Oil palm best bet to reduce cooking oil imports     

Thoughts drift to self-reliance and security on Independence Day. So, it might be apt to assay the subject which Finance Minister Nirmala Sitharaman broached in her budget speech. Sitharaman said the government’s “vision” was not only to grow enough oilseeds for domestic consumption but also for export. She thanked the farmers for achieving self-sufficiency in pulses and hoped they would “repeat such a success even in the production of oil-seeds. Our import bill will be reduced by their Seva.”

Sitharaman is not the first to have this vision. Prime Minister Rajiv Gandhi had it earlier. He set up the Technology Mission on Oilseeds in 1986. The aim of the mission was to achieve self-sufficiency in oil- seeds by 1990. Consumption of cooking oil grows as incomes rise. Imports had risen steadily since 1976-77. By the early 1980s, the country was importing a third of its requirement, which could not be sustained owing to the shortage of hard currency.

In a newspaper article in May last year, agricultural economist and NITI Aayog Member Ramesh Chand declared Rajiv Gandhi’s policy successful. In just six years, he said, production of oilseeds had increased by 78 per cent or nearly 9 million tonnes a year and imports had reduced from close to 2 million tonnes in the year following the launch of the mission to 0.1 million tonnes in 1992-93.

But this self-sufficiency was achieved at a cost. Only the State Trading Corporation could import cooking oil. Duties were raised to 85 percent. The Nation- al Dairy Development Board (NDDB) was charged with giving price support to farmers by keeping the wholesale prices of cooking oil within a range of ₹20 and 25 a kg. NDDB launched Operation Dhara and influenced retail prices through buffer stocks and market intervention. (It continues to retail Dhara brand of cooking oil). It made losses in the process and was al- lowed to make them up through import of cooking oil at a special, concessional rate of duty.

But researchers led by agricultural economist Ashok Gulati found that 53 per cent of the increase in oilseeds pro- duction caused by the Technology Mission was due to expansion of area, mainly irrigated. Land was diverted from jowar and pulses. Only a third of the increase was due to yield enhancement.

After the trade reforms of 1991, policy makers were persuaded by the argument that India’s comparative advantage lay in the production of cereals and cooking oil could be more affordably imported. So, import duties were slashed from 65 per cent in 1994-95 to 25 per cent in 1996-97 and 15 percent the next year. As a result, edible oil imports have risen from half a million tonnes in 1990-91 to an annual average of 14.82 million tonnes over the past three years. It is the single biggest item of food import at $9.43 billion.

Achieving self-sufficiency in edible oil is far-fetched. We import two-thirds of our requirement. The situation with pulses is different. The country is moving towards self-sufficiency. It is not there yet. We still import a quarter of our need. But domestic production is erratic. It depends on the whims of the weather and the behaviour of prices. Though self-reliance in oil- seeds seems impossible, a large consumer like India should reduce its dependence on imports for food security reasons. Currently global prices of cooking oils are low. The landed cost of crude palm oil at Mumbai is $ 583 a tonne. The rates of soy- bean oil ($709), canola or rape- seed oil ($765) and sunflower oil ($795) are higher.

But palm oil was trading at $1,290 a tonne in February 2011. Soybean, rapeseed and sunflower prices had touched their peak in June 2008 and were selling for $1,540, $1,580 and $2,050 a tonne respectively. Vegetable oils are diverted for production of bio-fuels when crude oil spikes. Palm oil prices are soft now because earlier this year, the European Union banned subsidies for bio-fuels

Oil palm trees at a plantation made from palm oil to check the cutting down of rain forests in Malaysia and Indonesia.

Oil palm is the best bet for India to make a dent in cooking oil imports. A hectare of oil palm can produce 4,000 kg of oil. Mustard which has an oil content of 35-42 per cent will yield 440 kg to 500 kg of oil per hectare at India’s current level of productivity.

Mustard production can be increased by diverting irrigated wheat area in Haryana and Punjab and bringing rice fallows in eastern India under the crop. Productivity can be enhanced especially if genetic modification technology developed by a team of Delhi University scientists is used to produce hybrids efficiently.

Oil palm was introduced to India in the mid-1980s under the Technology Mission. Of 19.33 lakh hectares identified as suitable, 3.56 lakh hectares are under oil palm, about half of them in Andhra Pradesh. But India’s productivity is low. The national average is five tonnes of fresh fruit bunches (FFB) per hectare, says Ravi Mathur, Director, Indian Institute of Oil Palm Research in West Godavari. Andhra’s is eight tonnes per hectare, but there are farmers who get 20-40 tonnes per hectare.Like in sugarcane, oil palm growers have to mandatorily supply FFBs to the nearest processing mills, which are required to buy them at prices fixed by the government. This arrangement is necessary because the fruits must be pro- cessed within 24 hours. Oil palms have a life of 30 years and they start fruiting after the fourth year. Without assured purchases from processors, few farmers will venture into oil palm cultivation.

Nasim Ali, CEO, Oil Palm Plantation, Godrej Agrovet, a leading player in the industry with 64,000 hectares under con- tract to it, says farmers in its operational zone get an average yield of 17 tonnes per hectare which is close to the Malaysian average of 20 tonnes. But the cost of cultivation is less in the East Asian country because it gets rain every day. In India, the plantations have to be irrigated, which drives up cost.

India’s average palm oil yield is 0.88 tonnes per hectare, com- pared to Malaysia’s four tonnes and Andhra’s two tonnes. Volatility in the income of oil palm farmers will have to be addressed, says Vijay Paul Sharma, Chairman, CACP, the commission which fixes mini- mum support prices.

Farmers are paid for FFB according to a formula based on the oil recovery rate and a percentage of the weighted average inter- national prices of crude palm oil and palm kernels. Currently it varies between ₹7,200 to ₹8,000 per tonne. “This is not at all remunerative,” says Ali. For farmers to make a profit, Mathur says the price should be ₹9,500 a tonne. Since industry cannot pay this price, he says the government must pay farmers the difference. But cost-plus pricing of FFB will allow inefficient growers to remain in business. So, the normative cost must be tweaked frequently so that the less efficient produces have an incentive to trade up.

Better planting material will have to be supplied to farmers. Ali says if the government pays Rs 250 a seedling – double the current price – to the processors they can supply high-yield- ing tissue cultured or semi-tissue cultured compact varieties. Indian oil palms grow up to 30- 40 feet. This makes manual harvesting difficult, wasteful and expensive. Machines, if available, can pluck the fruits more affordably.

Mathur believes that corporations should be allowed into oil palm cultivation. For this it will have to be declared a plantation crop. Companies are better able to bear financial risks. They will also employ scientific practices. The Solvent Extractors’ Association, an oil industry grouping, endorses this proposal.

But Sharma says there are other pressing priorities (those mentioned above). Ali thinks companies will not be able to get large tracts of good quality land with irrigation. He says small holder farmers can give better care.

If India increases the oil palm area to one million hectares and raises average yield of oil three-fold to 2.5 tonnes per hectare it will produce 2.5 million tonnes of palm oil. That will reduce palm oil imports 6.76 million tonnes annually or 45 per cent of imported oil – by a third. That will not make India self-reliant. But it will provide a cushion when global cooking oil prices spike.