Edible Oil Cos’ Latam Venture Gets A Leg-Up

KOLKATA: Indian edible oil industry’s recent endeavour to buy land for raising oilseed cultivation in Paraguay, Uruguay and Argentina and setting up downstream units there got one more boost. The Export-Import Bank of India (Exim Bank) has agreed in principle to extend a line of credit to willing companies which want to try their luck in those Latin American countries.

Solvent Extractors’ Association of India (SEA) executive director BV Mehta, told ET that SEA as a facilitating body for global ventures by Indian edible oil companies has recently held a meeting with top officials of Exim Bank to explore the possibility of tapping the bank finance for such ventures. After hearing the business prospect of Indian edible oil companies in those countries, the bank has shown interest in supporting the endeavour.

However, the bank has indicated to SEA that it will take a final decision on the matter after seeing the techno-economic feasibility study report, which is now being prepared by a two-member team of SEA, said Mr Mehta. SEA has recently sent the team to those countries to collect all relevant information about scope of Indian investment there. The draft report is scheduled to be ready by February, 2008. SEA in its meeting with the Exim Bank has pointed out that the bank finance for such projects may be available under its priority sector lending programme, under which 70% of project costs by Indian companies may be available from the bank as loans.

A preliminary assessment by SEA suggests that to make oilseeds farming commercially viable, especially in Paraguay and Uruguay, soyabean cultivation needs to be raised in atleast 500 hectares. At current prices, this requires a minimum investment of Rs 5 crore for purchase and development of land there.

Indian edible oil companies became aware of huge business opportunities in those Latin American countries after SEA led a delegation to those countries in June this year. During its interaction with local oil processing industries, SEA found that there are lots of opportunities for Indian oil companies to start commercial ventures there. As soyabean is the major oilseed crop in those countries, naturally choice for Indian companies stumbles to soyabean cultivation and setting up downstream oil processing units.

On preliminary investigation, it was found that investment conditions are very congenial especially in Uruguay and Paraguay, with no ceiling on land holding, liberal immigration laws, easy availability of visa, cheaper land prices, uniform state incentives to foreign investment on par with local farms and above all approval for 100% FDI in plantation and industry.

But what has attracted them most is the yield rate of soyabean in those countries. According to SEA, the yield rate of soyabean in those countries vary between 2.5-4.5 tonne per hectare compared to India’s 950 kg per hectare. The major reason for such a high yield rate in the Latin American countries is usage of genetically modified soyabean seed. Higher level of moisture in land due to non-tillage, mechanisation of farming in large sized holdings and better farm management practices are other reasons.

With restrictive Indian laws on land holdings, it is not possible for local business houses to acquire land for captive cultivation. This has made Indian edible oil companies to look for land elsewhere. If they can manage to do so in countries from where they are already sourcing imports and where land is abundant and cheap, it helps them to cut costs as well, said Mr Mehta.