THERE'S more to mustard oil than just dropsy, especially if you take into account the size of India's mustard oil economy. It's close to Rs 10,000 crore or roughly the same as that of the high-profile computer software industry. And the adulteration controversy could end up having serious long-term effects on the sector, and finally on the Indian economy.
First it was a bad agricultural year which saw production shrink by almost 20 per cent. And then came the dropsy scare and the resultant ban, which is now threatening the existence of a sector that accounts for almost 35 per cent of the edible oil industry. Mustard, what Verghese Kurien, chairman of the National Dairy Development Board (NDDB), calls "the most promising oilseed crop" (see interview), has overnight become a bad word for many Indians.
The Rise of Mustard...
It is a new entrant compared to groundnut, the leader in oilseeds, but diversion of crop land to mustard has shot up in the last few years, due to increased demand as well as much higher returns compared to other oilseeds. The average yield ratio in mustard is between 33 and 35 per cent compared to 17 per cent in soya, 30 per cent in safflower and sunflower. Only, groundnut has a higher yield ratio of 40 per cent. Mustard is also an extremely versatile crop and can be easily grown even in dry, arid and scantily irrigated areas. It is strongly pest-resistant, so it is a safe and cheap crop for the Indian farmer to focus on. The area under mustard has been growing by more than five per cent every year over the last five years.
...And the Fall: The dropsy scare has caused huge losses to the edible oil industry. Although it is difficult to get exact data about the incidence and to quantify the loss—most of the cultivation and trade is in the unorganised sector, which accounts for about 70 per cent of the oil industry—the losses suffered by mustard oil and vanaspati traders is estimated at around Rs 5 crore in just about 10 days. This is both due to lack of sales and freezing of existing stocks and seizure of oil tankers in different states.
This loss is expected to multiply in the coming weeks when, due to the festival season, demand normally increases manifold. Several oil producers who pegged the profitability of their operations on Dussehra and Diwali, are likely to be in severe financial trouble.
Rajasthan Meltdown: Probably the worst hit by the crisis is Rajas-than, the country's largest producer of mustard seed and oil (see box), accounting for 40 per cent of total cultivation and production. The state has some 2,000 mustard crushing mills. Its crushing and oil-milling sector, which engages about 2.5 lakh people, has fallen silent ever since the controversy broke out. Some mill owners in western Rajasthan, which alone has about 1,500 mills and employs over a lakh people, have started retrenching staff to prune costs. This has created a serious employment problem in the state where mustard is the only profitable cash crop.
Alwar, the state's oil trading hub, has seen almost no activity in mustard oil over the last few weeks. The story is the same in Jodhpur, home to about 27 large and over 200 small oil-producing units. These supplied to UP, Bihar, West Bengal and other eastern states, all of which have banned sales. Indeed, the re-election chances of the Bhairon Singh Shekhawat-led BJP government in the upcoming assembly elections may have been affected seriously by the mustard meltdown.
The plight of the state's oil entrepreneurs is even more pitiable in the absence of alternative means of livelihood. Says a leading oil miller from Rajasthan: "While the retrenched workers can easily find occupation in other fields, we cannot do so as our life's entire investment is in these mills where we are now close to downing shutters." Adds a member of the Jodhpur Oil Mills Association, which controls the oil trade in Rajasthan: "To cut corners, some oil millers have even got their electricity disconnected to save the essential charges in the absence of any income. If the government does not take adequate measures to restore consumer confidence and sale of mustard oil, most of us will have to permanently close down our mills, sell off our assets and move to other states for alternative occupation to save our lives. This will be very detrimental for the state economy."
A Helpless Government: The situation in UP, the second largest producer of mustard and oil, and in Madhya Pradesh, Haryana and Gujarat—states with sizeable exposure to mustard cultivation and milling—is similar. Oil trade associations feel the scandal will have long-term repercussions on the farmers, industry, consumers and even the economy. Most of them think that the government acted in haste in banning mustard oil, thereby jeopardising the future of an industry.
Says K.M.L. Chhabra, executive director, Central Organ-isation for Oil Industry and Trade: "Rather than taking adequate measures to prevent adulteration, the government has unnecessarily created a fear over mustard oil, thereby putting the future of farmers and oil crushers at stake."
Now, with several state economies dependent on mustard as a cash crop being affected, other state governments are under tremendous pressure to lift the ban. The Central government too faces a Hobson's choice as most of the affected mustard oil-producing states have BJP governments—Rajasthan, UP, Gujarat—and in Madhya Pradesh the BJP has set its sights on coming to power after the November assembly polls. Already some state governments have fallen in line and lifted the ban. In Delhi, the BJP government announced a lifting of the ban from September 23, while in UP, the ban was lifted on September 17. The rest of the producing states are expected to follow suit.
PEOPLE in the business feel that even after the ban is lifted, consumers, already wary of adulteration, will probably stay away, putting the trade in further trouble. Says Chhabra: "The lifting of the ban will not help create demand as there is no proper testing facility available before the consumer, who will not rely on mustard oil anymore. What is now required is a restoration of confidence."
The Bigger Crisis Looming: The ban on production and sale of mustard oil also brought the country to the brink of an edible oil crisis. Even before the adulteration took place, the ministry of food had projected a shortfall of 15 lakh tonnes due to increased demand. This is over 22 per cent of the total projected edible oil output for the cur rent year. The ban on mustard oil will put further pressure on this and increase the demand-supply gap further. According to the ministry, the increase in demand was primarily due to an increase in per capita consumption of edible oil, now hovering at over nine kg a year, sharply up from seven last year.
There is yet another problem. With current year's stocks still around, many farmers are reluctant to start planting a fresh mustard crop when the sowing season begins in October, anticipating a fall in the demand for the oil in the coming months. This means that mustard availability in the coming year could be even less, creating a tighter situation. Says Kurien, whose NDDB is the agency responsible for Operation Golden Flow, under which the Dhara brand of oils is supplied: "When harvest comes, traders will knock down the price of seed because of the present controversy and low demand, and farmers will continue to reduce area under mustard. This will force us to import increasing quantities of oil at a heavy price to meet our demands, just as we did in the past. We will import more and more oil and put pressure on the world prices. In the '70s and '80s, we imported 2 million tonnes a year at $700-800 million, now it'll be 3 million tonnes at $1 billion." If this happens, the problem would obviously transcend the edible oils sector to affect the Indian economy as a whole.
Shortages Will Continue: The ban couldn't have come at a worse time, considering that the epidemic erupted just when processing of last year's yield was to begin. While most of the harvest and trade in last year's seeds was over by March-April, April-September is the crushing and processing period for mustard seed. According to industry experts, most millers put off their processing plans for the season due to depressed oil demand on account of the adulteration controversy and ban. This will seriously affect oil availability in the coming months even after the ban is lifted. Last year, when the seed was in short supply, prices rose by 10 to 15 per cent. With the ban and farmer reluctance to start fresh cultivation, prices of oil may squarely hit the roof.
What is the way out? Traders suggest setting up of more agencies for testing oil samples from the milling stage itself to prevent any adulteration before the packing stage. Chhabra favours a dereservation of the oil sector, which is an SSI domain at present, and opening it up for larger integrated units with self-testing facilities. But the government, caught in a quandary over protecting social interests as well as health and hygiene, seems to be paying little attention to the economic problems of the contamination scare.
As of now, despite the ban being lifted from most parts of the country, mustard oil continues to terrorise people in the absence of authentic testing and certification facilities. Till the government steps in to quell people's fears over the issue, the till-now affluent edible oil sector could be heading rapidly into the grip of a fullblown disaster.
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