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.
197
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.