APPENDIX. - I : VA~SP.ATI INDUSTRY: . AN OVERVIEW

INTRODUCTION

As stated earlier, the production of

vanaspati started in India with the inception of

Indian Vegetable produ-cts Limited, at Bombay in

1930, with an installed capacity of 303 tonnes per

annum.' It gained immediate acceptance amongst the

public because it was economical and similar in

appearance and flavour to the traditional ghee.

This popularity among the masses gave an impetus to

the growth of the industry and reduced the imports

to a very large extent. During the second world war

the increased demand from Defence Services as well as

Civilians from middle income group gave a fillip

which resulted in increasing the number of factories

to 21 by 1945. The number of factories rose to 40

by 1950 and to 51 by 1952. In lieu with the

Industries Act 1952 (Development Regulation) no one

was given permission to establish new units or

expand the existing units, except through utilisation

192

of suitable idle ,capacity. As a 'result the industry

could come up to its optimum capacity as the demand . +

for vanaspati gradually increased with the growth in

population and rise in income.'

Subsequently in 1968, when the licence

requirements were exempted, the industry got a further •

boost; Within a period of 18 months the number of

units rose from 51 to 116, and production capacity to

17 lakh tonnes: Again in 1970 the policy was revised

and the requirement of the licence was made compulsory.

The inadequate availability and high prices of edible

oils affected the industry adversely. At the end of

1973, 81 units with the capacity of 13.65 lakh tonnes

were in operation out of the total 116 licenced units.

As of end 1980, there were 85 units in operation with

the estimated installed capacity of 12.'9 lakh tonnes

per annum.'

In order to get a clear apercu of the recent

perspectives in vanaspati industry, it is vital to

"

193

understand the various import~t ,aspects of the

industry.1

With this aforementioned broad focus, the

chapter has the following analytical framework:

. I. Location of Industry

II. . Production of Vanaspati

(a) Raw materials

(b) Chemicals and vitamins

(c) Process of manufacturing

III. utilisation of Capacity and Quality Control

IV. Organisational Factors

(a)

(b)

Plant and machinery . .. Capital management

(c) Types of management

(d) Labour

V. Cost Structure

.-, -

194

I. LOCATION OF INDUSTRY

Vanaspati industry 1s a raw material and

consumption oriented industry. Till recently

groundnut oil was the main raw material for the

industry, hence the units were set up in Maharashtra,

Gujarat, Andhra Pradesh, and Tamil Nadu as groundnut

is widely grown in these states. But in northern

states of Haryana, Punjab, Delhi, uttar Pradesh,

Rajasthan and Jammu and Kashmir, where production

of groundnut oil, cottonseed oil or sesame oil is

not enough, units have been set up mainly because

these states account maximum consumption of vanaspati.

Although the states of Maharashtra, Gujarat, ,

Andhra Pradesh and Tamil Nadu are rich in raw materials I

the concentration of the industry is in urban centres.

Bombay, Mysore, Madras are few examples of this.

Other factors such as transport facilities, availabi­

lity of manpower both skilled and unskilled, accessi-, bility to markets, availability of power, banking

195

. facilities, etc. have also influenced the location • •

of vanaspati industry as in the case of other

industry.

The maximum number of vanaspati ~its are in

North Zone comprising the states of Punjab, Haryana,

Himachal Pradesh, uttar Pradesh, Rajasthan and

Jammu and Kashmir'and the Union Territory of Delhi.

This zone has 32 units with a capacity of 1935

tonnes per day. Another 4 units in North Zone have

been approved with a capacity of 140 tonnes per day • •

West Zone comp~ises of 1464.5 tonnes per day.

Licence for two more units having a capacity of •

75 tonnes have ~een approved. South Zone "comprising

of Tamil Nadu, Kerala, Andhra Pradesh and Karnataka

have 19 units with 452 tonnes per day capaCity. East

Zone has 9 units with a total capacity of 452 tonnes ,"

a day. Two more units with a capacity of 50 tonnes •

each have been approved. State-wise maximum

factories are 1n Maharashtra (14), followed by uttar

Pradesh; (1.2), Gujarat (10), and punjab (9).

196

The zone-wise break-up of number of factories

with capacity is.given in the following table:

Zone \

North Zone

West Zone

South Zone

East Zone

Number of units

36

28

19

11

II. PRODUCTION OF VANASPATI

(a) Raw Materials

Installed capacity . per day

2075

1;64~5

452

552

The basic raw materials used in.the manufacture

of vanaspati are edible vegetable oils. In addItion

chemicals such as, caus~ic soda, bleaching earth and

filter and nickel catalyst are required for refining

these oils and vitamins to enrich its nutrition

value. The following vegetable oils,are mainly . . used in the manufacture of vanaspati:

.. t.

1. Groundnut oil

2 .~ Cottonseed oil

3. -Sesame oil

4. Sunflowerseed oil

5. Soyabean oil, and

6. Palm oil.

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Besides other liquid oils, viz. mustard oil,

sattlower oil, nigerseed oil, rice bran oil, maize

oil, etc.~ are also used. Each oil has its own

characteristics and is equally good for all purposes • •

Chemical technology has made inter-changeability of a

large number of oils possible and has increased

opportunities for selection of oils. In fact, the

government fi~d the use of various oils in manufactur-

ing of vanaspati depending upon availability of such

oils.' In sixties, only,.groundnut t cottonseed, and sesame

198

oils were permitted to be used in the manufacture

ofvanaspati. but due to persistent shortage of . edible oils in seventies, various oils were

permitted which were hitherto not allowed. Even

rape/mustardseed oil was allowed to be used in

manufacture of vanaspati although it has very strong

colour and odour and takes longer time for hydrogena-

tion.'

The main qualities of an oil for use in the

manufacture of vanaspati are: cheapness of oil,

refining capacity, deodorisation capacity and its

natural properties which make the producers to

select the various oils on preferential basis.

Groundnut oil has been the main oil consumed by the

industry principally b:cause it is easiest to process

compared to any other Oil~ Secondly, this oil forms

a major share in total edible oils supply in the •

country: Since more than 75 per cent of groundnut

oil is consumed as raw or refined directly its prices

and availability has a direct bearing not only on

199

vanaspati but on other edible oils; With the

persistent shortage of edible oils resulting in

high prices of groundnut oil, vanaspati units

found more or less impossible to run under price

control unless the cost of raw material was

reduced. The industry could do it successfully by

switching over to other comparatively cheaper oils, . . . viz; cottonseed, rice bran oil, etc.

also taken various measures such as,

Government has - , ,

.... /

- allowing fiscal measures on the increased

use of cottonseed oil, rice bran oil, etc., •

fixing limit on maximum use of groundnut oil,

minimum limit on use of other oils,

permitting mustard oil to use in the manufactur­

ing of vanaspati, so as to ease the pressure on

groundnut oil for direct consumption.'

Hig~ prices of groundnut oil thus compelled

the vanaspati units to depend less and less on

200

groundnut oil': As a result the share of groundrlut

oil in total oils consumed by the vanaspati

industry declined gradually from 88;'15 per cent in

1962 to 27 .~39 per cent in 1976 ~ There has been

virtually a ban on the use of groundnut oil since

1977.

As the prices of other edible oils move in

line with groundnut oil;- it became difficult to use •

even other edible oils and the production of

vanaspat1 became uneconomic. The government adVised

to'vanaspati industry to use more and more imported • palm oil which was much cheaper compared to indigenous

oils.

(b) Chemicals and Vitamins

Ghemicals and vitamins constitute about 1 per

cent of the total cost of production. The main

chemicals used' in manufacture of vanaspati are ~

,

201

(i) Caustic soda;

(11) Nickel catalyst; and

(iii) Fuller e8.1l"f;'h/ac.t1vated carbon.'

Filter and citric acid, as well as some other

miscellaneous chemicals are used.' These chemicals

are available indigenously and there is no problem

in obtaining them from market.. Vanaspati is enriched

by the statutory inclusion of vitamin 'A' to the

extent of 25 MIV per tonne; The availability of the

Vitamins are not difficult and it is reported that

two producers generally supply vitamins 'A' and 'D' together.

The imported oil is canalised.through STC

which supplies these oils to factories as advance

payments. The distribution of imported oils for the

use in vanaspati is controlled by the government • . vegetable oils products controller and hence most of

the oilS supply is depending on government poli cy ..

202

Minimum/maximum'limits to use imported oil in

manufacture of vanaspati have been fixed by the

government. With ef~ect from 1st January 1981,

limits of usage of oil in manufacture of vanaspati

isas under:

(1) Indigenous'cottonseed oil; or inalgenous

minor oils (nigerseed oil, soyabean oil,

rice bran oil, maize oil, watermelonseed oil,

sunflowerseed oil, mahua oil, and safflowerseed ,

oil); or imported vegetable oils supplied by

STC or any combination thereof provided that

were imported oils are used, the percentage

of such imported oil shall not exceed 70 per

cent.1 This constitutes 95 per cent of the

usage.

(ii) Refined sesame oil or liquid oil which

constitutes the rest 5 per cent.

203

The. share of imported oil in total oil

consumed by the industry increased gradually from

9~26 per.cent in 1965, when first time imported

oil was allowed to be used, to 89~86 per cent in

1980·.. '

The share of cottonseed oil which improved

from 8.;'33 per cent in 1961 to 44·.89 per cent in

1975, mainly because prices of groundnut oil ruled

higher than cottonseed oil, declined sharply in next

5 years to a meagre 4.64 per cent in 1980.. The fall

was attributed the low price of imported oil supply

to vanaspati units by the government ..

The sesame oil is used~ in the manufacturing

of vanaspati primarily to prevent admixture of

vanaspati with that of pure ghee and to this effect,

minimum 5 per cent of sesame oil in total oils has

been made statutory.;\ Although, its uSe was officially

made at 5 per cent minimum, its share went up to

8.i07 per cent.

204

(c) Process of Manufacturing

The manufacturing of vanaspati passes through

the following five stages:

(i) Pre-refining: It includes neutralised liquid

oil;' The crude vegetable oil as raw material

contain varying degrees of impurities, Viz.' Free

Fatty Acids (FFA), Phosphatldes proteins, Carbohydrate

derived from the ori~inal oilseeds and Colour bodies, •

etc., which are collectively known as non-glyceride

impurities. In the first step of refining, these

impurities are eliminated by using caustic soda in

the form of lye.' Thereafter, the neutralised oil is

put under vacuum to remove moisture: It is bleached

with fullers earth/activated carbon to remove the

remainder of colouring matters and air present in it.

In this process, complete decolouring takes place.'

The quantity of these chemicals used varies from

plant to plant depending upon nature and quality of

crude o~l and the effectiveness of the pre­

neutrali.satiotl Olleration~

205

(ii) Hydrogenation: In this process, refined and

bleached oil is made to absorb hydrogen gas in

acticlave Under suitable presence of Nickel catalyst.

Hydrogenation converts different types of unsaturated

oils into saturated one and in the process raises the

melting point of such oils: After hydrogenation,

the product becomes solid at normal ambient

temperature and tends to resemble ghee.\ It also

enables certain traditionally non-edible oils like

cottonseed, soyabean and sunflowerseed oil to be

upgraded (after refining and blending) for edible

1?u:r1?oses. At the end of hyfu'ogenati.on the catalyst

is filteTed off from the hardened oil~

(iii) Deoderisation: By this process, certain , ,

substances which are responsible for the characteristic

odour and taste of oils including similar contaminants

occurring during storag~ or processing of oils

are removed ..

206

(iv) ilending and Vitaminisation: In thiS,

appropriate quantities of unhardened but refined and

deodorised sesame oils as well as the hardened oil

component (groundnut, cottonseed and soyabean oil,

etc.) are blen~ed together and requisite vitamin 'A' (which also sometimes include vitamin 'D') is also

added:

(v) Filling and Refrigeration: The blended

vanaspati ghee, which till now is kept hot to be in

liquid condition, is filled.in suitable tins which

are then sealed~ Thereafter, they are kept for cooling

at required temperature.' After cooling, the product

is ready for marketable purpose:

During the process, certain losses of oil

occur at various stages of manufacturing. The main

207

reason for loss of 011 is contents of FFA in the

crude oU~ The quantity of loss depends upon the

contents of FFA in the 011'01 Orie per cent FFA

(which generally 011 contains) effects 4 per cent 011

loss in process: At present, vanaspati ls packed and

marketed mainly in tin containers having a net capacity

of 16~;5 kgs. (bulk pack),' 4 kgs., 2 kgs., and 1 kg.

(small packs): Certain quantities are also packed in

returnable galvanised iron drums of 25 kgs., 33 kgs.

and 45 kgs. Polythene containers"are also used for

small packs.' Generally, the industry is bulk oriented.

Only a few manufacturers concentrate on the smaller

packs. Package-wise, over 80 per cent is packed in

bulk.

III. UTILISATION OF CAPACITY AND QUALITY CONTROL

The vanaspati production, which was only 303

tonnes in 1930, when the industry was established in

India, showed a st~ady rising trend. The production

increased to 66,709 tonnes ln 1940,1,75,196 tonnes

208

in 1950, 3,36,661 tonnes in 1960, 5,21,275 tonnes

in 1970 and 6,02,245 tonnes in 1972. The production

however fell down to 3,54,105 tonnes in 1973 due to

acute shortage of edible oils in the country,

resulting in higher prices which made the production

of vanaspati uneconomic because of price control~

After the decontrol of prices in January 1975, the

production of vanaspati recovered to 4,53,427 tonnes

in 1975 and a record level of 7,05,778 tonnes in

1980.'

Phenomenal increase in vanaspati production

was recorded during the Second World War (1939-1946).

The production rose at the rate of 13,162 tonnes per

annum during this period compared to only 2,768

tonnes per annum in pre-war days. The reason for

the sudden spurt in production was due to purchase

of vanaspati by government for its Defence personnel~

The production fell in 1947 substantially following

the partition.

209

After the start of Five Year Plan and the

manufacturing units forming an association, the

production of vanaspati was controlled in a systematic

way according to its anticipated demand for

consumption.;

On regional basis, Northern region had

highest capacity utilisation of 67 per cent, followed

by western region at 48 per cent. Southern and

Eastern regions I capacity utilisation was 45 and 29

per cent, respectively.' The low utilisation of

capacity in Eastern sector was the result of decontrol.

In Eastern sector production of oilseeds is almost nil.

The entire requirement of raw oil is met from imports

from other oil producing states.' With decontrol many

new units have come in oil producing states, which

has resulted in reduced supply of oil in the Eastern

sector.1 The finished product from oil producing

states became cheaper in Eastern Region.

210

The present installed capacity of 86

operating units in the industry is 4516 tonnes per

day. On an average 300 working days. the annual

capacity is about 13.'55 lakh tonnes.' A large part

of this installed capacity is not fully utilised.

During the year 1980 capacity utilisation was only

52 per cent. The lowest capacity utilisation was

38 per cent in 1973.

The low utilisation of capacity is due to fast

growth of industry in seventies. Higher prices of

edible oils, the basic raw material, usages of

imported oils and indigenous hard,to process oil like

cottonseed oil as ~hey have reduced hydrogenation

capacity, were other factors for low utilisation of

capacity. Apart from the abovementioned generally

accepted factors, this study in particular has made •

an attempt to explore the possibility of a relation­

ship between the u~ilisation of the installed capacity

on the one hand and the s~tisfaction level of the

211

employees as well as the approach adopted by the

management in running the company.'

As regards distribution, the manufacturers

keep their depots in various states or they appoint

sale agents to maintain their depots who sell to

wholesalers with a predetermined distributing pattern.

The wholesaler is required to keep sufficient stocks

at all t~mes and pay for such stock either in advance

or immediately or on receipt of documents, Small

manufacturers usually enter into direct contract with

the wholesalers in various markets for the supply of • their product.' These wholesalers, in turn, resale to

semi-wholesalers and retailers. The functions of

wholesalers comprise of purchasing in bulk from

manufacturers, investing substantial amount of money,

loading, unloading and storage of vanaspati, allowing

extensive credits in markets unlike in other trades,

responsibility for a systematic and organised distribu--

tion among retailers or bulk consumers while retailers

212

keep reasonable stock and sell to consumer, some­

times on credit'.' While bulk is traded in tins like

other oils, small packs are essentially a branded

product.

Marketing of oilseeds is done like any other

agricultural crop which inherit the deficiency of

perfect marketing systems in many ways such as low

realisation of produce by farmers, lack of grading

system and storage faCilities, etc: Although organised

forward exchanges are there in principal urban centres

but hardly any farmers took advantage of the forward

trading when it was legally permitted in oilseeds.

Even ready delivery marketing has not made any head­

way in these exchanges although they were supposed to

perform ready contracts as well; Since 1964, forward

contracts in edible oilseeds and oils such as ground­

nut, cottonseed, til, mustardseed, etc~ have been

banned. This had put vanaspati units/Oil refining

units in some difficu~ty in covering their

risks. Lately, support prices fixed by the

· 213

government for some oilseeds had benefited the farmers

to some extent~ As regards international trade in

oilseeds and oils, exports of all oilseeds and oils

except HPS groundnut and castor 011 from India have

been banned.' Oilcakes of all ol1seeds are exported.

Vanaspati is required to conform to the standard

of quality prescribed under the V.O.P. control order

1947. The industry thus follows the statutory

stan~ard to vanaspati and I.S.I. standard for raw oil

used; The nutritive value of Y8naspati is enhanced

by its fortification with vitamin 'A' (25 per gramme)

,and ID', the former under statutory compulsion. It

also contains some poly unsaturated fatty acid but

only 2 to 3 per cent which is very good to many

segments of the population who consume vanaspati.. For

detection of adulteration of ghee with vanaspati,

vanaspati has to contain at least 5 per cent raw or

refined sesame oil under V.O.P. control order. Further,

it should not contain any harmful flavour, colouring

214

• or any other matter deterious to health. The use

of ghee flavour in vanaspati has been prohibited

under V.OoP. order'ol The factories have their own,

a fullfledged quality control department:

:Sy-Product

The main by-product of vegetable and hydro­

genated oil industry is oilcake in the form of

expeller, which contains about 7 per cent oil~ This

expeller cake is further processed under extraction

plants which gives extraction oil and the residue is

known, as oilmeal or extractions~ These expeller

cakes/extraction meals are very important as they •

contain a high protein for compound animal feeds.

They are also used in the country as organic manure

or in feeding directly to animals~ The compound feed

industry in India is still not developed, and

therefore, most of the 'output is used for either

direct cattle feeding or farm manure. A large portion

is also exported which earns a valuable foreign

215

exchange. There is a good demand for India's

expeller/extraction oilcakes and meals from many

countries particularly east European countrles-.1 The

exports of oilcakes have increased manyfolds during

the last two decades~

In vanaspati manufacturing, soa~-stock and/or

acid oil is obtained while refining crude oil~ Soap­

stock is formed as a result of the reaction of

caustic soda in the form of lye with the free fatty

acid present in the raw 6ils~ Soap-stock obtained

from pre-neutralised stage is called soft-soap-stock • •

containing unhydrogenated fatty acids while that

derived from post-neutralised is known as hard soap

stock containing hydrogenated fatty acids~ The sale

of this by-product has a significant influence on the

economy of vanaspati industry. The plants, who have

soap plant, also can utilise the soap-stock as and

when it is produced, in the manufacture of soap and

they do not have to suffer any loss in disposing the

216

soap-stock, while others sell to the soap manufacturers.

Hard soap-stock fetches a little higher price than

soft ones. As more of coloured oil is used, coloUr of

oil is transferred to soap-stock, thus entailing

additional processing charges for eliminating the

colouring matter.'

The recovery value of soap-stock so obtained

differs from oil to oil seeds, In the case of ground­

nut oil as base, the recovery of soap stock available •

for sale account for about 60 per cent of the cost of

original oil lost in the process;l Presently, owing

to maximum use of cottonseed and other oils, the

quality of ~oap-stock is deteriorated as these oils

leave deeper colours to the soap-stock, thus lowering

down the recovery value; Further, the market value

of soap stock also depends upon the substitute of soap­

stock, i"e(.~ tallow and rice bran oil ,<,hich sometimes

is quoted cheaper. The oxygen, which is released in

the electrocitic process of hydrogenation, is sometimes

collected and sold to industrial gas manufacturers by-

217

a few factories located in la~ge urban areas~ The

other by.products are spent bleaching earth, spent

nickel catalyst and wash watet which retches a very

little value.

IV. ORGANISATIONAL FACTORS -

(a) Plant and Machinery

Previously, plant and eqUipment required for

manufacture of vanaspati were imported. Now they are

manufactured in the country~ The equipments required

for the industry are vessels ~equir~d for hearing,

injection of steam treatment ~der vacuum, etc.

filter process and air condit~oning for controlled

cooling.' For production of hydrogen, gas vessels for

electrolytic processing are a).so required.'

The cost of vanaspati plant of 25 tonnes per .. day capacity was around ~.4.50,OOO in pre-war days

218

but now it costs around ~~15-20 lakhs. At present,

25 tonnes per day capacity plants are considered

uneconomic. Most of the vanaspati factories have

installed 50 tonnes or more per day capacity plants.

A plant of 75 tonnes per day capacity is considered

more economic which now costs between ~.1 crore and

~ .. 1 .'25 crores: The installation of a vanaspati

factory equipped with all auxilliary machines now "' ,

involves an expenditure of ~;1·.'25 to Rs.'1.5 crores

including a moderate working capital.'

The productive efficiency of plant and

machinery is not fully utilised.' Currently it is to

the order of 60 per cent.' To upkeep the maintenance ,

of plant and machinery, modern preventive maintenance •

practices are followed by most of the units. Although,

plants and machinery in the various units of industry

cannot be said ,obsolete but many units would like to

go for modernisation as per international level, but

this would involve nearly Rl.' 2 crores per plant of

optimum size.

219

(b) Capital Management

As in any other industry, both· types of

capitals~ fiXed and working are required for vanaspati

industry~ While fixed capital are used for purchase

of land, building, plant and machinery, workshop tools,

transport equipment and oth-er fixed assets, working

capital is required for purchase of raw materials, .

~ •• e. vegetable edible oilS, chemicals, vitamins and

for meeting day-to-day expenses such as carriage,

freight, wages and salaries, office expenses, trade

expenses, etc.'

According to Ann~al Survey of Industries

(1977-78),' the invested capital of the industry

(65 units) has gone up from ~i62.17 crores during

the year 1973-74 to ~~I 89;40 crores (69 units)

during the year 1977-78.' FiXed capital investment ,

in the industry has gone up from ~~18~77 crores in

1973-74 to Rs.23':B2 crores in 1977-78 but the working

capital has increased at a fa~ter rate from ~.16.33

crores to ~-" 35.57 orares during this period. This

220

was obviously due to sharp increase in prices of

raw material which account for nearly 80 per cent

of the total cost.. It may also be observed that

in 1973-74, fixed capital element was more than

working capital, but since 1974-75 working capital • requirements have been more than fixed capitali

The low level of working capital during 1975-76 was

due to crash in edible oil prices during that year.

In the earlier stage, individual enterpreneurs

invested the money from their own sources.. Later • when the banking system developed in the country,

investment from banks became very popular. Although

commercial banKs have always been the best source of

financing this industry; but financing by banks has •

been declining in recent years due to restrictions

imposed by the Reserve Bank of India. Due to rise

in prices of vegetable oils, the Reserve Bank of

India imposed restrictions on the financial credit

to check the rise in price. The industry has been

put under selective credit control and margins on

221

advances have been increased against the security

of oilseeds, oils and vanaspati.

(c) Types of Management

The industry has all types of management.

Some of the units are the part of the big multi­

national companies. Others are registered as joint

stock companies. Some are also in public sector,

while most of the units are under private limited

companies.

Most of the units are managed traditionally,

but professional management is creeping in the

industry; Professionals such as engineers, chemists

and technologists, cost ,accountants, etc. are now

entering in big units. ' Due to the inflow of the

professionally qualified personnel, modern and

, recent management techniques are adopted in some

of the units.' Many units have introduced M.I.S. and

data processing systems. The big units have their

222

own R&D system.. The professionalisation at

desired level is yet to take place in many units.'

(d) Labour

• vanaspati industry provides on an average

daily direct employment to about 10 to 15 thousand

people. In addition, approximately over 60,000

people are indirectly employed. This does not

include those working in the field for growing oil­

seeds, the main raw material for vanaspati industry.

As per the international standard classification of

occupation recommended by ILO, workers in vanaspati

industry can be classified into the categories, with

their percentage share in total work force in the

industry, in the follow~ng manner:

223

Per cent

3.9 (a) professionals, technical and

related per$onnel

1;0 (b) Administrative executive and

managerial personnel

9:4 (c) Clerical and related workers

78.'4 (d) Production and related workers

7~3 (e) Watch and ward and other services.

( 100.0)

Women workers are not v~ry common. There is

no child labour engaged in the industry~ Skilled

labour is available in the indUstry. Trade Union

Movement is very much in the industry. Over 70 per

cent of workers of the industry have organised

themselves into trade unions~ The employer-employee

224

relations are quite good in the industry and as

a result, there have been very less strikes.'

v. COST STRUCTURE

Vanaspati next to sugar, is the most

important food industry: Any increase in its

price as a result of a rise in its cost of produc­

tion affects the consumer and any decrease in its

price gives relief to the common man.

Conversion of vegetable oil into hydrogenated

fat (vanaspati) is a chemical process and as such,

it is argued, should be treated as a chemical industry.

Also, that vanaspati industry should be subject to

the economies of scale as other chemical industries

are. But it is not so.l The reason is that for the

manufacture of vanaspati, the raw material component

of the total cost is very high.' This is not the

case with regard to other chemical industries.

According to Tariff Commission, in the process of

225

manufacture of vanaspati only 5 per cent value is

added to the finished product.

As the vanaspati industry was under the

statutory control during the period from 1-2-1963

to 3-12-1974, its prices were fixed by the govern­

ment. The Tariff Commission in 1971 had worked out

the cost of production of vanaspati after considera­

tion of all the aspects of industry. While

calculating the cost of production of vanaspati, it

had taken into account the cost of oil, conversion

charges, packing, selling and distribution, freight

and rate of return on capital; The wholesalers and

retailers prices include their commissions also.

The Tariff CommisSion worked out the cost separately

for each zone since the cost of raw material, which

constitutes the major share in the cost of produc­

tion, varied considerably between zones. To work

out the prices of oil, average prices of all oils . purchased by the factories in one zone during the

226

preceding fortnight were taken into account. To

this, fixed margins covering the processing, packing,

freight, excise duty, Qil loss during refining and

the return on capital were added'. The processing

cost includes cost of chemicals, power and fuel,

wages and salaries, stores and repairs, overhead

and depreciation. The processing expenses were ,

calculated for standard vanaspati manufactured by

95 per ,cent of groundnut oil and 5 per cent of

sesame oil': However, allowances were granted for'

higher free fatty acids in the oil~\ Similarly, for

the use of other oils such as Soyabean oil, cotton­

seed oil and sunflower seed oil, necessary allowances

were provided since these oils take longer process

and time for refining.. The cost of packing differs

~r~m pack to pack; lower the unit of packing,

higher is the cost.

The chemicals which are used and their

quantity to produce one tonne of vanaspati are as

under:

227

1. Vitamins 25 MIV

2: Caustic Soda. 4 Kgs.

3. Nickel Catalyst 1.'5 Kgs.

4. Fuller's earth/activated 10.',0 Kgs. carbon

'o' Sulphuric aCid 10.'10 Kgs.

Power and Fuel: It includes electricity, coal

or furnace oil required for gas generation and

other purposes,,' . ) '. .

lIages and Salaries: It includes wages of ,'forkers

and salary of staff, their provident fund, ESIC,

etc. Major part of the wages/salaries in a factory

is of a fiXed nature and incidence of cost per unit

vary with the changes in production levelst

Stores and Repairs: Several items of maintenance

stores, such as oils and greases, electrical and

mechanical maintenance stores, steel bolt, nuts and

screws and many other small items are included under

this head.-

228

Overheads: It includ€s items such as insurance,

stationery,' postage and telegrams, rent taxes,

. travelling/conveyance expenses, bank charges,

auditors and directors' fees and miscellaneous

other administrative expenses.

Depreciations: The incidence of the cost of

depreciations per tonne varied between plant to

plant which depends on the age of plants and

ini tial capital cost.' In these circumstances, the

Tariff Commission calculated the allowance for

depreciation on the following basis:

direct depreciation chargeable to the • specific activity;

common services based on uses and services

rendered; and

head office share in the element of cost

based on prorata conversion charges applicable

to vanaspati.

229

Packing Cost: The element of paclring cost for

different sizes varies from each other and as well

as unit to unit and zone to zone, due to differences

in cost of tin-plates and own conversion charges,

the filling charges, as well as the cost of tins

purchased from outside.

Selling and Distribution: It covers the share of

expenses pertaining to wages/salaries of staff

engaged in the sales section of the industry, selling

expenses, commission/rebate on sales and advertise­

ment, freight, handling, other expenses in connection

with distribution such as loading, handling charges

to transport storage depot, godown rent, etc. There

was no uniformity in the payment of commission/

rebate or discount in the sale of vanaspati neither

in case of labour and other handling charges, etc.

Freight: It includes the expenses on freight incurred

on the product to send it from factory to the

consuming point, the distance over which the

product had to travel between factory and the

consumer varies from unit to unit and zone to

230

zone. The factories located in consuming centres

had to transport their product over shorter

distances as compared to factories situated away

from them~ Further intra-zonal movement of

vanaspati was lower in case of Northern and Eastern

zones and higher in the case of Western and Southern

zones.1

Extra charges for other packs: The other packs of

smaller unit, i.ef.~ 4 kgs.' and 1 kg.' required extra

expenditure over that of 16.,5 kgs. Packs in regard

to filling up, handling and packing process, sellingl

distribution, marketing and freight, etc.1 and for

this, some extra allowance were provided for each

zone and were in uniform within the zone:

••

231

Advertisement: This constitutes a very small I

part of the total expenses under the head selling

and distribution. In order to establish consumer

preference and to push up their sales, manufacturers

had to resort to different media of advertisement.

Since vanaspati had acquired more acceptability and

also having regard to the fact that the supply of

vanaspati tended to adjust demand, only on the

availability of raw material, the Tariff Commission

was of the opinion that any outlay on publicity or

advertisement is no longer called for; However, to

cover the cost of any advertisement required for

operational purposes such as calling for application

against vacancies, tenders for the purchases of

stores and for the wholesale distribution of the

product, a small amount was considered.

Return Or Profits to the Industry: While fixing the

margin for return on capital employed, the Tariff

Commission had taken two points into consideration, i.e.,

232

vanaspati industry i~spite of its ,generally

low profitability had expanded substantially •

in last few years; and

its future was secured and relatively bright

as with growing standard of living a large

number of people were likely to take this, ,

as more sophisticated product in replacement

of raw edible oil~ Therefore, the Commission

had fixed on an average 13.8 per cent return

on capital which was reduced by the Government

to 12.0 per cent.

'Thus, before the price control on vanaspati .

was lifted on'1-1-1975, the total co~t of production

excluding the cost of oil for the production of

1 tonne and per tin of 16.5 kgs.1 of vanaspati was as

under:

233

(In nearest rupee per tonne)

Chemicals

ElectrIcity and Coal

Wages and Salaries

Stores and Repairs

Overheads

Depreciation

packing (16.'5 kgs. pack)

Freight

Selling and Distribution

Advertisement

Return on capital

Total

Cost of 1 tonne of vanaspati in 16.15 kgs~ pkt.

!\s.

29.'18

27.60

62.90

18.38

22.68

12.01

270.00

59;100

·37 :81

0.'50

28;88

568.94

234

It was argued by the industry that the cost

structure worked out by Tariff Commission was based

on prices prevailing during 1968 and 1969 and,

therefore, it had no relevance to the prevailing

prices of various inputs in early seventies and

t~erea~:e~, ,.thus making the industry to suffer heavy

losses on the production of vanaspati. This was

reflected in the lowest vanaspati production during

1974.

The price formula worked out by the Tariff

Commission became ineffective after the decontrol

of vanaspati from 1-1-1975. Since then, the prices

of vanaspati were left free to be determined on the

basis of demand and supply~ However, from 4th

September, 1978, a voluntary price discipline came

into existence under which a pack of 16.5 kgs. of . .

vanaspati was fixed at Rs.'194/- inclusive of excise

duty and handling prices for other packs, i.e.,

4 kgs", 2 kgs., and 1 kg 0' were als 0 fixed under the

voluntary prices discipline.· The only advantage

235

under this scheme was that the Government is

obliged to supply imported edible oil for the use

in the manufacturing of vanaspati at the level

required under VOP control order. Industry, however,

feels that this voluntary price control is nothing

less than the statutory price control prevailing

before 1st January, 1975. On inquiries from various

units, it is understood that the cost of production

of vanaspati per tin of 16:5 kgs. exclusive of

profit to the industry, works out to ~.205/-, as

against the prices of Rs.'195/- fixed under the

voluntary price control';1 And i:( a profit of 10 per

cent on the cost is added, the cost of production

would be around ~.'226/- per tin of 16.'5 kgs. The

break-up as given by the industry for the cost of

production is as under:

236

cost of Production of Vanaspati (January 1982)

Processing Per Per tin of tonne 16.'5 kgs.

Chemicals 196 • 3.23

Electricity including· gas generation for hydrogen~tion 324 5.35

Steam 420 6;93

Salaries and Wages 622 10:26

Depreciation 75 1.24 •

Repairs and Stores 148 2.44

Selling and distribution 60 0.99

Freight 80 1.32 ,

Oil Cost 9105 150:22

Packing and filling 867 14.30

Excise duty 554 9.14 --------_____________________________________________ M

Total cost Profit @. 10%

12451 1245

205;'42 20.154

------------------------------------------------------Total 13696 225.96

NOTE: Oil cost has been worked on the basis of 1.'087 tonnes of oil requirement for producing 1 tonne of vanaspati - O~l()87 tonne being waste.~

Contd ••••

237

NOTE: (Contd.' ••• )

70% of imported oil @ 7500 per tonne, 2~ cotton­seed oil @ 11750 per tonne and ~ til oil @ 13100 per tonne has been taken for accounting. Necessary recovery from"by-product (waste) has been adjusted.

SOURCES: ., ..

(1) In-depth study on vegetable and hydrogenated oil industry: By Union Bank of India, 1983.

, (2) Studies by vanaspatf; Manufacturers'

Association; • •

(3)' I Secretary, Indian Oil Produce and Exporters Association.

APPENDIX-II

PRELIMINARY QUESTIONNAIRE

1.'

•

Name of the Company and Address of Factory

2.. Total'number employed in the vanaspati unit

4.

5:

(a) Number of Executives

(b) Number of Workers

Number of' shifts per day

Number of working days in a. year .

Number of work stoppages' if any, (from 1977-78 to 1981-82)

• •

• •

.. •

• •

• •

Year From

6.1

7 " .'

production of vanaspati in the last five years (in tonnes)

Details of incentives offered

(a) To Executives

(b) To workers

239

• 1977-78 -•

1978-79

1979-80 -1980-81

1981-82 -

QUESTIONNAIRE - I

,

The extent of employee participation in the organisa­tion is to:

Policy making

Suggestions

Welfare affairs

Profit sharing

Budget affairs

Job adjustment

Increased productivity

Manufacturing prC?grammes

Very great extent . ,

Great Some Little extent extent extent

Very little extent

2~ To Mhat extent does one have an opportunity to discuss the problems and constraints of his job with his superiors?

No opportunity at all

Little opportunity -1

2

Moderate opportunity

Fairly good opportunity

Full opportunity

3~ The top management shares:

Hardly any information

Few chosen items of information

Some relevant information

A lot of information

Almost'all information

--

--

241

3'

4

5

1

2

3

4

5

TO what extent an individual manager is allowed to take decisions regarding his work?

Very great extent

Great extent

Some extent

Little extent

Very little extent

----

1

2

3

4

5

242

5. Modern concepts, techniques and tools used:

None of the modern concepts and techniques is used

Very tew modern concepts and techniques are used

Some of the modern concepts and techniques are used

1

2

:;

Many modern concepts and techniques are used - 4

Most of the modern concepts and techniques are used 5

·6·.~ How much influence 'one has in your company while deciding matters regarding one1s work?

A great deal of influence

A fair deal of influence

Some influence

A little influence

No influence at all

--

-

1

2

3

4

5

7.~ Decision-making in the organisation on major issues involves:

Only the top man

Certain family members

Selected few employees

Majority of employees

Almost all employees

8. The organisation is profit-oriented:

To a very great extent

To a great extent

To some extent

To a less extent

To a very less extent

-

--

-

243

1

2

3

4

5

1

2

3

4

5

9. Decisions and actions have to be approved by the head:

Almost always

In most cases

In some cases

In a few cases

Need not be approved in many of the cases

---

-

1

2

3

4

5

10~ The extent of independence in judgement ~ith regard to work is:

None

To a less extent -To some extent

To a great extent

To a very great extent

1

2

'3

4

.5

110' Does management in your company give adequate support to the new ideas developed?

12.

yes

NO

cannot ,say

The extent of systems being organised are:

TO a very less extent

TO a less extent

TO some extent

To a great extent

TO a very great extent

---

, formal and

----

1

2

3'

1

2

3

4

.5

13. Difference of opinion with the top management is:

Not tolerated at all

Slightly tolerated

Sometimes tolerated, sometimes not

Tolerated to a great deal

Positively encouraged --

14~' There is hardly an opportunity to on onets own

work

15.

,

There are few opportunitieS

There are some opportunities

There are many opportunities

Opportunities are unlimited

The extent-to which managers are their social responsibility is:

To a very less extent

To a less extent

To some extent

To a great extent

To a very great extent

, --

aware of

--

245

1

2

3

4

5

1

, 2

3

4

5

1

2

3

4

5

16.' , The extent to which emphasis is laid on the quality of the products is:

To a very less extent

To a less extent -To some extent

To a great extent -To a very great extent

2~6

1

2

3

4

5

QUEST lONNA IRE - II oil

( FOR WORKERS ONLY)

PART - I

Personal Data:

1. Name

2. Age

3. Marital status

0 0

0 •

• o

4. Family Background:

(a) Educational qualification

(b) Occupation

(a) Under 25

(b) 26 - 35

(c) 36 - 45

(d) 46 & above

(a) Single

(b) Married

( c) Any other

Father Mother Spouse

5. Educational Qualification - Self:

Degree/Diploma

•

(i) S.S.C.

(ii) Certificate/ Diploma

(iii) Degree

(iv) Any other

6.' occupational History:

Uni v ~I/Board (Nam~ of the plac::e)

(A) Other Organisations:

248

Subjects

S. Name of the Period -------.. -No .. organ. isation From T() Designation Reason

for leaving

•

249

(B) Present and past jobs with the company:

Department Designation Years of, Reasons for service joining this

company

PART - II

I. What kind of job available in the company is most appealing to you? Why is it so appealing to you?

II. itA Model job for me would be one which offers the following in the order of priority that I,have indicated" -

1. (

2.' (

) High salary

) Job security

250

3. ( ) Comfortable working conditions

4 ... • ( ) Future prospects on the job •

5. ( ) Decision-making authority

6.' ( ) Interesting work

7.' ( ) Congenial work relationships

8. ( ) , Liberal leave facility

9';l ( ) Full appreciation for work done

10~ ( ) Considerate and Understanding superior.

PART - III

1. The image of my organisation is very high outside

2.' My co-employees are friendly

3." My superior is considerate

4.' The chances of promotion are high in my job

strong­ly. agree •

5

Agree Unde- Dis­cided agree

Strong­ly dis­agree

---'4-:--"';' -'""'3;--- -"""'2'-- 1

251

Strong- Agree Unde- Dis- Strong-ly cided agree ly dis-~gree agree

5 ":"4~- --=;-- -""'2""";" .,

5. Thl':! present prQmotion pohcy caters t9 the best potential in th~ organisa­tiQn

6. I teel there is security in my job

7. I am well paid fo:t' the work I do

8.1 Th~ working conditions are pl(lasant around my work-place

9.1 Hol.idays and leave provided by the COlllpany are adl':!quate .

10.', Sell.ior officials tall:.e sufficient interest in my pe:t'sonal problems

11. My superior guides me from time to tiIne

12.1 My boss listens to my suggestions

13.1

14~1

15.'

16.~

17.

18.'

19.'

20.'

252

strong- Agree Unde" Dis- Strongly ly cided agree disagree ~gree

5 4 3 2 1

My boss praises my work when

'1 do it well

I like the work I do

There is chance to make use of decision making ability and initiative in my job

I get full credit for the work I do

I have 'enough freedom to plan my work and to exercise judgement . . a.chieve satiS-

fccJ.;ory results

I have ample opportunity for personal growth and development in the organisation

I get a feeling of achievement from my work

The job is suited to my abilities.

f, •

QUESTIONNAIRE - II.B

(For Executive & Supervisors)

personal Data:

1 • Name

2. Age

3. Marital status

PART - I

• •

• •

• •

4. Family Background :

(a) Under 25

(b) 26 - 35

(c) 36 - 45

(d) 46 and above

(a) Single

(b) Married

(0) Any other,

Father Mother Spouse,

(a) Educational Qualification

(b) Occupation

5. Educational Qualification - Self:

Degree/Diploma

(i) S.S.C.

Univ./Board (Name of place)

(ii} Degree/Diploma

(iii) Post graduation

(iv) iny other

6~ Occupational History:

(A) Other organisations:

254

Subjects

S. Name of the No. organisation

period Desig- Reasons ----------- nation for From To leaving

255

(B) Present and past jobs with the company:

Department Designation Year of service

•

Reasons for joining this company

256

PART - II

1. What kind of job available in the company is most appealing to you? Why is it so appealing to you?

II. "A Model job for me would be one which offers the following in the order of priority that I have indicated".

1. ( ) High salary

2.' ( ) Job security

3.- ( ) Comfortable working conditions

4.1 ( ) Future prospects in the job

5 .. ' ( ) Decision-making authority

6.;1 ( ) Status within the organisation

7.' ( ) Interesting work

8.' ( ) Oongenial work relationships

9.~ ( ) Liberal leave facility and holidays

. 10.' ( ) Challenging job

PART - III

1. People in the organisation give respect to me because of my job

2.' My co-employees are friendly

3. The chances of promotion are high in my job

4.. The present promotion policy caters to the best potential

Strong- Agree Unde­ly cided ~gree

in the organisation

5.. I feel there is security in my job

6. I am well paid for the work I do

7.1 The working conditions are pleasant around illY work place

8.' Holidays and leave provided by the company are adequate

9.' I get a feeling of achievement from my work

~57

Dis- Strong-, agree ly dis­

agree

strong- Agree 1y ~gree

1 O~~ I like the work I do

11 .' My 'ilOrk is of such a nature that it demands lot of planning & thinking

12'.1 There is chance to 'make use of decision­making ability and initiative in my job

13.' I have enough freedom to plan my work and

14.

15.\

16.'

17.'

18.

19.'

20.

to exercise judgement to achieve satisfactory results

I have ample opportunity for personal growth and development in the organisation

I am satisfied with the salary I get

I hold an important position in the organisation

My co-employees ext,end a lot of cooperation

I enjoy doing my work

The job is suited to my abilities

I have a comfortable working environment.

258

Unde- Dis- strong­cided agree ly dis-

. agree

259

pART - IV

"According to me, the workers in my company'have the following needs in the order of priority:"

1: ( ) High salary

2. .~ ( ) Job security

3'.' ( ) Comfortable working conditions

4"· .' ( ) Future prospects in the job

5. ( ) Decision-making authority

6.i ( ) Interesting work

',1.i ( ) Congenial work relationships

8.' ( ) Liberal leave facility and holidays

9. ( ) Full appreciation for work done

10: ( ) Understanding and considerate superior.