Why Palm won’t fix India’s edible oil woes

Synopsis: India should focus on improving indigenous edible oil production rather than focusing on palm oil, that has many problems.

What are the problems associated with oil palm crop?

Reduces choices of farmers: Since, Palm is a long gestation crop, it reduces the responsiveness of farmers to changing market demand. For instance, farmers can switch to other crops like groundnut if it gives high return for the current year but not palm due to its long gestation period.

What are the reasons for the recent increase in Palm oil price?

1. Lower production due to pandemic-induced labour shortages in Indonesia and Malaysia,
2. Significantly higher demand from China,
3. The diversion of soy oil for the production of bio-diesel in the US.
4. Share of Home-grown edible oil such as mustard and groundnut oils is limited

How the government responded to increasing Prices in Pal oil?

Responding to the crisis, the Union government launched an ₹11,000 crore national mission on oil palm in August. The mission focuses majorly on the north-eastern states and the Andaman and Nicobar Islands, both of which get abundant rainfall.

What are the issues & challenges associated with the mission?

Disregard for indigenous oil crops: The policy also completely ignores oils that are already native to India, such as mustard, groundnut, sesame and coconut, which are healthier and grown mostly by resource-poor farmers in rain-fed conditions. Currently, over half of the home-grown edible oil production is contributed by mustard, groundnut and soybean.

States need to respect “zonalisation norms”: For instance, to cater to 50,000 hectares of plantation, a company has to invest about ₹2,000 crore. Since a firm can start recouping its investments and make profits only by the tenth year, farmers will have to mandatorily supply to the company that is operating in a particular zone and vice versa.

Small and marginal oilseed growers are excluded: The crop is suited for rich, large land-owning farmers—and absentee landlords who can wait it out for 5 years before making profits. A strategy to achieve self-sufficiency based on palm, therefore, excludes existing small and marginal oilseed growers.

What steps should be taken?

India could achieve stability in edible oil prices with a mix of strategies, which includes improved research and development (R&D) to increase the yield and oil content in mustard and groundnut.

A possible solution is to incentivize farmers to move away from rice, wheat and sugarcane and instead, plant more oilseeds and pulses where India is deficient. Another oil source is rice bran, which is healthy and holds great potential.

Farmers should be given duty protection from cheap imports, alongside cultivation incentives and price support.

Impose quantitative restrictions: It will be politically difficult to raise duties on palm oil imports, as it will add to inflation. A way out is to impose quantitative restrictions and channelize imports via the public distribution system to stabilize consumer prices.

Source: This post is based on the article “Why Palm won’t fix India’s edible oil woes” published in the Live Mint on 8^th September 2021.