The skyrocketing price of palm oil, the key ingredient that goes into producing vegetable ghee, has brought the vegetable ghee industry in Nepal to its knees. Until the last fiscal year, the industry used to make up the largest chunk of exports, of any sector, to India.
How badly has the industry been hit? Nepal Rastra Bank´s statistics show that only Rs 8 million worth of Nepali vegetable ghee was sold in India over the first nine months of 2008/09; over the same period last year, Nepal had exported Rs 2.13 billion worth of the product, and over the same period in 2006/2007, Nepal had exported vegetable ghee worth over Rs 3.45 billion. In fact, things have gotten so bad, that the product did not even feature among the top 25 items exported during the given period in 2008/2009.
Why has the industry been so badly hit? It all has to do with the duty paid on palm oil, both in Nepal and in India, say officials at the Ministry of Commerce (MoC). India, which earlier used to impose a duty of 80 percent on the import of palm oil by Indian traders, started waiving that duty in April 2008. India did this to both prop up its vegetable-ghee industry and to lower the price of the product for Indian consumers. Nepal, on the other hand, has always kept the duty to be paid on palm oil imports very low.
In other words, prior to 2008, Nepali vegetable ghee producers had a huge advantage over their Indian counterparts because Nepali producers got their key raw ingredient so cheap.Furthermore, according to the bilateral preferential trade agreement inked between Nepal and India in 1996, India allowed duty-free access to Nepali manufactured goods, including vegetable ghee (that duty free facility for vegetable ghee was capped at 100,00 tons of ghee imported by India from Nepal). Without a tariff barrier, Nepali vegetable-ghee producers had nothing to impede their export to India.
“But the ending of this tariff gap has made our exports more expensive than Indian vegetable ghee. Lately, we have been barely able to find customers in India,” says a vegetable-ghee exporter.
Although the exporter says that the export figures were not as low as has been reported by NRB reported, he did admit that the industry is close to cratering, especially since the new export climate has forced a sharp drop in the capacity utilization of 16 manufacturers. That has exposed investments worth over Rs 3 billion to risk, which has gone in the industry.
In a bid to reverse this situation, the Confederation of Nepalese Industries, had last year asked the government to waive the 25 percent duty imposed on crude palm imports. But the government did not pay heed to the suggestions, mainly because the producing of vegetable ghee from palm oil does not need much value addition, which means that it does not substantially create employment.
The industry´s fall has been steep indeed. Exports of vegetable ghee had suddenly soared to more than Rs 5 million after the 1996 bilateral trade treaty. The industry had initially grown with Indian investments, but Nepalis had taken over the industry when the exporting of the commodity faced severe resistance from Indian competitors during the renewal of the treaty in 2001, which culminated in the imposition of quota restrictions on Nepal´s vegetable-ghee exports to India: in 2002, to stanch the flow of the product from Nepali into India, India had imposed a ceiling of 100,000 tons for duty-free import of vegetable ghee from Nepal. Any quantity beyond that was subjected to higher customs duty. And even the ghee that was duty-free was required to be dealt through the State Trading Corporation of India; and the hassles that cropped up now and again in the form of state-duty and other non-tariff barriers caused Nepal to export ghee in quantities that were well below the quota ceiling. But all these issues regarding quotas and hassles are all moot points now.
Now, the questions that the Nepali vegetable-ghee industrialists have to answer are directed more at themselves.
“Eventually, the vegetable-ghee industry stands testimony to how weak and short-sighted Nepal´s industry has been,” says an MoC official.
All the industry´s investors knew vegetable-ghee exports to India would peter to a halt the very next day that the duty differences on palm oil, between the two countries, ended. But the returns from the business were so handsome that the industrialists preferred to keep on reaping profits--through the last day that the opportunity was still there. And that´s why the tragedy intensifying now.
Source : www.myrepublica.com