Of late, policymakers in the country have been expressing deep concern over the widening supply-demand gap in vegetable oils, an essential food commodity of mass consumption. Brainstorming sessions to discuss strategies to move towards self-sufficiency have become the order of the day as it costs the country well over $12 billion a year to import 13-14 million tonnes of various oils to augment domestic availability.
Even as weather related damage to oilseed crops pushed up global vegetable oil prices last year, the situation has worsened following the outbreak of the Russia-Ukraine conflict, which has disrupted supplies, especially of sunflower oil.
The prices of palm oil, soybean oil, rapeseed oil and sunoil have reached record levels (in some case doubling from year-ago levels) much to the dismay of import-dependent countries such as India. Given its high weight in the price index, edible oil is seen adding to food inflation in our country.
The Prime Minister is keen on achieving ‘atmanirbhar’ or self-sufficiency in oilseeds and oils. While oil palm cultivation has caught the fancy of the policymakers, a lot needs to be done to strengthen the entire vegoil complex so that the interests of all stakeholders (growers, consumers, industry) are finely balanced.
Backward linkage
A key component of the atmanirbhar strategy should be to mandate that the processing industry establishes backward linkages and contributes to augmentation of raw material (oilseeds) production. This strategy is conspicuously missing in our country.
There is mistaken belief among a section of the Indian processing industry, represented by large refineries and solvent extraction plants, that a liberal policy of vegoil import is its inalienable birth right. However, this section of the industry has done nothing to advance domestic growers’ interests.
A policy that requires large domestic processing entities to establish backward linkages to produce oilseeds is perfectly justified and is the need of the hour. Vegetable oil importers must mandatorily contribute to import substitution.
Large processors must establish backward linkages, work with FPOs (farmer producer organisations) and help lift domestic oilseed production. Established and time-tested models of contract farming are available. A fake narrative of ‘Make in India’ by some entrenched interests in the industry to continue to promote unregulated large-scale vegoil import must give way to ‘Genuine Make in India’ which is when we produce and process more oilseeds domestically.
Lack of commercial intelligence
Policymakers often react to market and price situation in a kneejerk fashion. In case of policy intervention, this market needs more informed decisions. A key reason for ill-timed and inadequate policy response is lack of commercial intelligence about market dynamics and market outlook. Decisions must be data driven, but the government does not have the requisite data, especially about vegetable oil import.
This demands regulation and monitoring of import. Prior registration of import contracts with a designated authority will allow the government access to import plans, import prices, type of oil, period of arrival, and so on. Without this basic information, there can be no meaningful or rational policy response. Moreover, regulation will help prevent speculation-driven, excessive and unrestrained import of vegoils that depress domestic oilseed prices and hurt growers’ interest.
Cooking oil through PDS
While growers benefit because of regulated import, vulnerable sections of consumers must be supported by supply of edible oil through PDS/NFSA at subsidised rates. This country has a recorded history of supplying edible oil through PDS until the year 2002. It must be revived. PDS and private trade supplies can co-exist; they are not in conflict and both help advance consumer interest.
Palm oil import is inevitable because of its usually attractive price and proximity of supply source. Even as we work towards boosting domestic production, it is necessary to engage closely with countries such as Indonesia and Malaysia with which we have a long trading relationship.
From Indonesia, we import palm oil, timber and coal to name a few commodities. India’s balance of trade with Indonesia is adverse. Of late, the policies of the world’s largest palm oil producer have become less-predictable. Also, Indonesia imposes export duty on palm oil.
Government-to-Government dialogue with Indonesia can pressure the exporting country to review its export duty insofar as export of palm oil to India is concerned. G-to-G import of palm oil from Indonesia through our State agencies for supply through welfare programmes and open market sale may be considered. It will exert a salutary effect on market prices.
The writer is a policy commentator and agribusiness specialist. Views are personal