India’s ‘Chai Pakoda’ Habits Have Got Finance Minister Anxious

Indians love their fried food and this has caused an ‘oily’ situation for our economy.

5 min read
Hindi Female

The world’s richest democracy, the US, as we know it, is addicted to crude oil while the largest democracy — on the other hand — is hooked on cooking oil. We just don't seem to be getting enough of it. From just half a million tonnes in 1990-91, our imports of cooking oil have swelled 30 times over to 15 million tonnes now. It is the single largest item of food import, costing 9.89 billion USD last year.

We've shown to have a finicky choice of oils at home, preferring the ‘better’ ones like mustard, canola, soybean, and sunflower. However, unknowingly, we consume huge quantities of saturated fats in the form of palm oil (45 percent compared to 6 percent of mustard oil) while snacking on potato chips, namkeens, biscuits, samosas, kachoris, cakes, muffins, etc. Imports account for 66 percent of our edible oil consumption and in that, palm oil had a 43 percent share last year.


How Practical Is FM’s Oilseeds Self-Sufficiency Claim?

Given our import dependency, it was a stretch indeed for the Finance Minister Nirmala Sitharaman to express such faith, in her budget speech, that we would be self-sufficient in oilseed like we are in pulses.

I place my appreciation for our farmers who have made India self-sufficient in pulses. I am sure they will repeat such a success even in the production of oilseeds.
Nirmala Sitharaman

In pulses, we are moving 'towards’ self-sufficiency; we are not there yet. Domestic production meets about three-fourths of our requirement but considerably wavers with weather and prices.

The gap met through imports can be bridged if farmers are assured of prices, irrigation, and better quality seeds.

Interestingly, we are the only country in the world that consumes such a variety of pulses and that too in huge quantities. The countries we import from have no other buyers to turn to except say, for chickpea or chana.

But the world is awash with cooking oil. Demand exceeds supply. Yet, prices currently stand at multi-year lows.

Malaysian palm oil, at 476 USD a tonne, is 37 percent of the peak February 2011 price. Rapeseed (mustard) is trading at 840 USD a tonne, slightly less than half of the peak June 2008 price. Soybean oil at 619 USD a tonne is 40 percent of the June 2008 high point of 1,540 USD a tonne. Sunflower oil at 725 USD a tonne has fallen 65 percent during this period.

Higher Productivity, Not Import Duties, Will Help

Imports have continued unabated despite the increase in import duties. The import duty on crude cooking oils was nil and that on refined oils was 7.5 percent when petroleum prices were at their peak in 2012. The prices of the two are correlated because edible oil is also used for making biofuels.

The Modi government has followed a rather protectionist policy. From 7.5 percent and 15 percent for crude and refined cooking oils respectively in December 2014, the effective import duty is 38.5 percent and 49.5 percent now. The rate for crude palm oil is higher, but because of the free trade agreements with Malaysia and Indonesia, imports from these countries are taxed at 44 percent.

Raising import duties further may reduce consumption and imports, but will upset consumers and hurt the food processing industries. India’s best bet is to expand acreages under oilseeds and raise their productivity.

The focus should be on oil palms because they yield the most oil — 4 tonnes per hectare. In 2006, the government launched a programme called 'Isopom' to promote oil palm cultivation. A little over 19 lakh hectares has been identified as suitable in 15 states. Currently oil palm is grown on 3.45 lakh hectares with nearly half of it in Andhra Pradesh alone.


Andhra And Telangana Farmers Show Promise in Palm Oil Productivity

India’s productivity is 5 tonnes of fresh fruit bunches (FFB) per hectare while that of Andhra Pradesh and Telangana is 8 tonnes per hectare. Malaysia’s is 20 tonnes per hectare. Evidently, there is a lot of catching up to do. Under good management, some farmers in Andhra Pradesh and Telangana have achieved as much as 40 tonnes per hectare. A farmer in Mysuru district got 53 tonnes of FFB per hectare — the highest so far.

In terms of oil, the national average yield is 0.88 tonnes per hectare. That of Andhra Pradesh and Telangana is 2 tonnes per hectare — half the international average.

Oil palm is a 30-year crop. It starts fruiting after the third year. In 2012, CACP, the agricultural costs and prices commission had said that the farmers should be compensated for the loss of output during the first three years. Acting on that advice, the government subsidizes planting material, fertilisers, and to an extent, the cost of cultivation.


Should Oil Palm Be Declared A Plantation Crop?

CACP had also devised a formula for the pricing of FFBs by oil companies. This is linked to the international price of crude palm oil and the oil extraction rate. To be viable, the price should be Rs 9,500 a tonne, says Ravi Mathur, Director of the Indian Institute of Oil Palm Research (IIOPR) at Pedavegi in West Godavari district, Andhra Pradesh.

The current price is Rs 7,900 per tonne. A year ago it had fallen to Rs 6,000. The government must pay farmers the difference between the support price and their selling price.
Ravi Mathur, Director of the Indian Institute of Oil Palm Research (IIOPR)

Mathur wants oil palm to be declared a plantation crop so that corporations can enter the field (as in Malaysia and Indonesia — the biggest producers of palm oil).

Unlike smallholder farmers, the corporations can take financial risks and also do cultivation scientifically.

Declaring oil palm as a plantation crop will allow corporations to buy or lease agricultural land (currently only farmers can buy and sell it). “Plantations are not important,” says Vijay Paul Sharma, Chairman, CACP. “There are other issues that need attention on priority,” like the quality of planting material and the pricing of FFBs, he says.


The Case of Mustard, Soybean, And Demand Of Indian Consumers

The Solvent Extractors’ Association (SEA) , an oil industry lobby, says that the expansion of mustard cultivation to the irrigated areas of Punjab and Haryana will not only check the depletion of groundwater, but also double the current low average productivity of the crop (1,193 kg per hectare).

Among oilseeds, mustard has high oil content ranging from 37-42 percent or 441-501 kg of oil per hectare. This is low compared to the oil yield of oil palm but mustard is an oil of choice for people in north and eastern India.

In 2017, SEA launched Mission Mustard 2020 to expand the area under the oilseed from 6.5 million hectare to 10 million hectare. It wanted the government to help by offering profitable prices to farmers and assuring them of procurement. But the mission has not made much headway.

Soybean accounted for a fifth (3.16 million tonnes) of our edible oil imports last year. The domestic production is about 1.4 million tonnes and its oil content is 17-18 percent. So, expanding the area beyond the current 2 million hectares will not make a big dent in imports.

Siraj Chaudhry, chairman of Cargill India, a big commodity trader that imports and retails cooking oil in India said:

If mustard and soybean area is expanded significantly, what will India do with oilmeal?
Siraj Chaudhry

The demand for de-oiled cake from the poultry, piggery, dairy, and fishery industries will be limited because unlike China, India is not a predominantly meat-eating country. Perhaps, supply will create its own demand.

(Vivian Fernandes is a senior journalist and runs a website calledSmart Indian Agriculture. He tweets @VVNFernandes. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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Topics:  Economy   Food   Finance Minister 

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