Experts call for need to boost local edible oil output

A few days ago, Indonesia — the world’s largest producer of palm oil — decided to suddenly ban exports of the commodity to check spiralling domestic prices. But it clarified the next day that the ban would be only for select high-value products and excluded mass-consumed crude palm oil (CPO). However, a few days later, the country once again upheld the original decision to ban all varieties of palm oil regardless of quality.

Global and domestic edible oil prices swung wildly after this policy flip-flop. The volatile market movements once again exposed India’s much-talked-about vulnerability to international conditions on edible oil consumption. This is something that it will have to live with for many years, being one the world’s largest consumers of cooking oil.

Following the Indonesia crisis, many experts once again reinforced the need to improve domestic oilseed production. This is particularly true for mustard and soybean oil as well as palm oil, to some extent, so that India is sufficiently hedged against global price spikes. These spikes could get more acute, going ahead, as more and more oil meant for cooking is diverted to make biofuels.

Future scenario

At present, India imports 13-13.5 million tonnes of edible oil a year on an average, of which 8-8.5 million tonnes (around 63 per cent) is palm oil.

Of this 8-8.5 million tonnes of palm oil, almost 45 per cent comes from Indonesia, the rest from neighbouring Malaysia. The remaining is imported soy oil and sunflower oil.

According to an assessment by the Solvent Extractors’ Association (SEA), the premier body of oilseed extractors and processors, by 2025-26, India’s domestic edible oil demand will be about 26 million tonnes. Of this, just 13 million tonnes will be met through domestic production of oilseeds. Therefore, imports will continue to meet at least 50 per cent of the domestic demand. This is estimated to be 1213 million tonnes even in 2025-26, the SEA had said.

This scenario can change if there is a surge in domestic oilseed production in India , for which both the Centre and state governments have to make concerted efforts (which could also include commercialisation of breakthrough seed techniques).

Plans to boost domestic output

To lower India’s rising dependency on imported edible oil, the government has for quite some time been working on a multi-pronged strategy. The cornerstone of this is announcing a higher minimum support price than cereals and improving the procurement of oilseeds when prices crash.

In this, there has been renewed focus on expanding the area under oil palm and boosting rice bran oil output. However, despite all the measures, India’s import dependency on edible oil has continued to grow. This raises a big question on the existing and past initiatives to boost domestic production. Ashish Khandelwal, managing director, BL Agro, said that for long-term self sufficiency, we should have a duty structure that supports domestic oilseeds production. Also, prices of imported refined oil should not be less than domestic oils. “In the next six months, domestic edible oils prices will move closely in tandem with global rates,” Khandelwal said.

It is seen that a major drawback of most schemes and programmes to boost oilseed production is that they are not backed by a strong procurement system that comes with a guarantee on return on investments. This is why a big switch does not happen.

MSP and oilseed production

Data shows that though both the acreage and production of oilseeds have risen significantly in the past few years, due to higher MSP, they have not impacted rice and wheat production. Between 2014-15 and 2020-21 (July to June), when the MSP of paddy (common) was hiked by almost 37 per cent, the acreage under the crop fell only marginally by about 2.5 per cent.

And, while the MSP of wheat was up 36.2 per cent during the same period, there was a 10 per cent rise in its area under cultivation.

In contrast, between 2014-15 and 2020-21, the area under soybean cultivation was up by nearly 10 per cent as its MSP had risen by almost 51.5 per cent. In other words, though higher MSPS may have encouraged farmers to grow more oilseeds along with pulses, there has been no simultaneous shift away from wheat and paddy.

Experts say that unless backed by strong procurement mechanisms or ready markets, MSPS alone aren’t enough to encourage farmers to leave cereal cultivation and opt for oilseeds or pulses. During the past few years, India’s pulses production has risen from a mere 14-15 mt to almost 22-23 mt. This is not just due to higher MSPS, but also because of an assured procurement system by state agencies.

Palm oil mission

A major initiative announced recently to boost domestic edible oil production is revamping of the Palm Oil Mission. It has an objective of producing 2.8 million tonnes of palm oil locally by 2025-30. However, even if the mission succeeds, it will not be enough to significantly lower the import dependency.