Needed, creative disruption in oilseed sector

When a commodity is in acute short supply, it is logical to expect its price to rise sharply and benefit the primary producers. But, unfortunately, Indian oilseeds represent an ironic exception. Despite chronic shortage, oilseed growers in the country have continued to remain in distress for long years without remunerative prices because of the faulty policies of the government.

Stagnating cultivated area (26-28 million hectares), low yields (1,000 kilograms per hectare) and unsteady output continue to characterise India’s oilseeds production. Prices often rule below the specified minimum support price. Lack of price support means no incentive for growers to improve agronomy.

This two-decades-old distress now needs a creative disruption. It is possible to finely balance the interests of primary producers (growers of oilseeds) and consumers of edible oil by ensuring remunerative returns for growers and affordable cooking oil for consumers.

The liberal, free-market import policy of last 25 years has failed to protect Indian oilseed growers. Changes in the rate of Customs duty as a fiscal instrument have failed to deliver adequate benefit to our domestic growers. Rising consumption demand and stagnant domestic production have worsened our import dependence for edible oil to over 65 per cent. We import of 14-15 million tonnes a year worth $11 billion (over ₹80,000 crore).

This level of import is unconscionable and unaffordable. Excessive import of low priced vegetable oil hurts domestic producers, and sooner we recognise this reality the better for our farmers. Boosting domestic supply is the way forward and there are multiple ways in which it can achieved.

Boost domestic supplies

Expansion of the cultivated area for oilseeds is possible. We need to introduce crop rotation in high-input, grain-mono-cropping regions of Punjab, Haryana and Uttar Pradesh. Grain mono-cropping (rice-wheat-rice cycle) has resulted in soil degradation and alarming decline in water table.

A part of the area under rice and wheat can be replaced with oilseeds on a rotational basis. If need be, incentives for crop shift may be considered along with assured procurement.

A major breakthrough in seed technology is called for. The revolution in cotton can be replicated in oilseeds, too. Indeed, Indian agriculture, in general, and oilseeds, in particular, deserve infusion of multiple technologies including information tech, satellite tech, nuclear agri-tech and nanotech.

The potential of non-conventional sources like rice-bran and tree-borne oilseeds has remained on paper for decades; it’s time we exploited these sources too through appropriate policies.

While the aforesaid strategies for boosting domestic supplies will show results in the medium-term (3-5 year timeframe), we need some quick-wins to mitigate the ongoing distress of oilseed growers. Admittedly, in the short-term, vegetable oil import is inescapable as we face a chronic domestic shortage. But the negative effects of import can be mitigated.

It is critical the government prevents excessive and often speculation-driven import of vegetable oils. This policy of unrestrained import suppresses domestic oilseed prices. Vegetable oil imports need strict regulation and monitoring. An annual ceiling on import volume may be considered and a system of dynamic tariff should be adopted. Sadly, the government has no clue about the import quantities contracted for, type of oil, origin, price, arrival period, and so on. In the absence of this information, the government often displays kneejerk reaction to the market dynamics. Monitoring of import through a system of contract registration will provide policymakers access to relevant information and help them take informed decisions.

A ceiling on annual import volume will lift the domestic oilseed prices above MSP, will improve the marketability of the crop and provide much-needed motivation to growers to enhance production which, in turn, will help enhance domestic processing capacity utilisation.

At the same time, vulnerable sections of consumers can be supported by distribution of edible oil under welfare programmes such as PDS/NFSA. This country has a recorded history of supplying cooking oils under PDS until 2002. Domestically produced oils can be procured for welfare programmes. Indeed, PDS and private sector supplies can coexist as they are not in conflict and will help meet the needs of different sets of consumers.

Allowing oilseed import (as partial replacement for vegetable oil) will deliver multiple benefits to all stakeholders along the value chain. Oilseed import will facilitate utilisation of the huge idle processing capacity; will generate more jobs and incomes for participants along the value chain; will augment vegetable oil supply; and generate cake/meal for the domestic livestock sector or for export.

Oilseed import may be monitored and appropriate tariffs can be used to ensure that the landed cost is not less than the minimum support price. At the same time, a modernisation fund for oilseed crushing industry would help improve processing efficiency.

Backward linkages

Refineries in the country think it is their birthright to enjoy an unrestrained import policy for vegetable oil. The industry must produce its own raw material. Large processing plants — crushers, solvent extractors, refiners — should be mandated to establish backward linkages with oilseed growers. The recently enacted agri-market reforms provide a great opportunity for processors to enter into ‘contract farming’. Working with Farmer Producer Organisations is the way forward for the processing industry.

The real ‘Make in India’ would be when we produce and process more oilseeds domestically, and not depend on government largesse in the form of tariff changes in imports.

Much has been talked about the potential of oil palm; but history tells us that our oil palm plans have failed to take off in three decades. Way back in 1988, the Chaddha Committee report first talked about the potential of 8 lakh hectares and a few years later it was revised upwards to 20 lakh hectares.

Currently, the area under oil palm is a measly 4 lakh hectares. There are fundamental flaws in our policy for oil palm promotion that deserve to be addressed urgently.

Finally, policymakers must demonstrate strong ‘political will’ for a creative disruption to decisively move towards atmanirbhar or substantial self-reliance in oilseeds and oils.

Based on a speech delivered by the writer, a senior journalist and policy commentator, at a webinar organised by Indian Chamber of Commerce, Kolkatta, and Indian Vegetable Producers Association, New Delhi, on October 13

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