Edible oil economy hamstrung by a lack of cohesive policies

| Updated on September 26, 2019 Published on September 26, 2019

Growers in India find oilseed cultivation patently uneconomical relative to cash crops such as maize and cotton, as the hefty hikes in MSPs have remained on paper

Seized of the stagnating output of oilseeds and a rising edible oil import bill, the Agriculture Ministry has recently outlined ambitious plans to boost oilseed output from 32 million tonnes to over 45 million tonnes by FY22. The Ministry’s renewed focus on oilseeds is welcome, given that this is one of the few food crops where India has made scant progress in attaining self-sufficiency with a 65-70 per cent import dependence. Despite persisting shortages of edible oil, both India’s oilseed growers and its solvent extraction industry continue to be in deep distress. While they’ve been unable to capitalise on the burgeoning demand, importers and speculators have made merry as India has shelled out $10-11 billion a year on imports, making this one of the largest import items after crude oil and gold. The lack of a holistic policy for the edible oil sector that balances the interests of domestic consumers with processors and growers, and ad-hoc trade interventions have hamstrung the sector.

Though the Agriculture Ministry has predicated its new production targets on technology support, geographical diversification of the oilseed crop and increasing rain-fed cultivation, identical efforts have fallen flat in the past. Growers in India find oilseed cultivation patently uneconomical relative to cash crops such as maize and cotton, as the hefty hikes in Minimum Support Prices (MSPs) have remained on paper. In the 2018-19 crop year, despite ‘record’ procurement of oilseeds by NAFED and FCI under the PM Aasha scheme, these agencies mopped up less than half of their Central target, and oilseed prices at mandis ruled well below MSPs. The lack of any clear policy on how procurement agencies are expected to liquidate their acquired oilseed stock has impeded these operations. While oilseed growers are disincentivised by poor prices, solvent extractors have been squeezed by indiscriminate imports of cheaper palm and soya oil, due to irrational tariff structures that pay no heed to domestic production costs. In the current year, for instance, the Centre’s move in January to slash the import duty on crude palm oil from 44 to 40 per cent and to shrink the duty differential between crude and refined oil to just 5 per cent led to a flood of Malaysian refined oil imports, before a recent rethink. Apart from price-sensitive consumers, lax regulation of the packaged foods and hotels industry in India also opens the doors to low-quality imports.

For domestic growers and solvent extractors to have the economic incentive to ramp up output, policymakers need to rethink on several counts. Including cooking oils in the PDS may provide a fillip to procurement operations while ensuring affordable supplies. To revive distressed processing capacity, import tariffs need to be dovetailed with domestic MSPs and refining costs, with no ad-hoc tinkering with the tariffs. Consumer awareness efforts may be needed to showcase the benefits of indigenous varieties.

Published on September 26, 2019
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