Why the Central government should go all out to expand oil palm cultivation

By in blogs on October 19, 2016

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It will increase domestic supply, lower the edible oil import bill and save foreign exchange

October 13, 2016:
The Indian edible oil sector is the world’s fourth-largest after the US, China and Brazil and accounts for around 9 per cent of the world’s oilseed production.

An irony of this industry is its heavy dependence on imports. Cooking oil imports are all set to touch a record 15 million tonnes (mt) in the current, 2015-16 Oil Year, ending October. Out of the 15 mt, palm oil imports alone account for 9 mt or 60 per cent.

The reason for palm oil occupying the lion’s share of the total consumption is because palm is generally the cheapest commodity vegetable oil and also the cheapest oil to produce and refine globally.

Therefore, focussed palm oil cultivation will undoubtedly play a key role in addressing the domestic shortfall in edible oil consumption and lowering India’s edible oil import bill and saving foreign exchange.

Highest-yielding crop
A distinct advantage that palm enjoys is that it is the highest-yielding perennial edible oil crop and needs a fraction of the area used to grow in comparison to other oilseeds. This is indeed potentially attractive in a country like India, where land is increasingly scarce as the population rockets.

On a per-hectare basis, oil palm trees are 6-10 times more efficient at producing oil than temperate oilseed crops such as rapeseed, soyabean, sunflower or ground nut. For example, while a hectare of land can yield 300-400 kg of groundnut oil, nearly 4 tonnes of palm oil can be produced from a hectare of land.

The case for palm oil
P Rethinam, a plantation crop management specialist, in his detailed report titled ‘Increasing Vegetable Oil Production through Oil Palm Cultivation in India’ observes: “27 million hectares of nine oilseed crops produce about 9 million tonnes of oil per year but 2 million hectares of oil palm could produce 8 million tonnes of crude palm oil, 0.8 million tonnes of palm kernel oil, palm kernel cake, bio mass for bio energy, eco-friendly bio-diesel, etc.” There is a big potential to raise the acreage of palm, which is currently cultivated on about 200,000 hectares. According to OPDPA, India has the potential to expand the acreage to 20 lakh hectares, keeping in view the demand. If this is done, the palm oil industry, which provides employment to 20,000 people, can create two lakh additional jobs.

Indian palm oil production is estimated at 1.7 lakh tonnes for 2014-15, up from 0.6 lakh tonnes in 2010-11. Palm oil cultivation has grown from zero to 2,00,000 hectares in the past two decades.

The Central government has been trying, for many years now, to reduce its dependence on imported edible oils by encouraging farmers to take up palm cultivation. In an encouraging move, the current government has announced a package of ₹10,000 crore over three years, which is intended to support farmers until the trees begin to yield (it takes three to five years for the palm tree to start yielding fruit).

The government has identified nine States with suitable climatic conditions. In November 2015, the government has also allowed 100 per cent FDI in palm oil plantations, a move the industry believes will boost domestic production, bring in more funds and newer technologies into the sector.

Industry challenges
However, there are several road blocks for India preventing it from successfully expanding on its domestic palm oil cultivation. First and foremost, lack of large land tracts is a major constraint.

The industry wants the government to declare palm oil as a plantation crop to move it out of the Land Ceiling Act. Moreover, the current import duty is not supportive of oil palm farmers and the industry.

Secondly, the Indian edible oil industry has been urging the government to maintain a duty differential of at least 15 per cent on crude and refined oil to protect the interests of refineries. Domestic edible oil refiners are facing a surge of imports of refined oil over the last few months, reducing their capacity utilisation to 30-40 per cent from 55-60 per cent a year ago.

Last month, the Centre lowered the import duty on crude palm oil from 12.5 per cent to 7.5 per cent and on refined oil from 20 per cent to 15 per cent. Hence, there was no change at all in the duty differential and the move is not expected to have any impact on either the industry or farmers.

The government needs to provide a level playing field to the domestic refining industry. Otherwise, Indian edible oil importers will be perpetually fighting a losing battle with cheap rival palm oil from top producers Malaysia and Indonesia.

Conclusion
A focus on palm oil cultivation is key to India’s goal of attaining self-sufficiency in vegetable oils over the next decade. The palm oil industry deserves the highest priority and encouragement from the government to meet the internal demand of edible oil, resulting in a strong imprint on savings of foreign exchange, employment generation and boosting India’s food security.

The writer is Founder & Managing Director, Ruchi Soya Industries Limited.

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