The domestic consumption of edible oils in India has been outstripping the production and the gap between the two is quite significant which is being met by imports.
Ashok Vishandaas & Nitisha Thakwani
India is a net food exporting country but depends heavily on imports of edible oils. Prime Minister Narendra Modi appealed on 23 July 2020 to the farmers in the North-East States to take up oil palm cultivation in a big way. It is a step to support the Atmanirbhar Bharat initiative and will reduce the imports of Palm oil and make India self-sufficient in edible oils too. The domestic consumption of edible oils in India has been outstripping the production and the gap between the two is quite significant which is being met by imports. India imports nearly 15 million tonnes annually (or nearly 68 per cent) of edible oils to meet the country’s annual consumption demand of about 22 million tonnes. The bulk of these imports are palm oil. Of the total imports of edible oil, palm oil accounts for 60 per cent or about 9 million tonnes.
Even though each vegetable oil has unique characteristics, they are substitutes in food as well as in industrial sectors. The choice between various oils largely boils down to the relative prices among oils. Palm oil is preferred over other edible oils for food purposes especially by price-sensitive consumers while palm kernel oil is preferred by manufacturing industries due to price differential in relation to other oils. The prices of all major edible oils have been ruling above those of palm oil in the post-2000 era in varying magnitudes.
Low prices of palm oil in relation to other edible oil prices have been driven mainly by productivity gains attained by major oil palm producing countries like Indonesia and Malaysia, and also because of preference function of high-income consumers of the US and Europe who prefer other oils (like olive oils, canola, or soy oil, etc.,) for direct human consumption. Indonesia and Malaysia, which account for over 82 percent of world palm oil production, have exploited natural endowment of rainfall to the best of their comparative advantage which explains, in good measure, their low cost of production and processing, and therefore low prices of this oil.
Among the vegetable oil yielding crops, oil palm is the highest oil yielding plant in the world and has a critical role to play in meeting the vegetable oil requirements. With good planting material, irrigation, and proper management, oil palm has the potential to produce 20-25 MT fresh fruit bunches (FFB) per hectare after attaining the age of 5 years. This, in turn, is capable of yielding 4-5 MT of palm oil and 0.4-0.5 MT palm kernel oil (PKO) which is about 4.5 times the yield of other traditional oilseeds, on average.
This perennial crop has an economic life span of 30 years, comprising three distinct phases viz. juvenile period (1-3 years), stabilizing period (4-8 years), and stabilized period (9-30 years). At present, it is the largest source of vegetable oil in the world. Five countries mainly Indonesia, Malaysia, Nigeria, Thailand, and Cambodia account for over 90% of the world’s total production of Fresh Fruit Bunches (FFBs).
Global production of vegetable oils is estimated at 197 million tonnes, out of which 40 percent is traded. Indonesia is the largest producer with 47 million tonnes production accounting for 24 percent of world production, followed by China (13.2%), Malaysia (11.3%), and EU (9.2%). Indonesia (37%) and Malaysia (22%) account for 59 percent of global exports. India is the largest importer of vegetable oils with a share of about 20.7 percent, followed by EU (13.5%) and China (12.8%). During the last decade, the import of edible oils has increased by more than 250 percent indicating a huge drain on foreign exchange reserves as well as adverse impact on domestic growers.
Detailed analysis reveals that 4 million MT of traditional oils is being produced in the country by using 15.80 million hectares of land. This much quantity of palm oil could be produced from just 1 million hectares. Thus, one million hectares under oil palm is akin to more than 15 million hectares under another mix of oilseeds. Currently, the country has only about 3.3 lakh hectares under oil palm, while the potential identified for it is 19.3 lakh hectares in the states of Andhra Pradesh, Arunachal Pradesh, Assam, Chhattisgarh, Karnataka, Kerala, Mizoram, Odisha, Tamil Nadu, and the other N-E States.
Two important constraints that impede area expansion programme under oil palm are the opportunity cost of land of farmers during a long gestation period of at least 3 years when no financial income flows to farmers and high cost of irrigation. So long as India follows the model of smallholder farming for oil palm growth (in contrast to corporate farming, which can be done to some extent if this crop is declared as a plantation crop on the lines of tea plantations), these challenges remain high as smallholders do not have much-sustaining capacity without any fruit at least in the first three years. Nor do they have many resources to invest in assured irrigation facilities with bore wells and drips.
If we have to leap-frog in oil palm cultivation, we have to find a way to break these two barriers. Keeping in mind the advantages it can bring about in terms of reducing heavy dependence on imports for key edible supplies, and augmenting farmers’ incomes within the country, an additional 16 lakh hectares of area (the difference between identified potential area and the actual area under palm oil) be expeditiously brought under palm oil cultivation by scaling up incentives in a big way. These 16 lakh hectares under oil palm can cultivation would produce 6.4 million MT of palm oil, which could result in savings of huge foreign exchange.
To carry this forward, farmers need to be nudged and incentivised to cultivate palm oil by compensating them for three years for their land against that potential loss (i.e. opportunity cost of their land during ‘lock-in’ period of 3 years) and also give them one-time irrigation investment (borewell, drip, and associated channels, etc.) subsidy. At the end of the round, India would move away from helping farmers in a country like Indonesia and Malaysia, albeit unintentionally (from where we have been importing) to empowering our own country’s farmers. And it will be another decisive step towards Atmanirbhar Bharat.
Ashok Vishandass is a Professor (Applied Economics), Indian Institute of Public Administration and former Chairman(CACP), Ministry of Agriculture and Farmers Welfare, New Delhi; and Nitisha Thakwani is a freelancer.