Unrefined situation

Limited market and maximum players has the edible oil industry on fire

Sujata Awale

Kathmandu

Despite Nepal being an agriculture based country, the oil industry of the country is totally dependent on imports for necessary raw materials. The demand for refined oil increases by 15 per cent every year which is inversely proportional to the demand of mustard oil. Health consciousness, developing fast food culture and increasing restaurants are major reasons for the increase in demand for refined oil.

Growing demand

"The market for oil is increasing every year with growing purchasing power and awareness about the goodness of refined oil," said Manish Kumar Agrawal, Senior Vice President of Nepal Vegetable Ghee and Oil Manufacturers Association (NVGOMA). However, he added that it is still not sufficient to sustain the remaining dozen or more factories in the country. There are altogether 20 factories across the country, of which only 16 factories are operational. According to NVGOMA, total installed capacity of these factories is 350,000 metric tonnes annually while the market consumption of oil remains at 250,000 metric tonnes.

Citing that Nepali oil was exported to India in the past, he said, “With the introduction of a new policy which entails a supplier to seek prior permission from the government of India, export from the country has come down to nil.”

The question on the quality of edible oil is raised time and again in the market. On this, Agrawal said, “As industrialists have to register the company and product before marketing, we are responsible for our products. However, because of the porous open border smuggling of lower quality products is rampant which leaves no room for accountability,” adding that the Nepal Standard and Nepal Food Quality Control should monitor the market strictly.

According to him, the factory price of soybean oil and sunflower oil for 10 litre packs is Rs 1,070 and Rs 1,009 respectively.

Major hurdles

Despite the growth in demand, industrialists stated that they are facing a hard time as there is cut throat competition among the players. Limited market with maximum players has invited over production and oversupply of edible oil in the market. As the industry depends upon imports, dollar inflation and price of raw materials in the international market directly affects the price of the product in the domestic market. Moreover, like every other industry, the oil industry also faces severe power crisis which ultimately increase the cost of production.

"The government is providing 50 per cent subsidy on 13 per cent VAT and five per cent custom duty since the last six years which has helped the domestic manufacturers survive,” said Sanjeev Kumar Agrawal, President of NVGOMA. However, he further said, “Despite the subsidy, the duty totals to nine per cent which is 2.5 per cent more than taxes in India. Nepali products are not competitive when compared to Indian products which is why traders trade oil illegally from the open borders.” Moreover, he said that the government should step forward to minimise power cuts and put a stop to the undeclared syndicate system in transportation to boost the industrial sector and to make it more competitive in terms of price.

Informing that 20 years ago domestic production of mustard was sufficient for the domestic consumption of oil, Sanjeev said, “With the introduction of VAT in mustard oil, farmers gradually stopped cultivating mustard and soybean for oil production and now we rely 100 per cent on imports for production.”

Room for growth

Stating that the oil consumption in Nepal is still nominal standing at 4.5 kg per person annually, Kumud Dugar, Managing Director of KL Dugar Group said, “There is a scope for growth for the oil industry in days to come. However, the government should solve the problems of power shortage and unauthorised trade of oil.” 

According to him, 30 per cent of products are smuggled through open borders. Citing that the public is still unaware about quality and brands, he said, “The government should initiate campaigns to raise awareness among consumers' about quality. Moreover, the government should take strict action against manufacturers found guilty of substandard products.” Dugar claimed that the company enjoys 25 per cent market share in the edible oil segment.

Industrialists stressed on the need to conduct intensive campaigns and long term plans for the agricultural sector to increase seed cultivation in the long run. Reportedly, Argentina, Brazil, Canada, Russia, Malaysia and Indonesia are major countries for imports of crude edible oil and seeds; raw material necessary for the industry. 


Published on August 9, 2015, The Himalayan Times, Perspectives