Financial Times - Indian vanaspati controls costing Sri Lanka billions

Indian vanaspati controls costing Sri Lanka billions

By Dilshani Samaraweera

Vanaspati manufacturers say an Indian decision to control exports from Sri Lanka is endangering investments under the Indo-Lanka trade agreement.

Vanaspati makers claim the decision by India to limit imports of vanaspati from Sri Lanka through a single national body, is causing delays and financial losses to manufacturers in Sri Lanka.

“Ten vanaspati manufacturing factories as well as four bakery shortening factories are closed from June 4, 2006 throwing out 3,000 direct employees as well as 3,500 indirect workers out of work,” the Vanaspati Manufacturers Association of Sri Lanka said in statement.

On June 2 this year, the Indian government issued a gazette notice canalizing Sri Lankan vanaspati exports through the National Agricultural Cooperative Marketing Federation of India.

“Due to the unilateral, sudden introduction of the gazette notification 200 containers in transit, as at 4 June, are held up in various Indian ports incurring heavy container detention charges and demurrage without any positive steps being taken by the relevant authorities,” the association said. The backlog in the Indian ports is causing production losses at the factories. The vanaspati manufacturers say 12,000 MT of finished goods are now stuck in their factories and 50,000 MT of crude vegetable oil used as raw material, is idling in storages.

The harmless cooking oil has been a subject of controversy over the year with Indian vanaspati manufacturers accusing Sri Lankan vanaspati exports of hurting their economic interests.

An import based vanaspati sector started emerging in Sri Lanka after the Indo-Lanka trade agreement was initiated, to make use of the market opportunity to export duty free into the massive Indian market. The vanaspati factories set up in Sri Lanka import crude palm oil from countries like Malaysia and Indonesia, and re-export to India after adding value. Manufacturers say that in spite of import dependency, domestic value addition is above the 35 percent stipulated under the Indo-Lanka trade rules.

The Vanaspati Manufacturers Association says investments are worth about US$ 100 million in Sri Lanka based on the Indo-Lanka pact and says these investments are now in danger.

Quota Trade

The Ministry of Trade says it is trying to finalise a system to address the difficulties of vanaspati exporters. “We are dealing with these problems. We met the Indian trade secretary and we are now trying to work out modalities for a system,” said Secretary to the Ministry of Trade Dr K. Ratnayake.

As part of the solution India and Sri Lanka have now agreed to a quota of 250,000 MT of vanaspati exports from Sri Lanka per year. The two countries are now working out the implementation aspects of this quota.

The two countries have also agreed to a quota of 250,000 MT of black pepper and an unlimited quantity of light berries, under an advanced licensing scheme, to be exported from Sri Lanka per year. A quota of 500 MT per year will be introduced for desiccated coconut exports from Sri Lanka. These quotas are also under discussion for implementation.

“Before implementing we must finalise the technical aspects of how to implement the quotas. Anyway, expediting this is up to India. There are no delays from our end,” said Dr Ratnayake.

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