Jan 17, 2013

Is Palm Oil the Answer to India's Edible Oil Crisis?

Now this is getting too much. The chairman of the Commission for Costs & Prices (CACP) Dr Ashok Gulati has come out with another analysis which, if implemented, will take India from the frying pan into fire. That's what I feel. All through he has been shrieking at the top of his voice for cutting down on import duties on agricultural commodities. His argument has been that cheaper imports will make Indian farmers efficient, which in turn will improve crop productivity thereby increasing exports.

Nothing like that happened.

Writing in The Economic Times, he says in an oped article entitled: Oil palm: Answer to India's edible oil problem (ET. Jan 17, 2013. bit.ly/S5qtKS ) that India's edible oil import bill has crossed Rs 56,295-crore in the oil year, Nov 2011 to October 2012. "The projections of demand and supply of agri-products also shows that the biggest challenge of Indian agriculture will be in producing enough edible oils at globally competitive rates to meet its rising demand." Fair enough.

And then he very conveniently hides the fact that India had achieved near self-sufficiency in oilseeds production in 1993-94, many called it yellow revolution, after which the down slide began. From a near self-sufficiency status to becoming world's second biggest importer of edible oils is because it was after 1993-94 India had began to gradually reduce the import duties. As per WTO obligations, India is allowed to bound its import tariffs on edible oils at 300 per cent (except for soy oil where it has been pegged at 40 per cent, thanks to US pressure). But it was autonomous liberalisation that did the damage. At present, there is zero duty on crude edible oil and 7.5 per cent on refined edible oil. Now with import duties brought down to almost zero, what do you expect to happen?

Imports have been on an upswing. From Rs 14,709-crore in 2006-07, the import bill jumped to Rs 34,677-crore in 2009-10, and has further soared to Rs 56,295-crore in 2011-12.

You will agree that it is because of India's faulty policies that edible oils have turned into a big strain on the state exchequer. Obviously, the current account deficit will grow when imports increase and exports do not match. In fact, still worse, because we allowed cheaper edible oil to be imported, farmers abandoned cultivation of oilseed crops and shifted to other unremunerative crops (oilseeds are mainly grown in the harsh environs of drylands). At the same time, the domestic edible oil processing industry collapsed, in turn implying that it was a lost opportunity to create employment.

Just between 2006 and 2012, a period of six years, India has incurred Rs 2.02 lakh crore on edible oil imports. If India had continued with the oilseed self-sufficiency programme, as initiated by former Prime Minister Rajiv Gandhi, this entire amount would have remained within the country thereby helping farmers and the industry. Here also, people like Ashok Gulati were advising the successive governments on the dire need to open up imports. So first you the damage the country by encouraging imports, and then you try to inflict another bigger damage by campaigning for a crop which is known to be environmentally destructive.

While the Ministry of Agriculture is now contemplating a re-look at the import duties on edible oils (Govt to review import duty structure of edible oils. Business Line. Jan 15, 2013. ), Ashok Gulati is suggesting a shift to palm oil cultivation to meet the domestic demand. His suggestion is that India should bring 2 million hectares under palm cultivation in the next four to five years, for which he even advocates a compensation of Rs 4,000-crore to farmers as opportunity costs. CACP chairman doesn't want the wheat and paddy prices to be raised by even Rs 10/quintal but has no problem if the government was to shell out Rs 4,000-crore to farmers as compensation for palm oil cultivation!

Palm oil cultivation has a terrible socio-economic and environmental fallout (See this WWF report: Palm oil: Environmental impacts. http://wwf.panda.org/what_we_do/footprint/agriculture/palm_oil/environmental_impacts/) Knowing this, I don't think any sensible economist would advocate undertaking massive palm oil plantations, and on top of it provide huge subsidies to make it economically viable.

Meanwhile, the Government today has raised the import duty on crude edible oil from existing zero to 2.5 per cent. Ministry of Agriculture had proposed a hike of 7.5 per cent, which also is very low. To make any appreciable dent in the sense that India returns back to the path of self-sufficiency, the import duties should have been raised by 150 per cent. But then, that's not the intention of this government.


Anonymous said...

mass marketing by govt/doctors/nutritionist to have Sunflower oil instead of groundnut and popy seeds oil grown locally... now a new campaign by doctors on olive oil which again is a imported...

r said...

Mr. Sharma,
A while ago I read a chapter in "Ecofeminism" by Maria Mies & Vandana Shiva about how an increase ragi export demands back in the day could made this hardy, cheap and nutritious crop unaffordable to the local Indian people who really need it. The book was written in 1993, so it's been a while, but recently I came across this article in the Guardian which stated similar effect on the price of the nutritious crop quinoa in the South America, which at first seemed to makes sense:
On further reading I found out that vegans constitute a small portion of the US population and meat-eaters have also been taken by the quinoa bug, and recently the organic store (in India) that I buy grain from circulated a newsletter on the goodness of quinoa. I called and checked and the stock is imported from Germany and Bolivia. However a lot of vegans claim that they get their organic quinoa from Colorado at a reasonable price, so vegans at a community couldn't impacting the price of a staple crop in another country to that extent, plus the large areas of land in the US dedicated to growing the crops that the feed the fowl/fish/cattle that meat-eating masses consume forces the demand for more import, which brings to mind that the problem is more multifaceted than the manner in which it was stated in the article. (I know I must have have confused everyone, but stay with me!) As a person who is interested in this sort of thing, I have a couple of questions:
1)Is it as simple as the ragi dilemma that Maria Mies pointed in her chapter dedicated cheap staple locally grown ragi and the effect of rising export demands on local communities (that export demand raises crop prices of an earlier cheap, nutritious crop & effects local communities negatively?)
2)Has there been a study done on the rising popularity of ragi and the effect on its cost? Did it happen as she predicted it would in the book? I can't seem to find any info on this!
3)Was the guardian article some how trying to lay the blame on vegans, or at least some of it relevant?
4)Are the large areas land dedicated to growing cattle-feed and biofuel crops somehow impact the demand for imports of food crops?
5)Large demand for a particular crop giving rise to monoculture, I've already read in several articles that India has already been through this and it was bad for the environment and for farmers. Is Bolivia heading the same way as us or is it already there and is this old news?
As you can see, I'm pretty confused about these issues so I hope you find the time to answer my questions.

r said...

PS: Sorry about the missing words in between, I seriously need to copyedit before I post my comments!