G Chandrashekhar

A turnaround plan for oilseeds sector

G Chandrashekhar | Updated on February 25, 2020

Desired objective: Policy must balance growers’and industry interests   -  PTI

While a tech-driven boost to farm output is called for, imports for now should be restricted to seeds to protect industry

When a commodity is in short supply, it is logical to expect its price to rise and benefit producers; but ironically, Indian oilseeds are a tragic exception. Despite chronic shortage, oilseed growers are often in distress as market prices rule below the government-assured minimum support price.

In the absence of remunerative prices, growers have no incentive to improve agronomic practices and input management. No wonder, the cultivated area has got trapped in the 26-28 million-hectare range; and at just about 1,100 kg per hectare, yields continue to be abysmally low by world standards.

Successive governments have paid scant attention to lifting domestic oilseed production, and have exercised the facile option of allowing the import of vegetable oil, a finished product — a policy that directly hurts domestic primary producers’ interests. Over the years, the situation has worsened to the extent that currently, as much as 70 per cent of our vegetable oil consumption requirement is imported.

Our imports have reached 15 million tonnes, valued at about $ 11 billion (₹77,000 crore), by no means a paltry sum. Our edible oil security stands utterly compromised because of the omissions and commissions of the government. Traders and speculators immensely benefit from New Delhi’s benign indifference as also its knee-jerk response from time to time.

This alarming situation is unsustainable and deserves to be disrupted creatively. The most desired policy objective for the oilseed and vegetable oil sector is ‘to balance growers’ and consumers’ interests alike by ensuring remunerative price for growers and affordable cooking oil for consumers’.

Admittedly, liberal or free market import of edible oil for the last 25 years has advanced consumers’ interests; but has miserably failed to protect growers’ interest. The lot of the Indian oilseed growers is pitiable as they have no capacity to compete with low-priced imported finished products.

To move towards substantial self-reliance and to reduce the burdensome dependence on import, we need strategies to boost domestic oilseed supplies. The oilseeds to be targeted include groundnut, soybean and rapeseed-mustard which together account for over 80 percent of aggregate oilseed output.

Expand area and yield: There are two ways to increase oilseeds production — area expansion and yield increase. Area expansion can be achieved through crop diversification in grain mono-cropping area of Punjab, Haryana and Uttar Pradesh. The perils of gain mono-cropping (rice-wheat-rice cycle) are well known. In order to prevent an ecological disaster and encourage crop diversification, we need to incentivise oilseed cultivation in Punjab, Haryana and Uttar Pradesh.

This will result in multiple benefits, including arresting environmental degradation and augmentation of oilseeds supplies, which in turn will result in reducing the dependence on vegetable oil imports and help increase domestic processing capacity utilisation.

Yield increase can be achieved by adopting technology. It is critical that multiple technologies are adopted for boosting oilseed cultivation — information technology, biotechnology, satellite technology, nuclear agriculture technology, nanotechnology, drones and so on. Artificial intelligence has the potential to revolutionise Indian agriculture in general, and for oilseeds in particular. Breakthroughs in seed technology can help boost oilseeds production. India’s success in cotton (introduction of Bt Cotton) over the last 15 years is well documented. Oilseeds now cry out for attention. Additionally, there is the huge untapped potential of non-traditional sources such as tree-borne oilseeds that has been talked about for nearly 30 years, but little has actually been achieved.

Curb/regulate imports: Given the existing chronic shortage, in the short run, vegetable oil imports are inescapable; but progressive policy initiatives can help mitigate the adverse effects of such import on domestic oilseed growers. Excessive, speculation-driven, unrestrained import of vegetable oils needs to be curbed. It can be achieved through strict regulation of the import trade.

Imposition of an annual ceiling on vegetable-oil import volume, registration of import contracts, close monitoring of imports and a system of dynamic tariffs are strongly recommended. Additionally, the credit period on import should be restricted to 30 days, as a long credit period (90-150 days) encourages over-trading. A review every quarter, depending on the exigencies of the situation, would be in order.

These are easy-to-implement steps; yet they will help boost domestic oilseed prices much to the relief and motivation of growers. Oilseed crop marketability will improve. Ceiling on vegoil import and augmentation of domestic supplies will boost capacity utilisation in the oilseed crushing mills and solvent extraction plants, providing several spin-off benefits.

Boosting consumption: While the aforesaid strategy is sure to lift domestic oilseed production, we need to support consumers by including subsidised edible oil under government welfare programmes such as the targeted public distribution system (PDS) and the National Food Security Act. Such a move will help advance the country’s nutrition security and allow the financially needy to access cooking oils at affordable rates.

Indeed, the PDS and private supplies can coexist, as was the case until 2002, when the then government for some inexplicable reason discontinued edible oil supply through PDS. There is a strong case for reviving such supplies as it will benefit domestic producers as well as consumers.

It will also help reduce the existing skew in edible oil consumption as the bottom 30 per cent of the population — the financially and nutritionally challenged — do not get consumer-adequate quantity of edible oil at affordable rates.

After well over two decades of liberal import of vegetable oil, that has deeply hurt domestic oilseed growers, the government has taken cognisance of the dangers of excessive dependence on imports that compromise the country’s quest for self-reliance in food commodities.

It is heartening, there is recognition at the highest political level that the country’s oilseed sector needs policy support, research support and investment support, which together can help augment domestic raw material (oilseed) production and deliver higher returns to growers.

Oilseed import in lieu of oil: As part of strategy to counter the adverse effects of importing low-priced vegetable oils (finished goods), India should consider allowing import of raw material (oilseeds) as partial replacement for vegetable oils. Oilseed import will deliver multiple benefits for the economy. It will help reduce idle capacity in the processing industry and enhance capacity utilisation. This will in turn create more employment and incomes, especially in rural areas.

Crushing/extracting imported oilseeds will augment vegetable oil availability on the one hand, and provide oilcake/extraction as animal feed for the livestock industry, on the other. Demand for animal feed in the country’s burgeoning livestock sector is set to expand. Oilseed extractions can be exported too, if there is export parity.

This is exactly what China does to meet its domestic feed and edible oil requirement; and it makes eminent commercial sense. Currently, India imports about three lakh tonnes of oilseeds a year; but there is potential to import at least 100 lakh tonnes. Oilseed imports may be regulated in a manner that the landed cost does not fall below the minimum support price.

Modernise mills: As part of policy measure, the government must allot adequate funds to modernise oilseed-crushing mills. This step will help improve extraction efficiency. It is estimated that there are as many as 15,000 oilseed-crushing mills across the country; but many carry huge idle capacity. Together with liberal oilseed import policy, mill modernisation can potentially attract even foreign direct investment in the sector.

Towards genuine Make in India: Currently, large processing plants, especially refineries, seem to assume it is their birthright to access vegetable oil from abroad to run their plants. They lobby the government hard for continuing with liberal import policy for vegetable oil. Their ‘Make in India’ argument — allowing crude oil instead of refined oil import — is utterly untenable and spurious. Real Make in India would be through efforts to boost domestic oilseed cultivation and utilise domestic processing capacity.

To implement real Make in India, large processing plants should be mandated as well as incentivised to establish backward linkages to produce more oilseeds in the country. These processing plants can work in partnership with farmer producer organisations (FPOs) to boost oilseeds (raw material) output.

FPOs can play a critical role in efforts to boost domestic oilseed production. Growers need remunerative prices and ready markets. But, as I have witnessed, their weakness is lack of forward guidance relating to market direction and prices. By their very nature, commodity markets are dynamic and volatile even as several domestic and global factors are at play all the time. FPOs need hand-holding as well as guidance relating to market dynamics.

FPOs can also be trained to undertake exports of oilseeds such as selected groundnut kernels, sesame seed, niger seed and so on. There is a large export market out there. Organic oilseeds are another niche commodity for export.

Finally, strong political will is necessary to creatively disrupt the well entrenched interests that lobby for status quo. Perhaps the time has come to take bold decisions to genuinely move towards self-reliance in oilseeds. If we could do it in pulses, why not in oilseeds?

The writer is a policy commentator and commodities market specialist. Views are personal. Excerpts from a speech at the National Seminar on ‘Technological Innovations in Oilseed Crops for Enhancing Productivity, Profitability and Nutrition Security’ organised by ICAR-Indian Institute of Oilseeds Research in Hyderabad

Published on February 26, 2020

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