India spends over $10 billion on imports of edible oil every year, and this bill is only next to the one incurred on crude oil and gold imports. Attempts to increase the area under oilseeds in India have not been very successful, but demand has been rising perennially.
Indian edible oil imports have grown at an annual growth rate of 13 per cent for the past decade. In 2014-15, edible oil imports reached a record high of 14.3 million tonnes, up by 25 per cent over last year. Imports will continue to rise, going by the current Indian crop scenario.
Palm oil imports constitute nearly 75 per cent of the total edible oil imports. Palm is generally the cheapest commodity vegetable oil and also the cheapest oil to produce and refine globally.
In its latest move, the government has announced a package of ₹10,000 crore over three years, which is intended to support farmers until the trees begin to yield (it takes three to five years for the palm tree to start yielding fruit). The government has identified nine States with suitable climatic conditions. A feasibility study on an island near Kolkata is underway. The government also allowed 100 per cent FDI in palm oil plantations earlier this month.
Global cultivation Indonesia and Malaysia are the two major palm oil producers globally, producing nearly 85 per cent of the global output. Indonesia churns out nearly 33 million tonnes, followed by Malaysia with nearly 20 million tonnes.
The palm oil plant is grown in a nursery for 12-18 months before it is planted in the field where it bears fruit 30 months later and has an economic life of 20-30 years. A mature tree produces 10-15 bunches a year. A normal plantation yields four tonnes of palm oil per hectare per year. The best plantations have yields of 7-8 tonnes/hectare or even higher. Although there are peaks and troughs, harvesting occurs all the year-round, producing a continuous supply of oil.
The best growing conditions for palm trees exist in a small band around the equator, limiting the number of places the crop can be successfully farmed. These regions coincide with the rainforest zones.
More and more environmentalists are opposing the rapid expansion of palm plantations at the cost of rainforests in Indonesia and Malaysia. As a result, companies have been looking for other geographies to expand the plantation.
Indian palm oil production is estimated at 1.7 lakh tonnes for 2014-15, up from 0.6 lakh tonnes 2010-11. Andhra Pradesh is the leading producer (86 per cent of total), followed by Kerala (10 per cent) and Karnataka (2 per cent). Unlike in Indonesia or Malaysia, in Andhra Pradesh, palm oil cultivation is mostly irrigated.
Expansion not easy So, can India successfully expand on its domestic palm oil cultivation to meet its gaping deficit? There are many limitations.
First and foremost, lack of large land tracts is a major constraint. The industry wants the government to declare palm oil as a plantation crop to move it out of the Land Ceiling Act. A second limitation is the weather. Palm requires humid weather throughout the year.
The harsh Indian summer impacts both crop development and yield. In hot summer months, the recommended irrigation is 300 litres per plant per day. This limits the regions where this crop can be grown.
A third constraint is the lack of infrastructure. Close proximity between farms and processing mills is a must.
The fresh fruit bunches should be processed within 24 hours of harvest to obtain good quality oil. A delay leads to build-up of free fatty acids.
Last but not the least, there’s the lack of trained and experienced farmers who can successfully make money out of this crop. As a solution, the government has allowed 100 per cent FDI in the sector.
This, it is hoped, will usher in processing technology as well as trained personnel to speed up the plantation process.
But unless and until the bottlenecks mentioned above are addressed, the policy announcement alone may not be enough to tackle the burgeoning import bill.
The writer is VP, Agri Value Chain, Edelweiss Financial