Why attempts to boost oil palm farming may work

Earlier this month, Prime Minister Narendra Modi announced a ~11,000-crore National Mission on Edible Oils with special focus on oil palm to boost domestic production of the largest ingredient of India’s edible oil imports.

The mission, according to a Cabinet decision of August 18, approved a benchmark purchase price for oil palm along the lines of the existing Minimum Support Price (MSP) for other crops. This price is to be calculated by the Commission for Agriculture Costs and Prices along with a provision to compensate for the loss through direct benefit transfer if the market price of oil palm falls below the benchmark.

The mission plans to raise oil palm cultivation to one million hectares by 2025-26 and 1.7-1.8 million hectares by 2029-30. At present, barely around 0.34 million hectares are under oil palm cultivation, largely in Andhra Pradesh and a few Northeastern states. As a result, domestic palm oil production is targeted to rise three times to 1.1 million tonnes by 2025-26 and 2.8 million tonnes by 2029-30.

India annually imports 1315 million tonnes of edible oil, of which almost 55-60 per cent is palm oil (sourced largely from Malaysia and Indonesia). This is projected to go up to 20 million tonnes by 2030 due to rising disposable incomes and changing food habits. It is estimated the country annually imports ~60,000-80,000 crore worth of edible oils, with palm oil (both crude and refined) forming the bulk of it.

Oil palm cultivation, however, has its problems. According to a 2013 estimate by the World Wildlife Fund, the expansion of oil palm plantations is likely to cause 4 million hectares (more than twice the size of Kerala) of forest loss globally. This will endanger several wildlife species and also increase greenhouse gas emissions, thus contributing to global warming. Environmental groups have, therefore, been resisting the expansion of palm plantations in the forested Northeast, and the Andaman and Nicobar Islands.

Efforts to boost domestic oil palm production have been going on for years. The Department of Agriculture started the Technology Mission on Oilseeds and Pulses in 1991-92 in potential states. A comprehensive, centrally-sponsored scheme, Oil Palm Development Programme, was taken up during the 8th and 9th Plans. During the 10th and 11th Plans, the government provided support for oil palm cultivation under the Integrated Scheme of Oilseeds, Pulses, Oil Palm and Maize. It had also supported a special programme on Oil Palm Area Expansion (OPAE) under the Rashtriya Krishi Vikas Yojana in 2011-12 with the aim of bringing 60,000 hectares under oil palm cultivation, which continued till March 2014. There have been other initiatives, too.

“It is true that the mission to boost domestic oil palm and palm oil production has been on for almost 30 years, but it hasn’t been satisfactory because in several instances, the state governments did not release their share of subsidy and much of the announcements remained on paper,” says Balram Singh Yadav, managing director of Godrej Agrovet Ltd, one of India’s largest oil palm player. “Subsidy on seedlings, fertilisers and other inputs have to be shared between the Centre and states. Unless the latter takes keen interest in promoting oil palm cultivation, the project won’t take off.”

The funding pattern was to be shared 50:50 between central and state governments in 201415, and was revised to 60:40 for general category states and 90:10 for Northeastern and hill states in 2015-16.

Oil palm cultivation has flourished in Andhra Pradesh because of the support of successive state governments.

Being a crop that gives 6-8 times more oil than any other conventional oilseed, oil palm plantations have largely come up in areas earlier occupied by paddy.

Yadav says the assured price mechanism was there earlier as well but it was indexed to international Crude Palm Oil (CPO) prices, and if there was a sharp drop in their rates, farmers suffered losses. Also, the oil extraction rate was unrealistic for industry to pay, but to pacify farmers, states kept increasing it, which put the industry off.

Commenting on how yesterday’s Cabinet decision is different from previous attempts, Yadav says it is path-breaking not only because it attempts to give a Viability Funding (VF) as a floor rate for Fresh Fruit Bunches (from which palm oil is extracted), but also assures a formula to compensate farmers if CPO prices fall in the international market. “In other words,” he says, “farmers’ investment is literally risk-free.”