Time to give oilseeds production a boost

Sthanu R Nair Sthanu R Nair? | Updated on December 13, 2019

Import of this commodity is costing India dear. The trade tussle with Malaysia should be used to strive for self-sufficiency

In response to Malaysian Prime Minister Mahathir Mohamad’s remarks at the UN against India’s decision to read down Article 370 in Jammu and Kashmir, in October this year, the Solvent Extractors’ Association of India — the apex edible oil trade body — has issued an advisory to its members to avoid import of palm oil from Malaysia. On its part, the Union government has imposed a 5 per cent safeguard duty on palm oil imports from Malaysia with the goal of restricting imports from that country.

Malaysia is the world’s second largest producer and exporter of palm oil after Indonesia. India is the world’s largest importer of edible oil. As much as 70 per cent of India’s domestic demand for edible oil is met through imports, of which palm oil constitutes around 80 per cent. India is the third-largest export destination for Malaysian palm oil.

Though Indian refiners have resumed purchasing Malaysian palm oil after a gap of close to a month, the ‘trade spat’ with Malaysia draws our attention on the need for achieving self-sufficiency in oilseeds and edible oils production, thereby reducing India’s huge edible oil import and foreign exchange outflow.

In her Budget speech Finance Minister Nirmala Sitharaman had called for attaining self-reliance in oilseeds production. The Commerce and Industry Ministry recently asked the Agriculture Ministry to prepare a plan for achieving self-sufficiency in edible oils. India’s edible oil import bill currently exceeds ₹60,000 crore per year.

After crude oil, gold, and diamonds, edible oils is India’s largest import item. If we look back, it would be surprising to know that because of failed government policies we have reached this situation from a position of self-sufficiency in edible oil production. Until the mid-1960s, availability of edible oil was largely sufficient to meet India’s domestic consumption demand. However, in the 1970s and 1980s due to shortfall in oilseeds output and growing demand for edible oils, India’s edible oil imports surged. As a percentage of total edible oil availability (domestic production plus imports), edible oil imports increased from a meagre 2.19 per cent in 1960s to 10.50 per cent in 1970s to 26.06 per cent in 1980s.

Yellow revolution

To achieve self-sufficiency in edible oils production the government has launched several policy initiatives since the mid-1980s. They mainly include supply of high yielding oilseed cultivars, extension services and subsidised inputs; offering of minimum support prices (MSP); fixation of price band; import controls via canalisation; and promotion of oil palm cultivation.

The outcome of these initiatives, known as “Yellow Revolution”, were highly encouraging. Between 1985 and 1994 the growth rate of area, production and yield of oilseeds increased significantly. As a result, the proportion of imported edible oils in total edible oil availability declined from 26.72 per cent in 1985 to 2.17 per cent in 1993, thereby making India almost self-sufficient in edible oil production.

However, this momentum did not sustain due to two reasons. First, in response to economic liberalisation and Word Trade Organisation commitments since the early-1990s, India gradually liberalised edible oil imports. This has resulted in a significant increase in the import of edible oils.

Faced with cheap imports, farmers reduced the area under oilseeds cultivation which, in turn, caused a dent on edible oils production. Second, the MSP system for oilseeds became ineffective due to inadequacy of MSP in relation to the cost of production and lower procurement by government agencies. This has also discouraged oilseeds cultivation.

Steps needed

Thus, to reduce edible oil import dependency, India needs to find ways to increase domestic availability of edible oils. There are several ways to achieve this goal. First, being the world’s second largest producer of rice, India has tremendous potential to produce rice bran oil (RBO). Currently, India (950,000 tonnes) is the world’s largest producer of RBO after China (200,000 tonnes). RBO has been scientifically proved to be a healthy oil. RBO absorbs less oil while preparing the snacks and is best cooking oil for deep and quick frying.

However, due to lack of awareness about the health benefits of RBO among Indian households, the usage of the oil for cooking purposes has been limited. Therefore, the government and the edible oil industry need to work together to promote the production and usage of RBO.

Second, the huge import of edible oil needs to be restricted either by increasing the import tariffs or through a system of fixing an annual import ceiling limit and strict monitoring of imports. Such a strategy might increase domestic production of oilseeds as happened during yellow revolution.

Third, under the Technology Mission on Oilseeds launched in 1986, the strategy of fixing a price band and allowing the domestic prices of oilseeds and edible oils to fluctuate freely within the band has worked successfully to incentivise oilseeds production. Prices were regulated by the government, including through changes in import duty, only when market prices breached the limits to the benefit of either the oilseed growers or consumers. Similar strategy can be adopted for improving oilseeds production.

Finally, appropriate policy support should be provided by the government to remove the bottlenecks faced by the oilseeds sector. The oilseeds sector currently lacks adequate policy, investment and research support. For instance, Indian scientists and farmers have developed technologies or experimented new methods that have the potential to improve the yield of oilseed crop. Efforts must be made to boost oilseeds production by effective use of such indigenous technologies.

The oilseed growers in India face numerous constraints. They mainly include poor access to quality inputs and organised markets; high input costs; inadequate storage infrastructure and irrigation facilities; price inadequacy and uncertainty; high transportation costs; and poor extension services. For improving productivity and production of oilseeds these problems need to be addressed.

Pulses story

Due to pressure from import lobby, particularly from palm oil producing countries, successive governments in India have not shown keen interest in exploring policy options to reduce the dependence on edible oil imports. The trade tussle with Malaysia should be used as an opportunity to realise this goal.

In the last five years, India has achieved tremendous progress in improving the production of pulses, another import dependent of agriculture. The growth rate of pulses production increased from 5.66 per cent in 2009-2014 to 11.21 per cent in 2014-2019. As a result, India has been inching closer to achieving self-sufficiency in pulses production.

This feat was made possible through various government policy support measures. They include higher MSP, supply of quality seeds through seed hubs, persuading farmers to replace old seed varieties with new ones and to grow pulses in semi-cold regions, improved irrigation facilities, increased government procurement of pulses, and imposition of ‘temporary quantitative restrictions’ on pulses imports. Now, it is time to replicate the success achieved in pulses in the area of oilseeds.

The author is Associate Professor of Economics, IIM Kozhikode

Published on December 13, 2019

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