National Mission On Edible Oils – Promising If It Remains Farmer Centric

New incentives are not likely to result in large-scale deforestation for oil palm cultivation, write Siraj Hussain & JK Mohapatra

<div class="paragraphs"><p>Palm oil fruit bunches and plants at a plantation. (Photographer: Joshua Paul/Bloomberg)</p></div>
Palm oil fruit bunches and plants at a plantation. (Photographer: Joshua Paul/Bloomberg)

On August 18 the union government announced an investment of Rs 11,040 crore under a new centrally sponsored scheme, National Mission on Edible Oils – Oil Palm to promote the cultivation of oil palm. The assistance to farmers for planting material will be substantially increased from Rs 12,000 per hectare to Rs 29,000 per hectare. Special assistance of Rs 250 per plant will also be available to replant old gardens for their rejuvenation.

Oil palm trees start producing fresh fruit bunches about four years after their planting. In the first three years, farmers can grow other crops (except paddy) like groundnut, soybean, etc. Therefore, incentives are required for farmers to make their cultivation remunerative.

This decision is a continuation of past policies to reduce dependence on the import of edible oils by increasing the domestic production of oil palm, which yields about five times more oil than other edible oils, per hectare of cultivated area.

Efforts So Far

Previous governments have also been promoting the cultivation of oil palm. In 1991-92, the Ministry of Agriculture launched the Oil Palm Development Programme under the ‘Technology Mission on Oilseeds and Pulses’. It was envisaged that the area under oil palm will be expanded in Andhra Pradesh, Karnataka, Tamil Nadu, Odisha, Gujarat, and Goa.

In 1995, the Narasimha Rao government set up the National Research Centre for Oil Palm in the West Godavari district of Andhra Pradesh. It was later renamed as Directorate of Oil Palm Research.

Oil palm cultivation is already quite popular in this area.

From 2004-05 onwards, the oil palm cultivation scheme was implemented in twelve states as part of the ‘Integrated Scheme of Oilseeds, Pulses, Oil Palm & Maize’.

For the eleventh five-year plan, the Government of India set up a committee under Dr KL Chadha to re-assess the potential for oil palm cultivation. Its report was submitted in 2006. It identified 10 lakh hectares as potential areas for the cultivation of oil palm.

In 2011-12, Oil Palm Area Expansion was included under the flagship scheme of UPA – Rashtriya Krishi Vikas Yojana. In 2014-15, the National Mission on Oilseeds and Oil Palm was launched. In 2018-19, it was merged with the National Food Security Mission.

On Nov. 24, 2015, the union government allowed 100% foreign direct investment in five plantation crops – coffee, cardamom, palm oil tree, olive oil tree, and rubber via the automatic route. States were advised to declare oil palm as a plantation crop so that the private sector may be attracted to invest in the cultivation and processing of oil palm. It is not known if any FDI has come into the sector.

New Scheme Targets

The new scheme fixes an ambitious target of an increase in area and production of oil palm. It aims to increase the area from about 3.54 lakh hectares in 2019-20 to 10 lakh hectares by 2025-26. The production of crude palm oil is expected to go up from 0.25 million tonnes (2019-20) to 1.120 million tonnes by 2025-26.

India consumes about 25 million tonnes of edible oils but domestic production is only about 10.5 million. Thus, India imports about 58% of its consumption. In 2019-20, India’s import bill of edible oils was $9.6 billion. By 2025-26, imports are expected to go down to about 38% while the demand is projected to rise to about 29 million tonnes.

If the projections of production are to be achieved, the processing capacity has to be simultaneously created in proximity to the area of production of oil palm.

A large quantity of palm oil is being used for the production of biofuel in developed countries, resulting in spikes in prices from time to time.

Therefore, reducing dependence on imports is a good idea, in the long run, provided domestic production of palm oil does not need more than 20% to 30% protection by way of import duty.

Patanjali-owned Ruchi Soya, 3F Oil Palm Agrotech, and Godrej Agrovet are already present in the oil palm sector.

Environmental Concerns

Despite the commentary on its harmful consequences on the environment, in our view, the newly announced incentives are not likely to result in large-scale deforestation for the cultivation of oil palm as the scheme is primarily aimed at the cultivation of oil palm in farmers’ fields.

Environmentalists point out that the present government’s record on the environment is a matter of great concern (here and here). So, there is a genuine apprehension that going forward, corporates may lobby for changes in land ceiling laws that would enable them to go for industrial-scale plantations rather than sourcing their raw material from (mostly small) farmers. It is possible that in the future the corporates will eye ecologically sensitive non-forest areas in Andaman & Nicobar and north-eastern states.

Pricing Mechanism

The most critical issue in the cultivation of oil palm has been the inability of farmers to realise a remunerative price of fresh fruit bunches (FFBs). Due to the huge fluctuation of global prices of palm oil, the farmers could not get a fair price. FFBs of oil palm are highly perishable and need to be processed within twenty-four hours of harvest. There have been several reports of uprooting of trees by farmers due to crashes in prices, high maintenance costs, and the absence of assured buyers of FFBs. Therefore, the union government’s decision to provide price assurance in the form of viability price may be a game-changer as it will protect them against the fluctuation in global prices of crude palm oil.

For the first time, the union government has picked a market-based formula for the fixation of the price of an agricultural product.

A higher price for oil palm cultivators of the east is also a prudent decision.

Import Duty Buffer, Not Wall

Lastly, the success of mission oil palm will also depend on import duty on crude palm oil. In 2012, CACP in its report Oil Palm: Pricing for Growth, Efficiency & Equity had recommended that whenever the import price of crude palm oil falls below $800 per tonne, the import duty needs to be raised. In the past, governments have given more attention to taming inflation than ensuring remunerative prices to farmers. On crude palm oil, the basic customs duty was zero for about four years from April 1, 2008, to Jan. 16, 2013. Then it was 2.5% up to January 20, 2014. The government’s resolve for ‘atmanirbharta’ (self-sufficiency) in edible oils will be tested when it is confronted with high food inflation. In the past, duty on imported edible oils has been reduced to very low levels, thus making domestic edible oil production more expensive.

A lot more needs to be done to bring the production of various crops in sync with the ecological requirements of various regions.

Finally, complete atmanirbharta need not be a desirable goal for every agricultural commodity which has to be imported to meet domestic demand. In the long run, it will be more prudent to produce higher-value agricultural and horticultural crops and tap export markets, rather than aiming to produce the entire domestic requirement of commodities, which can be purchased much cheaper in global markets.

Environmental, social, and governance factors should guide not only corporates but also the countries.

Siraj Hussain is Visiting Senior Fellow at ICRIER, and has served as Union Agriculture Secretary. Jugal Kishore Mohapatra was Chief Secretary, Odisha and Union Secretary Rural Development.

The views expressed here are those of the authors, and do not necessarily represent the views of BloombergQuint or its editorial team.