in the total oil available is 15.34 per cent for he oil rich states, Maharashtra and Gujarat (Table 16), whereas the oil poor states, Bihar, Rajasthan and UP get only
3.12 per cent of the total available oil from PDS. Excessive releases of PDS oil to the states, which have a strong oil trade, especially when these states are not deficient in oil, would only mean that the imported oils under PDS form an important constituent of the private trade. This observation gets strengthened with the fact that PDS is ineffective in dispersing the skewness in consumption, a finding which is discussed a little later. It is also observed that during 1985-89 more than 70 per cent of the PDS oil was issued during the harvesting season for groundnuts, when the markets were glutted with domestic oils (Table 17). This gives scope for adulteration of domestic oils as well as depression of its price. In case of imported oil leakage to the unintended consumers (commercial users such as hotels, and rich consumers, etc.), it results in strengthening the existing lopsided distribution. In 1986-87 almost 68 per cent of the PDS oils has been estimated to have not
reached the consumers through PDS (Table 18). Gujarat, Maharastra and West Bengal being the major centres for oil trade have recorded less than 20 per cent of the PDS oils released, as direct purchases by the consumers. In 1987-88 the leakage was estimated at 57.89 per cent for the whole country (Table 19). (The above two estimates are based on the data generated by NSS and NCAER, respectively.) While analysing NCAER data only palmolein, palm oil and rapeseed/mustard oil (under the brand name of Ganesh No.1) are considered as oils issued under PDS due to lack of data on other oils. However, the inclusion of other oils may not change the estimate significantly, as the share of other oils in the total PDS oils is meagre.
Table 16: Per Capita Availability of Oil Across States/UTs, 1985-88
(kgs/annum)
States/UTs
Domestic oils
PDS oils
Total oils
Share of PDS oils(%)
Maharashtra & Gujarat
Bihar,Rajasthan & UP
Others
All India
Source: Department of Civil Supplies, and Directorate of Economics and Statistics, Ministry of Agriculture, GOI.
Table 17: Lifting of PDS Oils Across the Seasons
(all in percentages)
Season
Oct-Feb
Mar-June
July-Sept
Total
Source: Department of Civil Supplies, Government of India. Figures in parentheses indicate quantity in metric tonnes.
Table 18: Estimated Leakage of PDS Oils, 1986-87
(metric tonnes)
State
Purchase of PDS oil by households
PDS oil lifted by states
Estimated leakage
Percentage of PDS oil leaked-out
AP
Gujarat
Karnataka
Maharashtra
Tamilnadu
West Bengal
All India
Source: 42nd round of NSS (1986-87), published in Sarvekshana, April-June, 1990, and Department of Civil Supplies,GOI.
Table 19: Estimated Leakage of PD Oils,1987-88
(metric tonnes)
State
Purchase of PDS oil by households
PDS oil lifted by states
Estimated leakage
Percentage of PDS oil leaked-out
North
East
West
South
India
Source: Department of Civil Supplies,Government of India, and the NCAER's Market Information Survey of Households, December 1988.
* North comprises Haryana, HP, J&K, MP, Punjab, UP, Chandigarh and Delhi. East comprises Assam, Bihar, Meghalaya, Orissa and WB. West comprises Gujarat, Maharashtra, Rajasthan and Goa. South comprises AP, Karnataka ,Kerala, TN and Pondicheri.
<section>Growth in Skewness</section>
The skewed allocation of PDS oils across the states/UTs might be to some extent responsible for the growth in skewness across spatial groups discussed in Chapter 3. While PDS in itself may not be responsible for this disparity, it has at least failed to disperse it. The spatial comparison of oil consumption and distribution does show substantial disparities (Table 20). The consumption figures of edible oils for all states show that Gujarat and Maharashtra have consumption levels of 8.54 and 6.13 kgs per capita which far exceed the ICMR recommended intake of 4.38 kgs per capita. Paradoxically, these two states together account for nearly 40 per cent of the total PDS oil releases in the ountry, while states such as Bihar, Orissa and UP with far lower consumption levels languish far behind accounting for only 4 per cent of the total PDS oil releases. Further, the states of Gujarat and Maharashtra are also among the leading consumers in terms of per capita PDS oils with 2.9 and
1.6 kgs., respectively, whereas the latter states reveal extremely poor consumption in terms of per capita PDS oils. Another dichotomy in the public distribution lies in its urban bias. With all India per capita consumption of edible oils at 4.06 and 6.84 kgs for rural and urban areas, respectively, public distribution reinforces this disparity by allocating more oil per head to urban areas. It may be noted that the consumption of edible oil includes only edible oil and vanaspati, and not ghee which is estimated to be at 7 lakh tons for all India.
One possible reason for the ineffectiveness of PDS in dispersing skewness is that the benefits of the PDS for edible oils are equally distributed across all the income groups of the population. Table 21 shows the percentage share of the PDS oil purchased by the households across fractile groups during 1986-87. In India, the `poorest' 40 per cent and some of the `not-so- poor' 20 per cent fall below poverty line.16 The poorest 40 per cent could obtain only 37.4 and 39.3 per cent of the total PDS sales in rural and urban India, respectively. The share of the richest 40 per cent is 43.2 and 37.4 per cent, respectively, for rural and urban areas. Further, the shares of the value of PDS sales by the fractile groups are more or less similar of the quantities, because the prices of the PDS oils were uniform across the income groups. It is clear from the table that the PDS for oils is equally accessible to the rich also and that the distribution is lop-sided more towards urban areas
than rural areas.
Table 20: Per Capita Consumption and Public Distribution of Edible Oils
State
Consumption of edible oil (kg)
Consumption of PDS oil (kg)
Distribution of PDS oil percapita (kg)
Share in total PDS oil release (%)
Rural
Urban
Total
Rural
Urban
Total
Total
AP
Assam
Bihar
Gujarat
Haryana
HP
J&K
Karnataka
Kerala
MP
Maharashtra
Orissa
Punjab
Rajashtan
Tamilnadu
Tripura
UP
WB
INDIA
Source: 42nd round of NSS (1986-87), Sarvekshana, April-June, 1990, and GOI.
Note: It may be noted that the consumption of edible oil includes only edible oil and vanaspati, and not ghee which is estimated to be at 7 lakh tonnes for all India.
Table 21: Distribution of the PDS Sale of Oils across Fractile Groups
(percentage to total sale)
Fractile
Quantity
Value
Rural
Urban
Rural
Urban
Total
Source: 42nd round (1986-87) of NSS. Taken from BS Minhas (1990).
To sum up, Achaya's (1988) study states that no health deficiency has been recorded so far on account of low levels of edible oil consumption. On the other hand, Minhas (1990) found that the benefits of the PDS for edible oils are equally distributed across all the income groups of the population. The PDS, is view of its low coverage and the distribution pattern, could not improve the consumption pattern of the poor.
Further, certain characteristic features of PDS for edible oils at it operates in the country are found to be quite harmful or the edible oil economy. First, the PDS creates scope for adulteration. Added to the unsually lower prices of PDS oils, this would lead to the depression of market prices of domestic oils and a consequent disincentive to production of oilseeds. Second, PDS for edible oils is not only ineffective in dispersing the skewness in consumption, but serves to intensify skewness in the spatial distribution. Besides, it only strengthens the per capita consumption of oils by the rich.
Piecing together the above findings one may argue that the country could now withdraw edible oils from the PDS. Or, alternatively, the targeting and sourcing of the PDS should be restructured.
<section>Impact of issuing low priced imported edible oils to vanaspati industry</section>
<section>Historical base</section>
Between September 1968 and February 1970, the GOI had exempted vanaspati factories from the requirement of industrial licence upto a capacity of one hundred metric tonnes a day. Within this short spell the industry, which could expand its units from 1 in 1930 to only 51 by September 1968, double its capacity. For about 16 years before this delicensing policy, new entry into the industry was banned and consequently entrepreneurs in this sector concentrated on establishing solvent extraction plants, cottonseed crushing units, etc. The delicensing phase then provided a logical diversification for their activities. Further, press reports on shortages played a decisive role in attracting entrepreneurs and financial institutions, each acting independently, unaware of the actions of the others. The utilisation of the large capacity in vanaspati industry posed severe problem since during the early the 70s the domestic supply of edible oils had more or less stagnated. Despite the
increasing imports of soybean oil and other fats, vanaspati industry found it difficult to obtain raw oils at economic rates. The effect of these trends may be clearly seen in Table 22.
Table 22: Production of Vanaspati and WPI of Edible Oils
Year
Production of vanaspati (MT)
WPI of edible oil (base=1970)
Source: Annual Report 1990-91, VMA, and India Data base, 1990
Out of the capacity of 16 lakh MT, vanaspati industry could utilise only 22 per cent in the year 1974. The substantial fall in output in 1973 and 1974 was attributed to the rise in raw material costs. Given this state of affairs it is to be expected that pressures were mounted on the GOI to exercise the option of imports in order to tackle the question of underutilisation of capacity in the industry on one hand and to minimise the consumption of preferred groundnut and mustard oils by vanaspati industry in order to check price rise on the other. Use of groundnut/mustard oil in the manufacture of vanaspati was banned from 1976-77 to 87-88. In place of these two major oils vanaspati industry has been using imported oils. Undoubtedly this was in the good interests of the vanaspati industry. It is now evident that the policy which ensured supply of imported oils to vanaspati industry has not been in the overall interests of the oilseed sector.
<section>Use of Imported oils by the vanaspati industry</section>
Since April 1976 imported oils have been used in vanaspati manufacture in massive proportions. Table 23 shows the use pattern of edible oils by source of origin. The proportion of imported oils in the total oils used by the vanaspati industry ranges from 50 to 88 per cent during the period 1976-77 to 1987-88. However, the vanaspati industry hasbenefited the edible oil sector by providing an outlet for minor oils. The usage of minor oils ranged from 6.29 per cent in 1979-80 to 59.11 per cent in 1989-90. The increase in the use of minor oils was largely due to the lowering down of the releases of imported oils in the later years by NDDB. The use of minor oils have been doubled in quantity since 1988-89. This phenomenal increase may show that the shortage of low cost minor oils has never been a base for issuing low cost imported oils. In addition, this sudden shift n the demand for domestic oil would result in the price hike and it did. It is quite obvious that the vanaspati
industry because of its monoply in blending oils, paid lower prices for minor oils and to that intend actually hampered the growth in the production of minor oils. The profit vanaspati industry made on account of minor oils, more or less nullifies the claims the industry makes on the development of minor oils. The trend lines shown in Figure 10 trace the period between 1986-87 and 1987-88 as the origin of the regime of reduced supply of imported oils to vanaspati industry. If vanaspati industry is considered as a provider of market for indigenous minor oils the reversal of trend in the use pattern of raw oils emerging now is in the right direction. However, the decline in the supply of imported oils would actually find justification in the non-essentiality of vanaspati. It may be said with fair amount of conviction that vanaspati is a more urban-based-rich-household/state commodity as discussed in Chapter 3. In the event of non-essentiality of the commodity vanaspati may now
be used as a source of demand for minor oils which has become possible by cutting down the supply of imported oils.
Table 23: Use of Indigenous and Imported Oils by the Vanaspati Industry
(MT)
Oil year
Imported oils
Use of Indigenous major oils
Indigenous minor oils
Total oils
Production of vanaspati (mt)
Figures in brackets indicate percentages to total oils used.
Source: Annual Reports, VMA.
<section>Price controls in vanaspati</section>
Price controls in vanaspati have generally been voluntary in nature and hence claiming this goal for the issue of imported oils at lower prices may be baseless. The main thrust of the control system in the past has been to keep down the price of vanaspati by supply of cheap imported oils as input or vanaspati manufacture and thereby to keep down prices of edible oils by diverting the demand from vanaspati industry away from indigenous oils to imported oils. Nonetheless, the market price of vanaspati has frequently been considerably higher than the controlled price (Dagli Committee on Controls and Subsidies). In fact, the expected result that the price of vanaspati would be lower than the prices of edible oils, within the country, used for direct consumption, could not be realised. With an exemption to some isolated years the weighted average price of vanaspati has been always higher than the prices of preferred edible ils like groundnut/mustard oil. This becomes more
striking if one looks nto the vanaspati price as percentage of the prices of above mentioned two oils. Further, vanaspati price as percentage of ghee price fluctuates between a narrow band of 35 to 45 which suggests that vanaspati price was keeping pace with ghee price all through. Best fit curves of vanaspati as percentage of groundnut oil, mustard oil and ghee are shown in Figure 11. With regard to groundnut oil best fit trend line is obtained in view of non-linearity of the relation. Relation between the prices of vanaspati and mustard oil tends to be uniform across the years, also both Vanaspati and mustard oil, are predominantly consumed in the same region; therefore the trend seems reasonable. However, the linear fixation of the proportion of the prices of these two commodities is now around 110 which clearly provides for the processing margins required to produce vanaspati. The similarity of the relationship prior to the use of imported oils and the later period is
disturbing. The declining trend in the vanaspati price as percentage of groundnut oil may be interpreted as preferences associated to the flavour of the latter. Consumers appear to be willing to pay more for groundnut oil. With regard to ghee, although the proportion moves within a band the linear trend shows a slight upward movement since late 70s. It seems, in view of the high prices of ghee, consumers are willing to pay a little more for vanaspati.
Despite the disappointment regarding the expected results of price controls over vanaspati one may notice a desirable trend in the vanaspati price. Table 24 shows growth of prices of vanaspati, ghee, groundnut and mustard oils in the last four decades. Vanaspati price has shown uniform growth since 1960s. This tantamounts to say that annual fluctuations in vanaspati price were relatively lower. A steady growth in the prices was the major achievement that vanaspati industry could obtain. In fact, even the seasonal fluctuations are minimal with the price of vanaspati in comparison to other edible oils and ghee. Only till August 1968 vanaspati prices fluctuated along with domestic oil prices. Another contribution the supply of imported oils to vanaspati industry demonstrated has been to keep prices of indigenous edible oils at the level where they were. If vanaspati industry was to depend totally on the indigenous market for raw material then prices of domestic oils would have
gone up. At the same time vanaspati industry could have effectively checked the price hikes of domestic oils if the price control over vanaspati had been successful.
However, the argument on the low issue price of imported oils to vanaspati industry notes that the purpose with which this option was exercised could not be realised for whatever reason it may be. Thus the failure of vanaspati industry to positively contribute to the vegetable oil economy has only harmed the industry as reflected in the current stagnation in the production.
Table 24: Growth in the Prices of Vanaspati, Ghee, GNO and MEO
% increase in the price of
50s
60s
70s
80s
Vanaspati
Ghee
GNO
MEO
<section>Benefits accrued to the vanaspati industry</section>
Gains through cost reduction
Given the fact that during the entire phase of supply of imported oils to the vanaspati industry price of vanaspati has been more or less ahead of the prices of groundnut/mustard oil, it is meaningful to assume that the cost of inputted imported oils would be of the order of the market price of groundnut/mustard oil whichever was cheaper. But as observed earlier the issue price of imported oils has been much lower than that. Nevertheless, about 75 per cent of the inputted oils was supplied through imports. The difference between issue price of imported oils and market price of groundnut/mustard oil would then form as a net gain to the vanaspati industry through cost reduction, since cost reduction has not been reflected in sale price of the output. In other words, an incentive equivalent to the gain referred above has been given to the vanaspati industry by GOI in order to achieve the levels of production the vanaspati industry actually did. As discussed above such gain to a
singular player in the commodity economy would form a strong disincentive to the farmers. If the vanaspati industry was to draw all its raw materials from indigenous markets, then the price of domestic oils would have gone up and a certain proportion of increment in the price would have percolated down to oilseed growers. This would then have helped in expansion of oilseed production. It is therefore right to term the incentive given to the vanaspati industry as the amount used by GOI against the farmers. For the last 15 years the amount used against farmers has been computed at about Rs. 3.5 thousand crores. The annual average of this amount works out to Rs. 231 crores, bulk of which goes as gain to the vanaspati industry.
Market expansion
If the vanaspati industry was required to draw its raw material exclusively from domestic market then the price of vanaspati would have gone up by at least an amount equal to the difference between the issue price of imported oils and the market price of groundnut/mustard oil. In such a situation the quantity of vanaspati demanded would have fallen . This is to say that by the supply of imported oils to the vanaspati industry at low prices the economy could check the downfall in the demand for vanaspati. In other words, the vanaspati industry could expand its market on account of the availability of low priced imported oils.
Market expansion directly benefits the industry in terms of better utilisation of the capacity and lowering of overheads per unit of production. Gauranteed supply of raw materials at low prices enabled the industry to make `high' margins even at relatively low prices of the commodity. As mentioned earlier, by 1974 the industry had suffered an acute under-utilisation of the capacity due to raw material shortages. At the same time reports of shortages of vanaspati in the press created a social dimension to the commodity. It seems the GOI felt that a certain incentive to the vanaspati industry may be imperative in order to match the supply of and demand for vanaspati. Checking the vanaspati price was not necessary because the market forces would have naturally settled the price at an affordable level since vanaspati has fairly good substitutes in the country. The second apparent goal of the policy that supply of vanaspati should be expanded to meet demand could not be justified
either on health grounds or on equity grounds. It was sheer accident that substantial number of units were established during the `free' regime of 1968-70, and they could not produce the commodity at competitive prices. It was but natural that vanaspati could not be supplied at the market price of its raw material (groundnut/mustard oil), because the quantity required of the raw material is little more than the quantity manufactured of vanaspati. If vanaspati was manufactured through indigenous minor oils alone then, naturally, price of minor oils would have shot up making it uneconomical again. The only way out was to import raw material at lower prices and expand the supply of vanaspati so that the unwisely established units would be able to better utilise the capacity. Precisely this is what happened. An uneconomic speculative investment decision, namely, expansion of vanaspati units has been ruthlessly safeguarded by the industry and the GOI at the cost of the oilseed
growers.
A function moel has been developed in the study to quantity market expansion of vanaspati on account of supply of imported oils at lower prices. Quantity demanded of vanaspati (QDVAN) as function of price of vanaspati (PVAN), price of ghee (PGHEE) and price of mustard oil (PMEO) has been estimated. The functional form of the equation is presented below:
QDVAN = 306080-34.578(PVAN)+18.957(PGHEE)+22.321(PMEO)
where,
QDVAN
quantity demanded of vanaspati;
PVAN
price of vanaspati;
PGHEE
price of ghee; and
PMEO
price of mustard expeller oil.
Although R squared equals to .81 only, the standard errors of the estimates (shown in the parentheses) are much smaller than the estimates. Data of 31 years have been treated for the function. The variable PVAN is sensitivised with the (shadow) price of vanaspati that would have been in the absence of supply of imported oils. The actual PVAN is denoted by PVAN1 and the shadow PVAN is by PVAN2. PVAN2 is computed by summating PVAN1 and the incentive per MT of production. Substituting PVAN1 and PVAN2 in the above equation would give QDVAN1 and QDVAN2, respectively. The difference between QDVAN1 and QDVAN2 forms the market expansion of vanaspati (denoted as MEVAN). In the 15 years of imported oils regime about 14 lakh MT of vanaspati could be marketed more than what they could have, if the vanaspati industry was to depend entirely on domestic market for raw material. This figure will blow up in reality with the demand from the vanaspati industry prices of groundnut/ mustard oils
would have gone up further and consequently PVAN2 moves up. The average annual expansion worked out to be around 92 thousand MT, i.e., 12 per cent of the estimated demand. In certain years the proportion of MEVAN has gone up by more than 25 per cent of QDVAN. It may be interesting to investigate the historical implications.
MEVAN is depicted graphically in Figure 12. The space between the best fit lines of QDVAN1 and QDVAN2 is the gross MEVAN. The vertical distance between two points on the graph is the annual MEVAN for the corresponding year. It is interesting to note that the trend space between both the curves is more or less equivalent to zero from 1988-89. This may be due to severe curtailment of the supply of imported oils as well as the hike in its price. The relations between MEVAN, and supply of imported oils (denoted as IMPORT) and price of imported oils (denoted as PIMPORT) are established independently with the help of following two linear equations, respectively:
MEVAN = -225090+.24083(IMPORT)+.24791(PRNVA
MEVAN = -167070-13.725(PIMPORT)+.49089(PRNVAN)
where,
PRNVAN = production of vanaspati; and
( ) => standard errors of the estimates.
The functions are modelled with R squared equals to relatively lower but significant .63 and .56, respectively. Goodness of fit is relatively lower for two reasons: i) data pertaining to only 15 years has been treated; and ii) PRNVAN has been used in place of QDVAN. The regression coefficients of IMPORT and PIMPORT show positive and negative effect, respectively, on MEVAN as expected. Since 1988-89, on the one hand supply of imports were drastically cut down and on the other hand issue price of imports has been increased. Hence, MEVAN in Figure 12 appears negligible for this period. The graphs for the above two equations are shown in Figures 13 and 14, respectively. The best fit trend curves of MEVAN show a continuous decline since a little before 1987-88 due to the reduction in IMPORT as well as increase in PIMPORT. In fact, after 1989-90 MEVAN becomes negative. The point to be noted here is that independently also these variables could have controlled the MEVAN. This
finding supports the earlier observation that issue of imports per se is not a harmful option but issue at lower prices damage the overall interests of the commodity sector.
To sum up, the vanaspati industry has benefited tremendously from the vacuous policies of the government. Huge amounts of edible oils were imported and were provided cheap to the industry leading to depressed oil prices. This in turn depressed oilseed prices for farmers. Supply of low priced imported oils to vanaspati industry did not adequately reflect in the prices of vanaspati. All through vanaspati prices remained ahead of the prices of groundnut/mustard oil. Consumption of vanaspati has shown significant skewness across economic classes, spatial groups and urban/rural areas. While failing in checking the prices and dispersing skewness the vanaspati industry has only increased its supply. This expansion also loses value because medical authorities across the world hold a negative opinion about hydrogenated vegetable fats. Hence, subsidising raw materials used in the manufacture of vanaspati was non-essential and unwarranted. But then, why for about 15 years, low priced
imported oils have been supplied to the vanaspati industry? The reason lies in the historical perspective. During the `free' regime of industrial delicensing of 1968-70 many manufacturing units were established. As it became extremely difficult to stand the competitive edible oil market the vanaspati industry was to face under-utilisation of the plant capacity and consequently a strong lobby developed in the industry and constantly strived for low cost raw material. The GOI might have then thought of aiming at two goals, viz., capacity utilisation and bridging demand-supply gap. As vanaspati does not have any quality necessary for an essential commodity, the second goal seems entirely baseless. Then the eventuality was expansion of market for vanaspati. This certainly led to better utilisation of plant capacity and increase in profits. But at what cost? Oilseed growers were disincentived by about Rs. 231 crores per annum of gain accrued to the vanaspati industry on account
of supply of low priced imported oils. Vanaspati market has been extended by about one lakh MT annually due to the use of imported oils. This is a clear case of government intervention safeguarding certain vested groups against innumerable subsistence level population. The use of edible oils by the vanaspati industry has not been more than 10 to 15 per cent of visible vegetable fats consumption of the country, however, it has consistently influenced policies of the government which affected the other 85 to 90 per cent of the trade. Such a power base of a single player in the commodity sector was certainly undesirable and has fortunately been corrected now. The decision comprising suspension of supply of imported oils at concessional rates and also reduction in quantity supplied is of course in the right direction.
<section>The net effect of import policy</section>
Apparently, the policy of imports was formulated on the basis of the Long Term Edible Oil Plan (LTEOP) prepared by the Department of Civil Supplies (DCS) in August 1978. LTEOP adopted the income elasticity of demand for edible oils estimated by National Commission on Agriculture at 0.91 as against the estimate of Planning Commission at 0.5 in making the projections for future demand.17 Similarly, the income elasticity of demand for vanaspati was estimated at 1.7.The world wide belief that increase in income level would lead to increase in per capita consumption of edible fats had strengthened these assumptions and consequently the planners estimated the per capita need for the future years at higher rates. Conveniently, import policy was perceived as a strong strategy to meet these needs. The reasons for not adopting the estimate of Planning Commission remain unsatisfactory, as around the same period Jhala estimated the income elasticity of demand for edible oils at 0.5218
and for vanaspati at 0.59.19 A most recent study by Radhakrishna and Ravi estimated the income elasticity of demand for edible oils including vanaspati at 0.56 and 0.72 for urban and rural areas, respectively 20. While the most sophisticated works mentioned above keep the estimates at much lower level the purpose of adopting high estimates by LTEOP remains doubtful. In fact, the policy which defines edible oils and vanaspati as essential commodities and at the same time adopts relatively higher elasticity estimates of the order 1.7 demonstrates ambiguity and built-in self contradiction and smells of influences by vested interests. These conceptual deficiencies led the policy on imports to result in unprecedented and unwarranted increases in consumption levels of vegetable fats and now the DCS puts the requirement of the edible oils by the end of eighth five-year plan at 7.8 kg per capita21 which is neither good for the health of the country nor economically desirable. As a
matter of fact, the Committee on `Agricultural Price Policy for Balanced Development of Agriculture' (1986) under the chairmanship of Hanumantha Rao has estimated the demand-supply gap of edible oils at a much smaller magnitude than presumed by DCS.
Having realised the incidence of adulteration on account of the private trade's involvement during the initial stages of imports regime LTEOP suggested State Trading Corporation (STC) to take over the monopoly of imports. After a decade now, in 1987, it was felt that STC had played a dominant role as a market intervener in controlling edible oil economy through the supplies of imported oils.22 Contrary to this account, as has been discussed above, massive leakages of imported oils took place all throughout the imported regime, and imported oils were sold at relatively lower prices. Several other studies have also shown the incidence of leakage and consequent adulteration .23 The supply of imported oils at lower prices had depressed the farmers' incentive to produce more as clearly seen in stagnancy of production during the entire phase of dependence on imports. In fact, LTEOP itself realised the potential dampening effect of increased imports on the indigenous production and
warned against the possibility of repeating the experiences of the imports of wheat in the distant past.
However, the reduction in the level of price fluctuations during the period between 1981-82 and 1984-85 may be attributed to import policy. The loss of this benefit during the latter years has been due to the fact that relatively better levels of domestic supply coincided with unusually high levels of imports.
<section>Chapter 5 - Major interventions in the sector: NDDB and TMO</section>
<section>Oilseeds and vegetable oil project of the NDDB</section>
The main objective of the project is restructure through cooperatives oilseeds production, processing and marketing of vegetable oils and by-products in the areas covered by the project.24 Towards achieving this end, the following sub-objectives were contemplated:
Procure and market imported as well as indigenous vegetable oils in such a way as to stabilize supplies and prices at levels which will be fair to both the oilseed growers and the consumers;
Generate the required funds from the sale of donated oils, and establish a modernised oilseed and vegetable oil industry, based on a network of oilseed growers' cooperatives; and
Devise and implement a programme which will enable oilseed growers to increase their productivity and returns.
Priority has been given to stabilisation of supply and price. To start with, control over 2 to 4 lakh metric tonnes of vegetable oils had been proposed with a final goal of 15 per cent share of the market to bring about stabilisation in the prices .
<section>Project funding</section>
Like in Operation Flood, the Vegetable Oil Project is also being funded through the monetization of gifted commodities - edible oils in this case. Initially, CLUSA (Co-operative Leagues of the United States of America) gifted about 1 lakh 60 thousand MT of refined Soya oil. Further funding for the project was made available by the CCA (Canadian Co-operative Association) through CIDA (Canadian International Development Agency) in the form of crude rapeseed oil. So far, more than two lakh metric tonnes of crude rapeseed oil has been received under the Canadian aid package. As on 31st March 1992 about 3.77 lakh metric tonnes of edible oils worth Rs. 480 crores have been received in the form of aid from CLUSA and CCA.
<section>Project implementation</section>
The Oilseed Growers' Cooperative Project (OGCP) was initiated in 1979 in the State of Gujarat with the registration of the Gujarat Oilseeds Growers Federation (GROFED). Initially, the project followed a two tier structure, with the Oilseed Growers Cooperative Societies (OGCS) being directly affiliated to the state level Federation. Since 1987, project implementation has been under the three tier structure, in order to ensure better management and better focus for implementation. Under the 3-tier structure, the OGCS are affiliated to a Regional Union covering one or more districts.
The unions own processing facilities and procure oilseeds through the growers societies, who are shareholders in the union. The Unions in turn are federated at the state level with the State Federations, whose main responsibility is to market the products of the Union.
The NDDB has been able to create a network of farmer cooperatives and farmer owned processing facilities across the country25 As of now a total of about 5 thousand village level cooperative societies covering about 28 thousand villages have been registered under this project. Membership has risen to about 800 thousand covering about 1 lakh and 8 thousand hectares of land. The following order of capacities have been generated.
Oil Milling Capacity
3255 MT/day
Solvent Extraction Capacity
2010 MT/day
Refining Capacity
738 MT/day
Oilseeds Storage
170000 MT
Oil Storage
81250 MT
Initially, the project covered only groundnut in Gujarat and soybean in Madhya Pradesh. Gradually, its coverage widened in terms of geographical as well as oilseeds coverage as shown below.
Year
State
Major Oilseeds
Gujarat
Groundnut, Mustard, Cottonseed
Madhya Pradesh
Soybean
Andhra Pradesh
Groundnut, Sunflower
Tamil Nadu
Groundnut, Sunflower
Orissa
Mustard, Nigerseed, Groundnut
Maharashtra
Groundnut, Sesame, Sunflower, Safflower
Karnataka
Groundnut, Sunflower, Safflower
Rajasthan
Mustard
Uttar Pradesh
Mustard
Planned Coverage:
Karnataka
Oil Palm
Kerala
Oil Palm
Together the cooperatives procured around six lakh metric tonnes of oilseeds during 1990-91. Of the total oilseeds procured soybean, groundnut, and mustard are of the order 52, 22 and 20 per cent, respectively. A small part of this was traded in bulk, while the rest was crushed in processing plants owned and operated by the cooperatives, as well as in custom hired units. The cooperatives also brought oil in bulk from the market to meet their operational requirements. Imported rapeseed oil and palmolein oil are also being routed to consumers through the cooperatives.
Several production enhancement activities have been taken under the project. About 2 thousand demonstration farms have been maintained. The district farms cover about 400 hectares of land. Extension facilities have been extended through demonstration at agro-economic centres across about 400 hectares. About 17 thousand metric tonnes of improved seeds and about 87 thousand quintals of fertilisers have been supplied to the farmers. About one lakh kilograms of pesticide has been supplied.
<section>Project financing</section>
Financing of project related activities are done under nine heads:
- Processing Infrastructure
- Marketing Infrastructure and Development
- Product and Process Development
- Growers Organisation & Production Enhancement
- Human Resources and Organizational Development
- Commodity Handling
- Project Management
- Share Capital Support
- Working Capital Support
Specific areas and items have been identified for implementation under each of the above heads. Implementation is done either by the Federation/Union, the NDDB or concerned third parties. The NDDB also works in concert with other organisations towards achieving the objectives of the project.
<section>Achievements</section>
Various studies have shown that there has been tangible increases in the returns to the farmers covered by the project. For example, price realisation of the producers in Gujarat during early part of the project has been relatively higher than that of the all India average. Table 25 shows groundnut prices received by the Gujarat farmer and the farmer at all India level in terms of the ratio of farm harvest price to oil price during 1978-79 to 1981-82. The seed-oil price ratio has consistently been higher in Gujarat. Similar findings were reported by Shah and Modak 26 Impact of GROFED operations on the economics of the members' groundnut enterprise has been seen in terms of price effect and the resultant output effect which has been reinforced by GROFED's technical inputs programme. Price intervention by GROFED in 1981-82 has resulted in groundnut producers of Gujarat receiving a 20 per cent higher price for their produce than they would have in the absence of such
intervention. The farmers in OGCS villages were found to be intensively using the protective and production augmenting inputs such as fertilisers, pesticides, treated seeds, etc. As a result, these farms have obtained significantly higher yields per acre in comparison with the farms of semi-controlled and controlled villages.
Table 25: Ratio of Seed-Oil Prices
Year
Farm harvest
Groundnut oil
Seed-oil
price of groundnut
price at Bombay
price ratio
All India
Gujarat
All India
Gujarat
Source: NDDB Study (unpublished).
<section>Technology mission on oilseeds</section>
The Technology Mission on Oilseeds (TMO) which has now been redesignated called as Technology Mission on Oilseeds and Pulses was launched by the Government of India in May 1986. Its basic objective was to substantially reduce the import of edible oils by the end of the Seventh Plan, i.e., by March 1990 and to ultimately achieve self-reliance during the course of the Eighth Plan.27 The Mission was necessitated on account of the fact that, after petroleum products, edible oils accounted for the largest drain on India's foreign exchange resources, as mentioned earlier. In fact, during the period 1981-86, the country imported Rs. 3,884 crores worth of edible oils. Clearly, such a heavy outflow of foreign exchange could not be expected to continue without serious consequences for the economy, considering that the consumption of edible oils grew by approximately 4 per cent compound per annum.
The TMO has four micro-missions:
Micro-mission I for crop production technology.
Micro-mission II for post-harvest technology.
Micro-mission III for input and service support.
Micro-mission IV for price support, storage, processing and marketing.
The first micro-mission deals with the improvement of oilseed crop production technology. The Indian Council of Agricultural Research (ICAR) has been developing short-term, medium-term and long-term plans for improving the yields of various oilseeds in collaboration with international research institutions like ICRISAT. With the expertise from State Agricultural Universities and a host of specialised research institutions on crops like groundnut, mustard and soybean, ICAR has prepared detailed research programmes for evolving new high yielding indigenous varieties for different agro-climatic regions of the country.
The second micro-mission deals with post-harvest and processing technology under the leadership of the Council of Scientific and Industrial Research (CSIR). It aims at:
- developing modern integrated processing technology
- stepping up oil extraction from oilcakes, and
- improving traditional oil ghanis.
In the field of storage and handling, the CSIR would provide modern technology to evolve standard designs for storage to extend shelf-life and to improve efficiency of extraction, packaging and marketing of oils.
The third micro-mission under the leadership of the Department of Agriculture & Cooperation (DAC) deals with the transfer of technology and farmer support system. This Department has undertaken a Rs. 170-crore National Oilseeds Development Project, (NODP) in 180 districts located in 17 States, to step up various services to the farmer. These services include distribution of seeds, fertilisers and bio-fertilisers, pesticides, implements and credit. The project also finances demonstrations on large plots of the order 50 hectares so that the farmers could learn a location-specific technology for increasing the yields. A host of projects established under ICAR like Operation Research Project, National Demonstrations and Krishi Vigyan Kendras also join in the demonstration of improved technology.
Since four oilseed crops, namely, groundnut, mustard, soybean and sunflower contribute about 85% of the total oilseeds production a scheme called Oilseed Production Thrust Project (OPTP) was initiated in 1987-88 to accelerate the production of these major crops. The project provides 100 per cent Government of India assistance to the States in order to strengthen the key components such as seed production, plant protection, demonstration, proper application of inputs and market support.A total of 246 districts in 17 States, including 151 NODP districts, have been included in this project. NODP and OPTP has since been merged into Oilseed Production Programme (OPP).The fourth micro-mission deals with the support to farmers in terms of incentive prices and support to industry in cooperative as well as private sector for processing, storage and marketing.
<section>Achievements</section>
As many as 40 new varieties of different oilseed crops have been developed, the yield potential of most of which being four times the national average under research farm conditions and at least twice the national average under normal farm conditions. The production of breeder seeds has taken a quantum jump by 193 per cent from 2762 quintals in 1985-86 during the first three years of the Mission. During the year 1988-89, the CSIR has developed batch type processes for rice bran stabilisation and sunflower decortication, and improved expellers.
The most important achievement of TMO has been the initiation of Integrated Policy on Oilseeds (IPO) and the consequent Market Intervention Operation (MIO) which has formed in itself the most effective intervention in the sector.
<section>Integrated policy on oilseeds</section>
The Technology Mission on Oilseeds (TMO), realising that the main evil of the oil economy was lack of an integrated approach for development as different Ministries and Departments decided upon different parts of the sector, recommended in 1988 to the Government, an Integrated Policy on Oilseeds Production, Import, Distribution and Pricing for accelerating self-reliance. A market intervention was felt necessary. Acting upon the recommendation, Planning Commission decided to set up a working group to prepare a proposal for market intervention in edible oil/oilseeds. The Department of Agriculture after a significant amount of study prepared a proposal on `Integrated Policy on Oilseeds Production, Import, Distribution and Pricing for Accelerating Self-reliance' and submitted it to the Cabinet Committee on Economic Affairs (CCEA) in July 1988. The following were the main features of the proposal.
An Empowered Committee will be set up whose terms of references will be to review the following matters and to give decisions for accelerating self-reliance in edible oils:
i to review the policies governing the production of oilseeds and edible oils;
ii to review factors governing demand for oilseeds and edible oils;
iii to recommend to government an annual edible oil plan, including import of edible oils, for containing the prices of edible oils within the band of prices recommended by the chief economic advisor;
iv to review the prices of edible oil supplied through the public distribution system;
v to lay down guidelines for market intervention by the National Dairy Development Board; and
vi to take such other decisions as may be necessary for management of the edible oil sector taking into account the interests of the producers, consumers and the economy.
The chief economic adviser would propose a band of prices annually to the Empowered Committee in July i.e. 3 months in advance of the start of the oil year. The Empowered Committee would make appropriate recommendations to the government on the basis of which the management of oil economy including imports, would be finalised.
The Department of Agriculture and Cooperation (DAC) would be responsible for overall management of the oilseeds and oil economy, for maintaining the consumer prices within the price band through a strategy approved by the Empowered Committee. The PDS system for reaching the edible oil to the consumers will continue to be under the Department of Civil Supplies. The import of edible oil will continue to be with the Ministry of Commerce and STC, except the quantities allotted to NDDB.
The NDDB would be responsible, under the supervision of DAC, for building up a market intervention stock through imports and procurement of domestic oilseeds/oils; and for this purpose NDDB will either be allowed to import 20% of the total sanctioned imports of edible oil in any year or would be given a grant of Rs. 20-30 crores, as may be necessary. In the latter case, STC would make available the oil that NDDB may require. The modalities for such market intervention policy would be submitted to the Empowered Committee by a group appointed by the Ministry of Agriculture.
As a result of these proposals, in January 1989, the Government announced an "Integrated Policy on Oilseed " (IPO)" with the following 5 important elements:
i Support to farmers with technology, inputs, etc to increase productivity;
ii Review of PDS prices and issue prices to vanaspati industry. Imported oils would be supplied at a price not below the cost of production of domestic oil. PDS oils would be released at reasonable prices without detriment to the legitimate interests of farmers;
iii Fixation of a price band;
iv Appointment of NDDB as the Market Intervention Agency (MIA); and
v An Empowered Committee headed by the Cabinet Secretary to monitor the implementation of the Integrated Policy.
<section>Market intervention operation</section>
The prime focus of the Integrated Policy on Oilseeds as its full name suggests, was to accelerate self-reliance in edible oils. This was sought to be achieved by moving away from managing the edible oil deficits by imports and it's distribution at low prices, to taking steps that would boost domestic production. The MIO was required to establish, as the fundamental precondition for increased production, an incentive market price for the farmer, which was notably absent during all these years. Moreover the prices were to be established at levels at which the trade does not make huge profits at the cost of the producers or consumers, as a planned growth in oilseeds production can only be effected under stable market conditions. The GOI, therefore, agreed to implement what the NDDB proposed in 1977, that with a 15 per cent share, the edible oil market could be effectively stabilised.
<section>Objectives</section>
On 6th April 1989, GOI appointed NDDB to be the agency to carry out the Market Intervention Operation for an initial period of five years as per the objectives, guidelines, terms and conditions as well as the percentage for monitoring of such Market Intervention Operation as laid down by the government. The objectives of Market Intervention Operation have been defined as under:
i to establish wholesale prices of edible oils within the specified lower and upper limits of the price band to be specified by the Empowered Committee from time to time;
ii to channelise imported oil, other than that to be released by Department of Civil Supplies through the PDS, into the market (including vanaspati industry) in such a manner as to achieve objective (i);
iii to buy, stock and sell oilseeds and oils in order to achieve objective (i);
iv to build up stocks during years of surplus production so as to tide over the need for heavy imports during years of lean production; and
v to put the edible oil and oilseeds market on a healthy and stable basis minimising speculation and hoarding.
<section>Criteria for fixing price band</section>
The price band was to be determined keeping in view the following considerations.
- the interest of both producer and the consumer to be protected
- the relative prices of edible oils (and the associate oilseed prices) vis-a-vis the prices of other competing crops like cereals (wheat and rice)
- a risk premium for the farmers in view of the high production instability of these crops
- large gap between the central issue price of PDS and the open market prices
- issue price for the vanaspati industry
Based on the above considerations the price band for groundnut and mustard oils were prescribed by the government of India to ensure incentive prices for farmers and reasonable prices for consumers for oil year (Nov.-Oct.) 1988-89 as follows.
groundnut oil
Rs.
mustard oil
Rs.
The lower limit of the price band corresponds to the minimum incentive prices to be assured to the farmer.
<section>Implications of MIO type intervention</section>
The NDDB as the Market Intervention Agency (MIA) engages Oilseed Growers' Federations/ Unions or the Marketing Federations in different states as Associate Agencies (AA) to procure/buy and store the oilseeds/oils, and sell the oil in the open market as per its instructions.
The theoretical implications of such an open market sale on the prices are well analysed by various researchers. For a given level of imports, domestic production, and income, it is always possible to raise or lower the market price of the commodity by changing the proportions of public stock allocated to the open market and to PDS. It is observed that the harvest prices can be raised and peak season prices lowered by procurement and open market sales without affecting the annual average price.28
For a given drop in the prices of commodities like food grains and edible oils, consumption levels of the poor increase faster than those of the rich, suggesting that in some cases open market sale of these commodities from public stocks would be desirable for the rural poor. Such sales might best be restricted to the lean months of the crop season, and could probably be conducted with a feasible stock level. However, the percentage change in the market price resulting from such policy decisions is dependent on the production level. The effect is larger in the bad crop year (low level of availability) than in the good crop year, mainly because of the deference in the income effects from rationing. In general, the primary policy challenge in a bad crop year is to prevent the market price from rising and the consumption level from falling, while in good crop year the main problem is to prevent prices from falling. Maintaining adequate imports to support consumption in a bad
crop year is extremely difficult. Likewise, cutting imports drastically during good crop year is difficult to achieve because of rationing obligations. This makes clear the damage that rationing stand alone could potentially cause to the question of price regulation. Pressure to increase ration distribution through a larger and expanded coverage has been intense in bad crop years, when the gap between market and ration prices widens. Effective open market sales would reduce this pressure by depressing market prices. However, if the open market sale of the kind the Dairy Board undertakes is used as a continuing policy tool, and if oil imports are able to meet all shortfalls in production on a static per capita basis, gross internal procurement could be quite heavy even in a bad crop year. If a large portion of the imported oils is channelled through the open market, imports will lower the market prices more sharply than would an equivalent increase in domestic production.
Counteracting such a fall in the market prices would require substantial internal procurement, even in a bad crop year. If such buffer-stocking operations, inclusive of both imported oil and domestically procured oil, attain a certain proportion (say 15-20 per cent) of the total market for oils, the wholesale prices may well be made stable effectively. In fact, the conceptual base of MIO suggests that with lesser quantities of imported oils the required level of stabilisation in the prices may be achieved through an MIO sort of operation than the PDS kind of mechanism. As the intermediaries' role in the wholesale price fixation is marginalised by such market intervention, there is a strong likelihood of equal proportional change in farm harvest price of oilseeds and retail price of oils with a change in the wholesale price.
However, a couple of adjustments in the whole mechanism may be necessary to safeguard the interests of the consumers as well as the farmers. As the chain between wholesale market and retail market is not free from imperfections, the consumer price may not reflect the moderated wholesale price until and unless the consumer or retail market is also intervened. Introduction of direct consumer sales in the form of consumer packs in the open market is a very potent force in regulating the consumer prices. In brief, intervention in the wholesale market is a necessary condition but not sufficient condition. In order to ensure the required levels of consumption through the price regulations, it is necessary to encourage open market sale in both the wholesale and retail market. Similarly, a certain amount of flexibility on the question of blending of oils is necessary. Since short-run supply response of oilseeds is almost zero and also since the conditions necessary for the
cultivation of oilseeds are not within control, farm enterprise is prone to cultivate certain types of oilseeds during certain periods, which may not be consistent with the demand. Further, the yield rate of certain oilseeds, for example mustard/rapeseed, is quite high than groundnut while the production incentives could be more or less same. In such cases acreage shifts will take place in mere enterprising spirit although the demand side factors are quite powerful to ruin this spirit. In order to safeguard the enterprising spirit in the farmers and also to achieve the national goal of self-sufficiency, a market intervention has to ensure that the farmers get remunerative prices, even for the oilseeds which are produced more than the demand. This is possible through blending. Blending of oils ensures that the economy is not exploited by the growers of scarce oilseeds and at the same time the economy does not exploit the growers of surplus oilseeds. As observed earlier, the
use of vanaspati, which is a product of blended oils, and also the passive use of major oils adulterated with cheap imported oils, it is better to permit blending of edible oils as is practised all over the World.
Thus, there is ample scope for increasing the farmers' income and reducing the consumers' burden by regulating the prices through the promotion of vertical integration of production, processing and marketing of oilseeds and edible oils,29 which is an additional quality of the market intervention by the NDDB. The intervention, of vertically integrated cooperative structure of the NDDB type, in both the wholesale and retail markets of oilseeds and edible oils could be effective in improving the production incentives and consumer surplus by reducing intermediaries' margins.30
<section>Progress of MIO</section>
Prior to the issue of the formal order on April 6, 1989, the NDDB began a limited intervention in November 1988 when due to the bumper harvest in groundnut, market yards in Saurashtra started advertising in the press advising the farmers not to bring their produce to market yards. The NDDB encouraged Gujarat Cooperative Oilseeds Growers Federation (GROFED) to pick up as much groundnut as possible and also intervened to buy oils from the trade as a result of which the downward trend of oil prices was effectively arrested. Immediately, the NDDB began purchasing groundnut oil in Bombay quickly holding prices at the lower band of Rs. 20,000 per MT by mid April' 89 in Bombay. The higher oil prices were soon reflected in the prices at production centers as well, resulting in greater support to farmers. The groundnut prices in Rajkot quickly rose to over Rs. 650 per quintal from around Rs. 500 per quintal. Moreover the groundnut prices remained firm at levels over Rs. 600 per
quintal throughout the rabi harvest season (rabi/summer groundnut crop was estimated to be 24 lakh tonnes out of 96 lakh tonnes of overall production) in the southern groundnut producing centres thus helping the southern farmers. It started procuring mustard oil from March 1989 when prices of mustard oil had crashed in Southern Rajasthan and North Gujarat. There was speculation amongst the trade that mustard seed prices would touch support price level of Rs. 460 per quintal, owing to an all time high mustard production. The mustard expeller oil prices were ruling around Rs. 14,000/ per MT. The NDDB immediately intervened in the market by buying mustard oil and encouraged cooperatives to procure a sizable quantity of mustard seeds. The impact of intervention was quickly reflected in high mustard seed prices which firmed up around Rs. 560 per quintal during the third week of April, the peak arrival period. However it was only in August 89, that the minimum of the price band
for mustard oil Rs. 17,000/- per MT was reached. The major limitation was the lack of storage facilities in the northern mustard producing states. The intervention operation obviated the need for greater procurement effort by NAFED which procured only 70 MT at support prices of mustard seeds as farmers realised nearly 20-25% more than the support prices. In fact one can argue that it was because of market intervention operation the farmers' interest was protected even during a year of bumper harvest leading to the mustard revolution in the country.
Price band fixed for 1989-90 was Rs. 22,000 - 28,000/- for groundnut oil and for mustard oil the band fixed for the previous year continued. However, since groundnut production in Gujarat had fallen considerably due to unfavorable weather, the prices rose sharply especially during the off-season period. As for 1989-90 the official estimates put edible oil deficit at around 1 MMT against which imports were only 0.37 MMT and since the NDDB did not get the promised 0.15 MMT of imported oil, the price stabilisation operations were bound to be affected. During 1990-91 official sources estimated oil deficit around 1.3 MMT of oil as the Saurashtra groundnut crop had again failed due to scanty and ill-distributed rains. Imports of oil increased to about 0.6 MMT but was still short of the deficit. The NDDB did not once again get its allocation of 0.15 MMT. Also the MIO which was to be undertaken at borrowings @ 14 per cent rate of interest had actually started at 15 per cent and at
the beginning of 1990-91 crop year, it was raised to 16 per cent) and by the end of the crop year it went up to over 20. This meant another Rs. 30 crores extra burden on the MIO.
Thus, because of the non-fulfillment of certain conditions of the MIO and limited imports due to foreign exchange crunch, the objective of keeping prices within a price-band met with partial success but looking at some of the beneficial effects of the MIO it could be said to be a great success especially for the poor and disadvantaged oilseeds growers.
<section>Achievements</section>
In 1988 the NDDB entered the consumer market for edible oils with the launching of DHARA. Dhara is a virtual revolution in the marketing of packed oils. For the first time, edible oil was made available to the consumers in tamper proof tetrapacks and Jerry cans, at equitable prices. Starting off with imported vegetable oil (Canola), Dhara has today metamorphosised into an umbrella brand covering mustard, groundnut and sunflower. LOKDHARA, a blend of groundnut oil and palmolein oil has been recently launched. 500 ml Dhara pack in tetrahedron has also been introduced since 1991.
Dhara has today become part of marketing history, but more than anything else, Dhara is a direct link between the producer and the consumer. Dhara is part of the attempt to make available to the farmers of little known and farflung villages scattered across the countryside a ready market for their produce. Above all, Dhara ensures that the consumer gets a fair deal, and that the lion's share of the consumers rupee flows into the producers pocket.
The sales of Dhara have increased at an accelerated rate from about one thousand tonnes in 1988-89 to more than one lakh tonnes in 1991-92 as shown below.
Year
Sales of Dhara (MT)
It has made a significant impact on the edible oil marketing. Some of the well established brands of refined groundnut oil have to face effective competition now for the first time from the cooperatives. It pioneered refining of mustard oil on a big scale. Smaller packs of 200 ml. and 500 ml. have been launched. The sale of oil on volume basis (liter in place of kg.) was itself a major break through and the government has permitted marketing by volume universally in February 1992 as is the practice all over the World.
The problem of regional and seasonal balances of edible oil availability lies at the root of price stabilisation objective. In this direction, the NDDB's experience of National Milk Grid has become useful. In order to achieve these objectives Rs. 54/- crores have been invested in the National Oil Grid scheme. Storage tank farms of 1.9 lakh tonnes have been completed and more capacity (0.38 lack tonnes) is under execution. Packaging facilities for 1.7 lakh tonnes per annum have been completed and further capacity (0.36 lakh tonnes) is under execution.
The market intervention programme undertaken by the NDDB is somewhat different from such programmes elsewhere. Generally, such an agency will operate only when prices cross the lower or upper limits of the band. But NDDB's operations imply a continuous presence because it wants to provide the consumer with good quality of oil in packs which cannot be tampered, at a price which is remunerative to the farmers. The NDDB had already intervened in the oilseeds sector through the Oilseeds Growers Cooperative Project (OGCP) since 1979. These growers cooperatives differ from usual marketing cooperatives who simply help the producer to dispose off his produce but cannot influence the price prevailing in the market. However, the OGCP is an integrated cooperative system where processing and marketing of oilseeds and their products is also under the command of the farmers themselves, and it can influence the market as well. The experience of the Gujarat farmer in early 1980s and
thereafter is a case in point. The price support by the cooperatives themselves and the market intervention efforts by the NDDB both raised the prices of oilseeds. The impact of both these factors creates an externality by which others are also forced to raise the price and this is well illustrated in the market prices of groundnut and rapeseed-mustard in last few years, as shown below:
Year
Prices of groundnut
Price of mustard
(Rs./MT)
(Rs./MT)
Thus, the price received by the groundnut producers has gone up by 36 and 39 per cent in 1989-90 and 1990-91, respectively, and mustard prices have gone up by 17 and 29 per cent, respectively. It is estimated that groundnut and mustard producers together have received an additional income of Rs. 1230 crores in 1988-89, Rs. 1100 crores in 1989-90 and Rs. 2300 crores in 1990-91.31
<section>The net effect of interventions by NDDB and TMO</section>
The Integrated Policy on Oilseeds (IPO) with its main programme of MIO has been able to provide the basic economic motivation to the growers through substantially improved remunerative prices. Farmers do respond to prices provided that a comprehensive plan is made available to them. The TMO has been taking several measures in this direction since 1986. The additional incomes that have been created by MIO have clearly been reflected in the farmers' efforts to raise more and more production of oilseeds. Production of mustard and rabi groundnut has taken a quantum jump. Thus, the concerted efforts under IPO along with those of the TMO has made a break-through in oilseeds production possible. Edible oilseeds production was stagnant around 12 MMT per annum for long, which has gone up to 17 MMT per annum on an average in the last four years i.e. 1988-89 to 1991-92. It has been increased by more than 40 per cent within a short span of time. The most noteworthy point of this
progress is that except for 1988-89 the average production of 17 MMT edible oilseeds per annum has been achieved under adverse weather conditions, which implies that unlike in the past the growth in productivity has also played an important role. The decline in the availability of imported oil was, thus, met by increased domestic production. Considering the recommendations of ICMR the goal of self-sufficiency in edible oil has already been reached as mentioned earlier. Market intervention through buffor-stocking operations with an additional quality of cooperative network has prevented to a large extent, the unscrupulousness of the private trade and consequently resulted in higher production. While the entire credit for growth in production and yields may not be attributable to MIO alone, there is no doubt that in checking the uncertainty arising out of information, market and policy imperfections mentioned earlier, in the interests of both the farmers and the consumers, MIO
has been a great success. An important point to be noted here is that the absence of growth in the production of oilseeds during the early phases of Oilseeds and Vegetable Oils Project of NDDB had been due to the large scale import of oils into the economy with its devastating effects. It is not merely a coincidence that during the period of MIO, imports have been drastically cut down.
However, due to the general rise in producer prices of edible oils during the period of MIO, unrest arose in the private trade against NDDB's intervention. The press vehemently condemned NDDB's involvement in the sector and, consequently, several state governments and so called people's movements reacted wildly. During 1989-90 the Government of Gujarat complained to GOI making four major charges against the MIO. It claimed that:
MIO did not benefit the farmers particularly small and marginal ones; NDDB failed to generate confidence among farmers who in fact think that it is in league with the traders; oilseeds and oils were purchased from the market rather than from the farmers and the purchase operations were centered in Bombay market rather than in Gujarat; and NDDB operates like a `State within a State' and refuses to disclose information about MIO.
These charges were examined by the Standing Advisory Committee (SAC) of GOI under the chairmanship of Shri Sharad Joshi in April 1990. The SAC made the following observations.
Farmers express themselves very strongly about the advantages in terms of oilseed prices on account of the MIO;
MIO is conceptually different from the support price operations (SPO) whose purpose was to ensure an incentive price to the farmer. The prices are sought to be "pushed up" through the purchase of groundnut from producers or from the market and further prices are "pulled up" by operations in edible oil markets designed to influence the oilseed market in the desired direction. Marketing operations carried out in Bombay would be perfectly justified in the light of India's experiences;
Secrecy about MIO would appear to be essential for working and is entirely consistent with the mandate of the NDDB;
Delay in authorising the NDDB to start its operations in the first year gave the MIO a difficult start. The upward movement from April to August is an annual phenomenon and complaints regarding rising oil prices due to MIO are hardly justified;
Governments should not continue to pander to the unreasonable wishes of the urban consumers if it is to the detriment of the vast majority of agricultural producers;
Oilseeds and oils are subject to number of levies and taxes such as purchase tax (4%), sales tax (4.8%), market cess (0.4%), surcharge on sales tax etc. The total of taxes on 1 kg. of groundnut oil comes to Rs. 2.80. These taxes, as a general rule,are dodged by the private traders. The Cooperatives, controlling barely 5 per cent of the trade, account for 50 per cent of tax collected by the governments. This situation puts the cooperatives in a serious handicap when they have to operate in the open market;
There were shortfalls in the quantities of imported oils to be supplied to MIO and finalization of price band was also delayed;
MIO is governed by a number of government organisations resulting in serious delays in taking vital policy decisions. It is highly desirable that all these functions be concentrated in a single authority at the centre;
Imposing formal or informal restrictions on movements of oils/oilseeds go against the efforts made under the MIO;
The philosophy of the MIO goes against protection of limited interests of all types whether regional or sectoral; and
It is desirable to make edible oils available to poorer classes at reasonable prices through the PDS but self-sufficiency in edible oils is incompatible with the type of PDS for edible oils to which the nation has become accustomed since long. The burden of the subsidy element in the PDS has to be borne by the nation as a whole and not by the oilseeds growers alone.
The Committee came to the conclusion that "since the beginning of the MIO nothing has intervened that could justify any radical revision in the MIO scheme". The committee thus gave a clean chit to the MIO and put the MIO under proper perspective. It emphasized how MIO is different as compared to the MIO in general practiced everywhere - where the authorities enter the market only when prices cross the lower or upper limit of the band and then they cease to function. Here continuous presence and furtherance of the farmers interests occupy an important place.
Inspite of the committee's observations, opposition to MIO continued, as the NDDB is perceived as an inconvenient player in the game by large sections of the trade, and some politicians who are under the influnce of Telia Rajas. Currently the prices paid to the producers seem to be attractive enough and the consumers seem to be happy at the reasonableness of the prices of Dhara packaged oils. The entire oilseed sector seems to move on the way to self-sufficiency. Oilseed economy of India is certainly not an issue that it was before the start of TMO and MIO.
<section>Chapter 6 - Need for self-reliance</section>
As mentioned earlier, the Technology Mission on Oilseeds was established in 1986 with the explicit intention of developing the edible oil sector in the country in such a manner as to make the country self-reliant in edible oils. The Technology Mission has undertaken a concerted programme of providing a comprehensive package of inputs and services to the farmers which will result in substantially improved production in the country. The Market Intervention Operations, launched under the integrated policy on oilseeds and edible oils provides the basic economic motivation to the producers through substantially improved remunerative prices. As a result, the country has witnessed sustained development in the oilseeds sector, raising the stagnant level of production to well beyond 17 MMT despite unfavourable weather in many producing areas. As a result of the price incentives received by the producers of oilseeds in many pockets large scale increases in areas under oilseeds have
occurred. A case in point is that of mustard in the western parts of the country, where the mustard crop has gained close to 3 million hactares of land largely from wheat and other rabi crops. Obviously the implications of area shifts on the overall agricultural output and resource allocation within the growing regions can be quite far reaching.
Recently, Gulati of the Institute of Economic Growth with his colleagues brought out a paper on the structure of incentives in Indian agriculture.32 This study was subsequently followed up by several other accompanying works about the level and route of farm subsidies (whether in fertilizer, irrigation, etc.) to various regions and various crops.33 Gulati and others came to the conclusion that, when viewed in the context of the international trade opportunity, it is not prudent for the country to continuously increase the area under oilseeds cultivation. This conclusion was justified by arguing that when viewed in terms of protection coefficients of various crops, significant improvement in resource allocation can result by shifting at the margin, the areas under oilseeds crops towards wheat, paddy and cotton as the oilseeds crops enjoy a much higher level of protection while wheat, paddy and cotton are not protected in the country. Perhaps consequent upon these observations
the World Bank in its 1991 Country Economic Memorandum advised India not to increase the production of oilseeds.
It is therefore of interest to examine whether self-reliance in edible oils is desirable from the long term economic interests of the country. In essence the wisdom of self-reliance in edible oils has been questioned by the arguments of Gulati and others. While these arguments were made sometime ago, no significant debate has taken place on the subject. In case any policy measures are to be formulated to reap full advantages of what the authors of the papers believe to be more efficient cropping patterns or if the existing policy measures sustaining the current growth in oilseeds sector are to be withdrawn, then the matter becomes of urgent importance. It certainly will assume great importance to the producers of oilseeds and to the industry. It is with this view that an attempt has been made to look at the need for self-reliance in the light of the arguments put forth by the scholars.
The analysis here has been divided into two parts. The first part focuses upon the methodological assumptions employed by the scholars to justify their conclusions and their validity. The second part looks at the likely consequences which the recommendations of these scholars will have on the Indian economy.
The analysis underlying the recommendation regarding effecting changes at the margin which will ensure greater production of cotton, wheat and rice and reduction in oilseeds and sugarcane use fairly old data pertaining to 1981-86 World and Indian situation. It is possible to argue that the years before that were not considered primarily because they would not lead to the inferences drawn here. For example, the prices of oilseeds are considered beyond 1981. It is to be noted that the world price of peanuts which was about $1800 per MT in 1980 (see p28, World Oilseed Situation and Outlook, March 1991) which somehow fell to $900 in 1981 further declined to $700 per MT in 1986. Also, the papers in question make no reference to the changed situation regarding cost of cultivation and productivity of oilseeds in India after the Technology Mission started functioning effectively from 1986.
While recommending that the cropping pattern in the country may be shifted to permit the country to derive full advantage of the existing world prices, it is ignored that the world prices themselves are artificial in nature. For example, a single nuclear incident in Cherobnyl, caused a four fold increase in international price of milk powder as it wiped out the surpluses. A drought in Brazil saw the soyameal prices skyrocketing a few years back. In other words, the underlying assumption that comparative advantage of producing one commodity vis-a-vis another can be computed only on the basis of world prices is faulty, as these prices themselves are artificially reached due to subsidies provided by the exporting countries to minimise their surpluses.
The papers also assume that so far as imports of commodities are concerned, the world prices can be assumed as given and India's decision to import or otherwise will have no effect on the prices. This is patently wrong. This variant of the small country arguement continues to be made while talking about import of oil, etc. The facts are that, of the total of 20 MMT of world trade in edible oil, at its peak India imported nearly 2 MMT in 1988 and as a result the prices in the world market rose very sharply. The papers ignore the fact that while a particular supplier of the commodity may enjoy comparative advantage, for whatever reasons, its capacity to produce and supply to India is severely restricted. For example, the most efficient dairy producers, viz., Newzealand and Australia together produce only one fourth of the quantity of milk which India produces and it is just 3 per cent of the total world production. Similarly, Malaysia produces 6 MMT oil of the total 60 MMT
world vegetable oil production. Therefore, to carry on analysis on comparative advantages using cost of production elsewhere can be tricky.
The papers while recommending changes in cropping pattern almost completely ignored the obvious fact of huge farm subsidies in EEC and USA. For example, the rapeseed producers in EEC get a subsidy of 60 per cent of the production cost. The question obviously is `what will happen to the comparative advantage of India if EEC and USA withdrew their farm subsidies?'. Worse still, the moment India is seen to be critically dependent on such imports, it will be forced to subsidise their production through high prices rather than their own governments doing so from their budgets.
The papers ignore the fact that energy, particularly fossil fuel is priced at myopically low value in the west. Agriculture in the west is extremely energy intensive and sustainable currently only because of the low price of energy of about $ 19-20 per barrel. It is because of the low price of this order that the fertilisers produced elsewhere are cheap. It is also because of this low price of energy that the other countries in EEC and American Continent have comparative advantage in production of many agricultural commodities. In India energy has been priced at a relatively high level. This is perhaps prudent as we certainly will be able to sustain our agriculture for a longer time, having priced energy closer to its long term value. The question then is which way would the comparative advantage shift if energy were to be priced closer to its long term opportunity cost.
Because the data in the papers has been dated, and averaged over the years. Business opportunities are based on current process and source of the conclusions drawn in these studies do not hold good at current prices.
In recommending that India should export cotton, the same variant of small country argument is used now assuming that India's larger cotton export would continue to attract good prices elsewhere. Several problems are likely to come up in expanding export of cotton. The textile industry has been arguing that India ought to export value added products such as garments using cotton. Significant employment has been generated particularly in the handloom sector using domestically produced cotton. Some perceived advantage in export of raw cotton should not allow the country to alter the existing policy of encouraging employment intensive handloom sector. Besides, cotton is competitive for India mainly because there are not only no net subsidies on cotton anywhere in the world but there are actual negative subsidies inherent in the cotton production abroad. The alleged comparative advantage will be lost the moment other cotton producers start withdrawing the disincentives to
producers in their countries.
The papers also assume that the lands under various crops are freely substitutable. Obviously, it is common knowledge that groundnut growing areas can seldom take to paddy cultivation. The substitutes for groundnut crop in most of the kharif groundnut areas are millets and pulses (not even cotton, as farmers in these regions do have large cattle-herds which need the fodder of groundnut residue). Unfortunately neither of these two crops are in fashion whether with the scientists or the economists connected with agriculture. Similarly, substitution of groundnut by wheat in kharif groundnut area is out of the question as wheat is essentially a rabi crop. Thus in arguing for changes in cropping pattern the report is relying on inadequate appreciation of the realities which shape cropping pattern in the country.
The papers assume that the wheat produced in India will be exportable to other wheat consuming countries forgetting what is demanded in the international market has been bread wheat while what India produces has been oriented towards the local consumption of chapatis. Similarly, import of European rapeseed may not be acceptable at all as what India consumes is a pungent mustard oil. The commodities necessary within the country may not be produced elsewhere (for example, pulses) and the commodities produced in the country may not be easily exportable.
In commodities like wheat and paddy, India cannot expect to be a perennial exporter as the country itself targets the need of foodgrains to be in the neighbourhood of 240 MMT by the turn of the century as against production level of 175 MMT. Often, the transport and shipping cost involved in the export and import operations of bulk commodities, particularly, when the transport is not on major shipping routes, far exceed the cost of storage and interest rates in stocking a commodity between years of surplus and deficit.
A look at the inherent but unstated motivations in the recommendations accorded would give a right picture of policy implications for the country. It so happens that livestock is one of the most vibrant growth area in agriculture. Perhaps it was not desired in the paper to even grudgingly admit the fact that India has demonstrated its comparative advantage in dairying. The Planning Commission puts the demand for milk in India at 107 MMT by the year 2010. Today the country produces about 57 MMT. To increase the milk production to the desired level India certainly would need substantial increase in the level of production of concentrates, of which oil cakes are important ingredient. If the country has to adopt the recommendations of the papers mentioned above and does not further oilseeds production within the country, its dairy programme will soon experience a famine of oil cakes. Similarly, crop residues too became scarce in the groundnut growing areas which are also
important dairy producing areas, particularly, as cotton gives no fodder from crop residues. In other words, the sophistry contained in the papers basically would like us to unintentionally and unknowingly get in a situation of perpetual dependence on the western world. Even more importantly, what has been recommended on oilseeds is essentially a move to discourage the country from depriving the EEC and the western world their comparative advantage and the current favourable position in agricultural trade. These effects will also tend to decrease the burden of subsidy in EEC and USA. Just as an example: with the Indian export of soybean exceeding 1.5 MMT, certainly India has become an emerging threat to soya producers elsewhere. Soyameal from India is currently priced low mainly because the soybean oil attracts a good price within the country. To thwart the development of the oilseeds sector within the country, and cause India to become dependent on imported oils would
remove the advantage of soybean producers of good oil price and render the country's soybean exports uneconomic. Similarly, at 25 per cent share of World rapeseed production, India has caused an increase in rapeseed surpluses in EEC. If this was to be stopped, EEC's surplus will vanish and they would not have to subsidise their rapeseed production. Who would be the eventual importer of our surplus wheat, rice and cotton? It is inconceivable that these importers would be in the western hemisphere. Is India then encouraged to expand its agricultural trade with the Eastern Block countries whose ability to pay in hard currency is notoriously limited? The lesson of India achieving comparative advantage in milk should encourage the country to move in the same direction in other commodities.
However, it is undoubtedly true that the fiscal burden of farm subsidies particularly in fertilizer, electricity and irrigation has been growing. One cannot really dispute with the suggestion that these subsidies need to be phased out. This probably will need to be accompanied by compensatory increases in support prices of the relevant crops. The authors are on the right track in recommending reorientation and retargetting the Public Distribution System to cater only to the real poor. While this will be politically difficult, the existing urban bias of the PDS does need to be corrected particularly considering the fiscal implications of running a large PDS in the country. Similarly, the country will have to be more careful in deciding the commodities to be supplied through the PDS and avoid populism at all costs. In the long run however India must recognise that there has been no substitute to nurturing and supporting producers' cooperatives in production, processing and
marketing of every conceivable agricultural commodity if agriculture has to take off.
In conclusion, it may be emphasised again that the suggestion of the scholars for re-aligning our cropping patterns in keeping with the felt economic advantage of the day is unviable, undesirable and a recipe for chaos.
The 1991 Indian Country Economic Memorandum of the World Bank expressed concerns about `high government involvement in marketing of oilseeds' and recommended greater private sector involvement. While MIO has been perceived as high government involvement the `privately and publicly held corporations' have been perceived as `free market' forces. The actuality has been entirely different. MIO seeks to maintain producer prices for oilseeds at levels which provide the incentives to produce more and at the same time maintaining consumer interests through competitive consumer prices and quality. The backward linkages of MIO with NDDB's Oilseeds and Vegetable Oils Project which has now 13 years, history has put NDDB at a unique position to check the unscrupulousness of private trade and to ensure a fair deal to the consumer and the maximum share of the consumer rupee to the producer through vertically integrated operations of production, procurement, processing, storing and
marketing. Way back in 1981 John W Wall had felt the need of such an approach in oilseeds and vegetable oils sector.34 He had also felt that the reduction in imports below a certain level would lead to rise in vegetable oil prices higher than the overall rate of inflation but nevertheless such rise in the price is desirable to stimulate production and dampen the demand. Private sector on the other hand, as discussed in earlier chapters, would only strive to appropriate undue share in the consumer rupee through policy options like imports.
FAO also held opinions similar to the World Bank about Indian vegetable oil sector.35 It has hoped that the implementation of its recommendations would lead to `virtual unification of the Indian vegetable oil economy driven by market forces operating in a more open and competitive domestic environment with pricing structure gradually approaching those in international markets'. The report does not bring out the fact that the producers of oilseeds in India already get prices lower than their counterparts in most developed countries. The present international prices reflect edible oils surpluses in the west. Producer subsidies in these countries, if eliminated, would lead to lower production and consequent higher international prices. India has seen it happen in the dairy field. Twenty years ago India was advised not to produce milk as skim milk powder was available in the World markets at a fraction of the indigenous prices. Not having listened to that advise has been good to
the country. India is now a competitive producer of milk and milk products and Indian farmers get some 20 to 30 per cent lesser prices than the prices received by producers in the west. Further, the FAO report encourages India to produce more soya and at the same time cautions about the growing competition from other crops. Surely, that refers to mustard encroaching upon wheat. It seems, while production of soybean affects US interests production of mustard affects the rapeseed interests of EEC.
If the international trade balance is a criterion for comparative advantage, India has already seen a sustained positive balance on account of oilseeds. Table 26 presents the value of imports and exports of oilseed products over the years. It may be seen from the last column of Table 26 that the value of exports was hardly 23 per cent of the valueof imports during 1981-82 to 1987-88 on an average but in 1988-89 it rose to 55 per cent and since 1989-90 export value has exceeded import value. In 1984-85 imports were nine times over exports in monetary terms but in 1991-92 value of exports has become nine times more than value of imports. Obviously, the net export earnings would have led to improved economic efficiency of the processing sector, of the farmers and of the economy as a whole during recent years. Some of the reports and papers which have made an attempt to undermine the bold interventions by the TMO and MIO in oilseeds and vegetable oil sector may well have to
review their stand to regain credibility.
Table 26: Imports of Edible Oils and Exports of Oilcakes
(Qty: Lakh MT; Value: Rs. Crores)
Import of edible oil
Exports of oilcakes
As % age of edible oil imports
Financial year
Quantity
Value
Quantity
Value
Source: Government of India: Economic Survey, RBI Report on Currency and Finance CMIE, Economic outlook, June 1992 Oils and Fats Review, April 1992.
<section>Chapter 7 - Conclusions</section>
Several interesting findings emerged from the study. Despite one and a half decade of a host of interventions, the oilseeds sector has shown a departure from stagnancy only during the last three years. Growth in the production of oilseeds has been through seasonal and regional shifts as well as the shifts in the cropping pattern.
The oilseeds and vegetable oils sector in India has been characterised by severe imperfections in information, market and policy.
Information imperfections arise from unreliable supply estimates price behavior and the role played by the vested interests in manipulating information given to the press.
Despite the use of several methods of estimation by various organisations, reliable estimates of supply cannot be made. However, the Institute of Rural Management at Anand has been striving to establish a methodology for estimating supplies through an integrated approach of sampling method, remote sensing applications and mathematical models. These methodologies now seem to be far better than earlier projections made by the trade and industry.
The prevalence of fluctuations in intra-seasonal and intra-year prices of oilseeds and oils render attempts of modeling price behavior unsuccessful. The long chain of intermediaries between the producer of the oilseeds and the consumer of the oils behave in such a way so as to nullify the parities between oilseed prices and oil prices for an honest operator. It has been found that the press which is the major source of information on prices has been a major factor influencing sentiments of those commodity markets which are characterised by severe imperfections. There were occasions when the press has made attempts to sensationalise the price behavior of edible oils for no rhyme or reason.
Groundnut oil prices are deliberately depressed at the time of harvest by the trade so as to buy the produce from the farmers at low prices, the phenomenon which cannot be captured by averaging of the prices on a monthly or yearly basis. It has been found that the differences between the fluctuations computed on daily and monthly prices have been as much as 80 per cent in certain years.
While the source of price hike and price fluctuations lies largely in the supply uncertainties, the influence of institutional and technological rigidities also persists. The markets are so organised in order to appropriate a maximum share in the consumer rupee which has been clearly reflected in the absence of parity between edible oil prices and the oilseed prices. Along with the regulated markets and the farm level transactions cooperatives have emerged as a major player in the trade. However, the management of parities between seed prices and oil prices by the private trade through adulteration, tax evasion and illegal speculation would make the cooperatives less competitive in the business.
Brokers and commission agents play a very significant and at times dubious role in the trade. In the absence of reliable information on supply, demand and prices the market intelligence of the broker appears to be a major determinant in arriving at equilibrium. It was found that a few brokers also engage themselves in the trade which certainly influences their role as moderators.
The oilseeds and oil exchanges/associations formed by the brokers and dealers have been quite influential in the price movement across the country. While only a fraction of the traders operating at these exchanges would influence the overall price sentiments, only 10 to 15 per cent produce that has been transacted in Agricultural Produce Marketing Committees which were established by law would reflect the prices quoted by government agencies.
Differential tax structure across states/union territories also contributes to massive evasion of tax on edible oil trade through inter-state trespassing.
Ban on blending, while ineffective in checking adulteration, has prevented inter-temporal and inter-spatial imbalances in the supply of edible oilseeds.
Instead of creating healthy requirements for an effective functioning of future market, banning futures trading has only resulted in the operation of illegal satta.
Driven by the relationship between increase in the incomes and increase in the per capita consumption of edible fats in the developed countries, India has attempted to achieve higher levels of consumption of edible oils along with the overall growth of the economy. Researchers on nutritive value of edible fats have warned against the excessive consumption of visible fats in the form of edible oils by Indians as the typical Indian diet contains a significant proportion of the required fats in the form of invisible fats. It has also been recognized that vanaspati, a hydrogenated fat, transforms cis fatty acids to trans fatty acids which act as saturated fatty acids in the human body and contributing to cardiovascular complications. Taking the recommendations provided by ICMR into account it may be said with fair amount of conviction that the country has already reached self-sufficiency in the production of edible oilseeds. However, significant skewness exists in the
consumption of edible oils across spatial groups, economic groups as well as urban/rural sectors.
Three major interventions have taken place in order to resolve the peculiarities mentioned above.
The first major intervention being imports, the consequences of the intervention policy have been disastrous. Import policy had been adopted as a softer option to resolve the demand-supply gap as the unprecedented price hike during early seventies was perceived as a result of edible oil shortages. Only PDS and vanaspati industry could have access to the imported oils. Since 1979, STC has been given the monopoly right to import the vegetables oils for supply to PDS and vanaspati industry. Relatively high income elasticities of demand for edible oils and vanaspati have been adopted by the policy makers to decide upon the requirements of imported oils. In the absence of reliable information on domestic production, the quantity of imported oils over the years appears to have been decided arbitrarily. Imported oils have been supplied to the relevant agencies at relatively lower prices which has resulted in unnecessary increase in per capita consumption, adulteration of domestic
oils with imported oils, undue benefit to vanaspati industry, and worst, dampened producer incentives. The disincentive to the producers of oilseeds caused by the supply of imported oils at lower prices has been clearly reflected in the stagnant production during the regime of large scale imports from 1975-76 to 1987-88. The supply of imported oil to vanaspati industry at lower prices was not reflected in lower prices of vanaspati. It can be concluded that this decision has only helped in market expansion of vanaspati which on health grounds is certainly not an essential commodity. The PDS for edible oils has been found to be income neutral as the poor of the society could not get any better access to these oils over the rich.
Oilseeds and Vegetable Oil Project of the NDDB has been the second major intervention in the sector. Based on a network of oilseed growers' cooperatives, with the help of donated oil from the Cooperative Leagues of the USA and Canadian Cooperative Association the project which was started in 1979 now covers Gujarat, MP, AP, Tamil Nadu, Orissa, Maharashtra, Karnataka, Rajasthan and UP. The oilseed coverage has also been extended from groundnut, mustard, cottonseed, soybean to sunflower, nigerseed, sesame and safflower. Besides procurement, processing and marketing, the project has undertaken major production enhancement activities. Along with the increases in membership and the area under coverage, large scale oil milling, solvent extraction, refining and storage capacities have been created. As a result, the producer prices have gone up in the areas of coverage over the all India levels. However, the production of overall oilseeds remained stagnant till 1987-88 due to the
use of imported oils at lower prices against producer interests,
Technology Mission on Oilseeds which was started in 1986 with a goal of self-reliance by the end of the eighth five year plan has made concerted efforts in reducing the level of imports by increasing domestic production. In collaboration with organisations like ICAR, CSIR, DAC, NODP, OPTP etc., TMO has made rapid strides in achieving breeder varieties of seeds, batch type processes for rice bran stabilisation and sunflower decortication, and improved expellers, etc. However, the most important achievement of TMO has been the initiation of Integrated Policy on Oilseeds and the consequent implementation of the Market Intervention Operation which has formed in itself the most effective intervention in the sector.
NDDB was appointed by GOI as Market Intervention Agency in April 1989 for an initial period of five years with an objective to regularise prices through buffer stocking operations. The backward linkages of MIO with the Oilseeds and Vegetable Oils Project of NDDB, has given a unique position to the buffer stocking operations in the form of vertical integration of production, procurement, processing, storing and marketing. The significant achievement of MIO has been the intervention in consumer market by the introduction of Dhara consumer packs. In addition, Lokdhara a blend of groundnut oil and palmolein oil, has also been launched recently. On the lines of National Milk Grid a National Oil Grid has been established in order to resolve the regional and seasonal imbalances. The net effect of the concerted efforts by TMO and NDDB has been clearly seen in the unprecedented and steady growth in the production of oilseeds during the operational period of MIO. An important factor
that led to the MIO was the drastic reduction in imports. However, MIO faces challenges from private trade as the latter always uses the options of adulteration and tax evasion in arriving at parities. Due to this, as well as the non-availability of the required imported oils, keeping the prices within a band could not be achieved for a shortwhile. Since then Dhara sales have registered stable levels becoming the price/quality leader in the market place.
Some researchers, the World Bank and the FAO have held the opinion that India should withdraw from the policies that encourage oilseeds production and concentrate on crops like wheat, paddy and cotton. However, the interlinkage of oil and dairy sectors, the achievements of the dairy sector in the country, and the current trend in oilseeds production refute these arguments. As a matter of fact, the international trade balances on oilseed products have shown an increasing and positive trend since 1989-90 indicating comparative advantages for India which will substantially improve if EEC/US was to withdraw its subsidies on imports of edible oils.
Based on the above findings it is concluded now that India should continue to strive for self-reliance in vegetable oils. Since edible oils are no more considered essential from a nutritional point of view the supply of imported oils to PDS and vanaspati industry has been a wrong policy option and responsible for major distortions in the sector. Given the imperfections in the sector, the MIO type of intervention which is based on vertically integrated operations would ensure a maximum share to the producer of the oilseeds and a fair deal to the consumer of the edible oils especially when a technological breakthrough emerges due to the concerted efforts of organisations like TMO.
<section>Policy implications</section>
1 India should continue its efforts to move towards self-reliance in the production of oilseeds. Buffer stocking operations undertaken by the NDDB should continue. At times the NDDB may need certain levels of imported oils for which provisions should be made. The NDDB would be an ideal choice for buffer stocking operations because of the backward linkages of MIO with its network of oilseeds grower cooperatives. However, MIO needs to be safeguarded from the Telia Raja/Politician combines. Continuation and expansion of consumer market intervention by the NDDB would ensure reliable supply of quality product to the consumers. MIO should however, continue to look at the competitiveness of oilseeds vs other crops and comparative advantages that India has in the field of labour intensive agriculture. The National Oil Grid needs to be strengthened. Use of railways and inland shipping needs to be explored further in order to reduce the transportation costs.
2 Cooperatives can be made more competitive by removing taxes on oilseed and oil trade. Uniform tax structure across the countrys would also help. This would prevent the inter-state trespassing as well as non-accountability by the state tax departments. The state governments should routinely publish the tax revenue from various commodities so that the tax evasion on a particular commodity may become public knowledge.
3 Blending of edible oils should be permitted in the consumer packs as is practised all over the world. The only obligation to blend oils should be to declare in bold letters, the nature of the blend and its composition.
4 Blending and packaging at low cost in hygienic conditions would help unification of the markets. Efforts should be made to popularise the advantages of these new blends. Necessary expertise on the proportion of mix of oils may be made available to the interested groups.
5 The decisions on the levels of imports should be taken in conjunction with the domestic supply levels and buffer stocking requirements. Imports need to be used only to regulate the prices. Attempts should be made to import low priced oils and export high priced oilseed products. The responsibility of imports should really be with the MIO which alone can ensure under the leadership of NDDB that imports are not used against the farmers.
6 If supply of edible oils at lower rates to the weaker sections of the society is considered necessary then the existing mechanism of PDS should be restructured with proper targeting and sourcing of oils. It would be best to subsidise the poor, directly in the form of food stamps, etc.
7 The decision to stop supplies of imported oils to vanaspati industry is in the right direction and this should form a measure to encourage the use of indigenous minor oils in the manufacture of vanaspati.
8 Neither edible oils nor vanaspati are considered nutritionally essential commodities. Hence, the excessive use of these commodities by affluent sections of the population should be discouraged through advertisements in the press and television. Investigation of the factors influencing consumption patterns of edible oils, is necessary to understand the shifts to other oils, for example, from groundnut oil to mustard oil, or from one preferred oil to blended oil, to help manage the supplies more effectively.
9 Export of oil cakes and oilseeds such as HPS groundnut, sesame and nigerseed should be encouraged by all means. Efficient management and development of port facilities will be needed in this connection. Groundnuts are used as table nuts in the west and they are considered in the same class as almonds and cashew nuts. The country has a great potential for exporting groundnuts provided its crushing is discouraged through fiscal measures. Exports of groundnut and groundnut cake may be increased by detoxication of the product which is possible with an integrated programme at production, storage, processing and transportation levels. Handling of HPS groundnuts needs proper care from production to export. This needs great attention as such efforts can significantly improve quality and exportability of the produce.
10 Efforts to develop better varieties of seeds and operating efficiency of processing should continue. Particularly, double zero variety of mustard seed and two-step expelling process have great potential. Integration of expelling and extraction processes would improve the performance of extraction plants.
11 Production improvement demonstrations undertaken by oilseeds and vegetable oils project of NDDB need to be adopted as model extension packages.
12 Measures to make quick forecasts of crop production should be developed for all the agricultural crops at a national level. The data on crop cutting experiments needs to be made public for crop estimation purposes. Remote sensing applications and meteorological techniques need to be further explored for greater reliability. Cooperatives should be encouraged to collect information on the cropping pattern from member villages . To start with, a few key districts may be selected to record the area under sowing on a full enumeration basis. However, this practice would be effective only when the entire agricultural land is covered. The information thus obtained would be of great importance in taking business decisions.
13 Management of data on supply, demand and prices, across the country on a continuing basis is necessary. Quick compilation of this information to arrive at national aggregates should be undertaken by the Government.
14 The activities of oil exchanges/associations need to be made more transparent. The publication of prices based on the transactions taking place within a very small fraction of the sector should be prevented. A national commodity exchange covering all the agricultural commodities will ultimately be needed in order to have an orderly market. Market efficiency will be increased by improving market transparency. Efforts need to reduce these imperfections.
15 Forward trade in oilseeds like rapeseed/mustard has become necessary to safeguard the interests of producers. However, before reviewing the ban on forward trade it is necessary to resolve the imperfections in spot market.
<section>APPENDIX 1 - The role of the press in influencing market sentiments: Case of edible oils</section>
RP Aneja and KVSM Krishna
Institute of Rural Management Anand
The press has been a major factor influencing edible oil and other commodity markets which are characterised by severe imperfections. The arbitrary coverage of price movements provide wrong information to the interest groups. A 3 % variation in the prices of groundnut oil would get a 50 % treatment while a 15 % variation in the prices of relatively more important commodities like cereals and pulses would receive less than 3 % treatment. This phenomenon adversely affects the functioning of vertically integrated business as well as intervention operations. The press needs to review its coverage of commodity markets.
Attempts to establish relationships between supply/demand and price remain unsuccessful in edible oilseeds and oils sector. While at the core, demand and supply factors influence the price of the commodity, severe fluctuations in intra-seasonal and intra-year prices of oils indicate the futility of a mere economic analysis in understanding the price behavior. Failure to capture the market sentiments through economic models necessitated an investigation to understand the relevant influential factors. On the whole it seems intermediaries between producers of oilseeds and the consumers of oils play a very significant role in price movements and both the end players are mere residual receivers. Although to a major extent the inadequate market intelligence of the intermediaries is responsible for price uncertainty, the unfair practices of the trade help in appropriation of both consumer and producer margins. Among others, the press has been a strong source of influence.
A less than 1% variation in groundnut oil prices has many a times been covered in some daily newspapers and business papers by giving it a three column treatment. For the consumers as well as the producers the source of information on prices is by and large the press. It follows then that the press can potentially influence the price behavior. Cropping patterns, selling patterns, storing, etc., are largely dependent on ruling prices. Also, there is ample scope with the press for politicising the issue of price movements in order to effect certain institutional factors which may be conducive to the trade. For example, sensationalising movement in commodity prices would certainly determine the behavior of interventions such as imports, buffer stocking etc. When a commodity like edible oils, excessive consumption of which is severely condemned by medical authorities and the share of consumer expenditure on which is only around 5 per cent,
is given comparatively high priority and a large coverage, then the role of the press needs to be analysed.
Coverage given by a typical business daily on the prices of groundnut oil, wheat and toordal at Bombay market for the oil year (Nov.-Oct.) 1990-91 was selected to test the proposed hypothesis. Commodities have been chosen to represent one each from cereals, oils and pulses. Fluctuations in the prices have been computed with the help of coefficient of variation and that of the treatment given by press in terms of title size in proportion to the total space provided for the title on the prices of all commodities, comment size in proportion to the total space provided for comments on the prices of all commodities, and title size in proportion of comment size. While the first two measures of treatment given by the press show the focus on the commodity concerned, the latter draws the element of sensationalisation. In conjunction with the variation in the prices, these measures would explain the extent to which undue coverage
has been accorded. All the daily issues of the business daily falling within the period of study mentioned above have been surveyed and then aggregated to arrive at monthly and yearly averages. Monthly averages have been analysed to check whether the yearly trends are consistent throughout. Table 1 summarises the findings.
The variation in the price of groundnut oil (GN oil) has been only 5 % for the entire year whereas prices of wheat and toordal fluctuated by 14% and 13% over mean price, respectively. For this order of fluctuations the press has allocated 52% of title space to groundnut oil and only 3% to wheat and less than 1% to toordal. While there existed a ifference between spaces allocated for comments, the imbalance has not been as severe as with the title space. This becomes more clear as one looks into the measure of title as per cent of comment. A 9% space provided for comment on groundnut oil occupied an additional space equivalent to over 50% of it only for title purposes. These figures for wheat and toordal have been 2 and 11, and 1 and 4, respectively.
Variations in intra-month prices were further lower in case of groundnut oil. Only during the months' December, January and April the variations were around 3% while in the other months they were quite lower. Despite, the treatment given by the press did not deviate substantially in terms of all the three measures.
<section>Note</section>
1. Meilke, Thomas (1989): "Great Success of New Oilseed Policy", 27th All India Convention of Oilseeds and OilsTrade and Industry, Bombay, November 18, pp.1-2.
2. "National Accounts Statistics, 1991", CSO, GOI. Several new trends emerged in 1990-91 scenario of edible oil and oilseed sector.
3. See Gulati, VP (1991):"Oilseeds Production Estimation: Current Approaches and Techniques", IRMA unpublished; and Jhala, ML (1980): "The Estimation of Yield-Rainfall Relationship with Reference to Groundnut Regions of India', Agricultural Situation in India, July, pp.235-238.
4. Dipankar , P and A Subramanian (1985): 'Price and Income Stabilisation Issues in the Indian Groundnut Market', Economic and Political Weekly, 21(8).
5. Narappanavar , SR (1989): "The oils and Oilseeds Economy of India", Himalaya Publishing House, Bombay.
6. India Today (1990):`Saurashtra : The Oil Sheiks', January 31; Sunday (1990):`Kill to Profit', November 7; NDDB (1991): Alive, Delhi; Murali Dhar(1991):"Golden Flow: NDDB's Edible Oil Project" Groundnut Realities, Times of India, 23 rd October; Murali Dhar (1991):`Nightmares of Telia Raja', Times of India, October 9; and Murali Dhar (1991): `Tale of Telia Tin", Times of India, September 25.
7. For example, Shah, T and S Modak, (1986): "Cooperative Organisations in Indian Oil Systems: A Study of the Role of Grofed in Groundnut System of Gujarat", Research Report-2, Institute of Rural Management, Anand.
8. References may be found in various issues of the journal of the Forward Market Bulletin; Zasdanwalla, ZU (1966): "Marketing Efficiency in Indian Agriculture", Allied, Bombay; and Vyas, VS, DC Srivastava and VS Dharap (1969): "Pace and Pattern of Marketing of Groundnut in Saurashtra", AE Centre, Sardar Patel University, Vallabh Vidyanagar (mimeo).
9. Korah , GK and V Pahuja (1992): "Role of APMCs and Oil Exchanges in the Marketing of Oilseeds and Vegetable Oils", MTS Report, Institute of Rural Management, Anand (unpublished).
10. NDDB (1986):"Blending of Edible Oils: Need and Possibilities", NDDB, Anand (unpublished).
11. Gupta , PK (1991): "Edible Oil Scenario", Times of India, April 26.
12. Gopalan, C (1988): "Dietary Guidelines for Affluent Indians" Bulletin of the Nutrition Foundation of India, 9(3).
13. Achaya, KT (1987): `Fat Status of Indians: A Review', Journal of Scientific and Industrial Research, 46, March.
14. Mensink, RP and MB Katan (1990):"Effect of Dietary Trans Fatty Acids on High Density and Low Density Lipoprotein Cholesterol Levels in Healthy Subjects", The New England Journal of Medicine, 323(7).
15. WMMB (1991): Editorial, Wisconsin Milk Marketing Board Research Review,4(1).
16. Minhas, BS (1990): "Brief Notes on Access to Subsidised Food and Social Services in India", The World Bank, November 1.
17. The GOI (1978): "Report of the Study Group on the Long Term Edible Oil Plan", Department of Civil Supplies and Cooperation, Ministry of Commerce, GOI, New Delhi.
18. Jhala, ML (1977): "Supply and Demand Aspects of Edible Oils and Oilseeds in India", Ph.D. Thesis, (unpublished), Gujarat University.
19. Jhala, ML (1980): "Static Demand Models of Individual Edible Oils", Anvesak, 10(1), June.
20. Radhakrishna, R and C Ravi (1989): "India's Food Demand Projections Study", paper for World Bank Country Studies.
21. Kundu , MK (1991): "Edible Oils", Rabi Oilseeds Seminar, Central Organisation for Oil Industries and Trade (COOIT).
22. The GOI (1987): "Vegetable Oil Economy", Vegetable Oil Information Centre, GOI, New Delhi.
23. For example, Ahluwalia, D (1991): "Public Distribution of Food in India: Issues and Evidence", paper for World Bank Country Studies.
24. NDDB (1977): "Restructuring Edible Oil and Oilseed Production", NDDB, (unpublished).
25. NDDB: Various Progress Reports of the Oilseeds and Vegetable Oil Project, NDDB, (unpublished).
26. Shah,T and S Modak (1984): op...cit.
27. TMO (1988): "Towards Self-reliance", Department of Agricultural Research, GOI, New Delhi.
28. Raisuddin, A (1979): "Foodgrain Supply, Distribution,and Consumption Policies within a Dual Pricing Mechanism: A Case Study of Bangladesh", Research Report No. 8, International Food Policy Research Institute, Washington, DC.
29. Ranade, CG, KH Rao and DC Sah (1982): "Groundnut Marketing: A Study of Co-operative and Private Trade Channels", (monograph), Centre for Management in Agriculture, Indian Institute of Management, Ahmedabad. Modak, Shrikant (1985): "Groundnut Economy of Gujarat", Economic and Political Weekly, 21(13).
30. Narappanavar, SR and VP Bharadwaj (1983): "Farmer's and Intermediaries' Shares: A Study of Groundnut During 1962-63 to 1980-81", Indian Journal of Agricultural Economics, 38(2). of the dry and semi dry regions.
31. NDDB (1991):"Some Facts on Edible Oil Situation and MIO", (unpublished); Ganguly H (1991):"Market Intervention and EdibleOil Prices",Economic and Political Weekly, November 9.
32. Gulati, A (1989a): `Input Subsidies in Indian agriculture: A Statewise Analysis', Economic and Political Weekly, June 24.
33. ------------ (1989b): `Structure of Effective Incentives in Indian Agriculture: Some Policy Implications', Economic and Political Weekly, September 30; ------------ (1990): `Fertiliser Subsidy: Is the Cultivator Net Subsidised ?', Indian Journal of Agricultural Economics, 45(1); and Gulati, A, J Hanson and G Pursell (1990): `Effective Incentives in India's Agriculture: Cotton, Groundnuts, Wheat and Rice', WPS 332, World Bank.
34. Wall, JW (1981): "India: Demand and Supply Prospects for Agriculture", World Bank Staff Paper 500, World Bank NP.
35. FAO (1992): "The Indian Vegetable Oils and Oilseeds Sector", Food and Agriculture Organisation, (unpublished).
