By Ashok Gulati & Ritika Juneja
The 12th Ministerial Conference (MC12) of the World Trade Organization (WTO) struggled to find satisfactory answers to some very complex questions pertaining to global trade. This included appropriate responses from member countries during abnormal situations such as that of the coronavirus pandemic, whether to adopt a Trade-Related Aspects of Intellectual Property Rights (TRIPS) waiver for vaccines, whether to loosen the rules related to public stockholding for food security purposes, reducing/eliminating subsidies on fisheries, WTO reforms, and e-commerce, etc. It is worth noting that the Ministerial Conference is the top decision-making body of the WTO, whose primary goal is to ensure that global trade flows as smoothly, predictably, and freely as possible, based on some agreed-upon rules of the game.
As far as agriculture trade and food security are concerned, the challenge is to figure out the most appropriate trading rules in extreme situations such as a pandemic or a war or social/political disruptions or natural disasters. Many countries, in such times, become inward-looking and impose outright export bans citing their domestic food security needs. This includes Russia’s export ban on wheat and sunflower oil, Ukraine’s ban on exports of food staples, Indonesia’s ban on palm-oil exports (which was lifted later on), Argentina’s ban on beef exports, Turkey’s, Kyrgyzstan’s, and Kazakhstan’s bans on a variety of grain products, India’s ban on wheat exports, etc. As a result of such sudden actions, the pressure on global trade gets exacerbated, and global prices of those commodities spike, threatening the food security of net food-importing countries.
Supply disruptions during the pandemic and the protracted Russia-Ukraine war have led many nations to think about “self-sufficiency” in critical food items, or at least reduce their “excessive dependence” on others for some essential food products. India is no exception. Its edible oil import bill in FY22 crossed $19 billion (for more than 14 million metric tons, or mmt, of imports). Its import dependence on edible oil stands at 55-60% of the total consumption. This is considered “very excessive”, and efforts are on already to reduce this dependence.
It would be interesting to keep in mind that “self-sufficiency” and “self-reliance” are two different concepts with very different policy implications. While “self-sufficiency” would imply replacing all imports of that commodity (say edible oils in India’s case) at any cost (thus raising import duties exorbitantly), “self-reliance” would still embed the principle of “comparative advantage” in its endeavour to reduce dependence on imported oil.
Let us consider the case of India. Its agri-exports in FY22 touched $50.3 billion, against agri-imports of $32.4 billion. This means Indian agriculture is largely globally competitive. But its biggest agri-import item, edible oils, accounts for 59 percent of total agri-imports. This is despite very high import duties that have generally been imposed on edible-oil imports. Of edible-oil imports, more than half is palm oil, followed by soybean and sunflower. Edible-oil imports are followed by fresh fruits and vegetables (F&V), pulses, spices, and cashew, among others.
This “excessive dependence” on edible-oil imports has raised the pitch for ‘atmanirbharta’, and accordingly, the National Edible Oil Mission-Oil Palm (NEOM-OP) was launched in 2021. Indian policymakers are aware that if they try to achieve atmanirbharta in edible oils through traditional oilseeds such as mustard, groundnuts, soya, etc, they would need an additional 39 million hectares under oilseeds to replace the 14 mmt of import fully. This is because the existing oilseeds complex gives roughly 360 kg of oil per hectare. This required area can’t be made available without reducing the area under staples (cereals), which can endanger food security. So, to reduce edible-oil import dependence, a rational option is developing oil palm at home and ensuring productivity similar to Indonesia’s and Malaysia’s, of ~4 tonnes of oil per hectare—more than 10X mustard can give at existing yields.
India has identified 2.8 million hectares of area suitable for growing oil palm. The objective of NEOM-OP is to bring at least 1 million hectares under oil palm by 2025-26. Given the way international prices of edible oil have surged in the last one year (by more than 70%), it is time for India to ramp up its efforts in developing oil palm. The problem with oil palm is that it is a long gestation crop. Maturity takes 4-6 years, during which, small-holders need to be supported. The support (subsidy) could be the opportunity cost of, say, profits from paddy cultivation, which is largely the crop oil palm will replace in coastal and upland areas of Andhra Pradesh, Telangana, and the North East. Further, the pricing formula of fresh fruit bunches (FFB) has to be dovetailed with the likely long-run average landed price of crude palm oil, with due flexibility in the import duty structure. One needs to identify trigger points when the import duty needs to be raised as global prices come down, and when it needs to be cut (rising global prices). Besides this, the processing industry needs to ensure an oil recovery of at least 18-20%, which must be built into the pricing formula.
The other option is to declare oil palm as a plantation crop and allow corporate players to own/lease land on a long-term basis to develop their own plantations and processing units. Given the existing socio-political realities, this does not seem to be a high probability. Overall, unless India thinks holistically and adopts a long-term vision, chances of reducing its import of edible oils from 14 mmt in FY22 to 7 mmt by FY27 look bleak.
(The writers are, respectively, Infosys Chair professor, and consultant, ICRIER.)