India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

is in nonirrigated areas with yields <strong>of</strong> 1,000 kg/ha, compared to 2,000–3,000 kg/ha in the
United States. 32
The oilseed processing sector consists <strong>of</strong> firms involved in crushing for oil <strong>and</strong> meal, as
well as oil refining <strong>and</strong> marketing. In 2008, a significant portion (1 mmt) <strong>of</strong> <strong>India</strong>n edible
oils, including imported palm oil, was hydrogenated to make margarine. 33 Because <strong>India</strong>
imports a considerable amount <strong>of</strong> unrefined oil, refineries are generally situated on the
coasts near ports <strong>of</strong> import. The <strong>India</strong>n preference for importing unrefined oil reportedly
reflects a desire to generate the added value <strong>of</strong> refining, generate domestic tax revenue on
the processing, <strong>and</strong> create employment opportunities at refineries.
34 Because
transportation logistics are poor <strong>and</strong> local taxes vary, large refiners generally set up
multiple locations in different states to serve local markets. 35
Oilseed processing is performed by a large number <strong>of</strong> small-scale, low-technology, highcost
plants. <strong>India</strong>n government regulations regarding small-scale industry have
traditionally limited plant sizes in this sector, keeping operations from benefiting from
economies <strong>of</strong> scale or vertically integrating. 36 In addition, government policies have
provided tax incentives to build new capacity in depressed areas, <strong>of</strong>ten areas where
processing is not economically viable. Oil refining capacity utilization in <strong>India</strong> is low, as
plants generally run only during the domestic oilseed harvest <strong>and</strong> government policies
discourage imports <strong>of</strong> oilseeds for processing. 37
Edible Oil Consumption
Traditionally, edible oil preferences have been notably regional. For example, the
southern states have a preference for coconut <strong>and</strong> sunflower oils <strong>and</strong> the northern states
for rapeseed (canola) oil. 38 Oils are highly substitutable, however, <strong>and</strong> price is an
important determinant <strong>of</strong> purchases. 39 As a result, <strong>India</strong>ns have recently been switching
from traditional oils to lower-priced imported edible oils, mainly palm <strong>and</strong> soybean oils;
these lower-priced imported oils are estimated to account for 53 percent <strong>of</strong> edible oil
consumption in MY 2008/09. 40
Palm oil, which is relatively low priced, accounts for the largest share <strong>of</strong> edible oil
consumption, <strong>and</strong> its consumption has risen in recent years. 41 It can easily be blended
with other edible oils <strong>and</strong> is also used in processed foods. 42 Soybean <strong>and</strong> rapeseed oils
account for the second <strong>and</strong> third largest shares <strong>of</strong> edible oils consumed. In line with the
32 Ibid.
33 Dhankhar, <strong>India</strong>: Food Processing Sector; Annual, 2008, July 2, 2008, 14.
34 <strong>India</strong>n industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 26, 2009.
35 <strong>India</strong>n industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, June 1, 2009.
36 USDA, ERS, The Role <strong>of</strong> Policy <strong>and</strong> Industry Structure in <strong>India</strong>’s Oilseed Markets, April 2006, 14.
Such policies do not apply to soybean <strong>and</strong> sunflower seed processing, resulting in relatively larger plants in
those sectors.
37 Because <strong>of</strong> high costs <strong>of</strong> transporting oilseeds <strong>and</strong> the 5:1 soybean-to-oil ratio, importing oilseeds for
processing in <strong>India</strong> may not be practical. <strong>India</strong>n industry representative, interview by Commission staff,
Mumbai, <strong>India</strong>, May 28, 2009.
38 Aradhey, <strong>India</strong>: Oilseeds; Annual, April 16, 2009; industry <strong>of</strong>ficials, interview by Commission staff,
Mumbai, <strong>India</strong>, June 1, 2009.
39 Industry <strong>of</strong>ficials, interview by Commission staff, Mumbai, <strong>India</strong>, June 1, 2009.
40 Aradhey, <strong>India</strong>: Oilseeds; Annual, April 16, 2009.
41 Ibid.
42 Industry <strong>of</strong>ficials, interview by Commission staff, New Delhi, <strong>India</strong>, May 26, 2009 <strong>and</strong> May 28, 2009;
Aradhey, <strong>India</strong>: Oilseeds; Annual, April 16, 2009.
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