Relevance: GS-3: Food processing and related industries in India, location, upstream and downstream requirements, supply chain management.

Key Phrases: Edible oil market, Russia-Ukraine war, Indonesia’s ban on palm oil exports, Stagnant Output, Seed replacement rate, Mustard, BT Cotton, Bollgard I, Backward linkage, PDS, Government-to-Government dialogue, National Mission on Edible oil – Oil Palm.

Context:

• The Oil Palm Mission and BT Mustard together can help boost domestic output, and cut dependence on imports.

Current Situation:

• India is the second largest edible oil market in the world.
• It consumes, on an average, 21 Million Tonnes (MT) of edible oil each year, of which,
  • 7-8 MT are produced locally,
  • 13MT (66-68 %) are imported.
• India is the largest importer of edible oil in the world, which resulted to $18 billion outflow in last year.
• According to a Rabobank report, the annual consumption of edible oil is set to cross 34 MT by 2030, which would require import of almost 25 MT.
• Russia-Ukraine war stopped sunflower oil flows from Ukraine, and this was followed by Indonesia’s ban on palm oil exports. A price rally of more than 50 per cent followed, impacting both the industry and the consumers.

Reasons for low domestic production of edible oil:

• Area under cultivation remaining stagnant:
  • The area under cultivation increased from 26.3 lakh hectares in 2011-12 to 28.8 lakh hectares in 2020-21.
• Marginal improvement in crop yield:
  • The yield per hectare improved marginally from 1,193 kg per hectare in 2011-12 to 1,254 kg per hectare in 2020-21.
  • Consequently, total production increased from 29.8 MT in 2011-12 to 36.1 MT in 2020-21, at a compounded annual growth rate (CAGR) of 1.94 percent.
  • On the other hand, global oilseeds production increased from 447 MT in 2011-12 to 607 MT in 2020-21, a CAGR of 2.9 percent, which is almost 1.5 times India’s growth.
• Cropping patterns of the country:
  • Incentives for Indian farmers to grow oilseeds are still weak, as compared to other crops like wheat and rice.
• Low seed replacement rate:
  • On the Seed Replacement Rate (SRR), only around 15 percent of India’s total cropped area is sown with freshly obtained quality seeds every year, while the rest is sown with farm-saved seeds.
  • This ratio varies from crop to crop. For oilseeds, it varies between 20 percent and 80 percent. Therefore, the achievement of optimal SRR is imperative for better yields.
• Low level of mechanisation of farm activities:
  • Subdued growth of oil seeds production in India (effectively low yield per ha) can also be attributed to the lower level of mechanisation of farming.
  • Farm mechanisation rate in India has increased in the recent past, but it is still far behind other countries such as China.
• Competition from other commercial crops, coupled with price volatility:
  • Some crops such as oil palm have a long gestation period and, therefore, restrict income flow for a minimum of four-five years.
  • This coupled with fluctuation in the price of crude palm oil in the international market and competition from other economically viable crops such as rubber, areca nut, sugarcane, banana, and coconut, have contributed to low/ stagnant acreage.

Mustard could be an option

• Mustard is one of those, which has the potential to grow, in terms of both demand and supply.
• It is amongst the top two preferred oils in the upper half of India, which accounts for more than 50 per cent of our population.
• Post-Covid, the consumer pull has increased further as mustard is believed to be a healthier oil.
• Pre-Covid, the average consumption was 2.413 MT with CAGR at 0.4 per cent, while post-Covid it increased to 2.735 MT — a 13 per cent growth.
• On the supply side,
  • It requires lesser water as compared to wheat,
  • It is resilient enough to grow in a wide range of soil and weather conditions,
  • Its farm margin vis-à-vis wheat has also increased.
• These are attractive factors for the farmer to cultivate the crop.
• To accelerate the process, planting genetically modified mustard seed developed in India by our scientists must be allowed. This will give an immediate fillip to its adoption and yields, boosting farmers’ income and triggering increased acreage and production.

Measures need to be taken

• Backward linkage:
  • 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.
  • The processing industry should establish backward linkages and contributes to augmentation of raw material (oilseeds) production.
• Commercial Intelligence:
  • 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 imports. Therefore, in case of policy intervention, this needs more informed decisions.
• Changing cropping patterns:
  • Farmers should be encouraged to grow sunflowers during India’s rainy months and to cultivate rapeseed in the winter.
  • Higher production of rice bran oil and expensive peanuts could also serve as supplements.
• Integrated Approach:
  • The industry battled with price volatility and increased working capital requirements while keeping the plants running with paltry supply from alternative origins. Hence, an integrated approach is required to tackle these issues on an immediate and long-term basis.
• Government-to-Government dialogue:
  • The topmost priority should be to finalise win-win agreements with countries and trade blocs that can grow as alternative supply sources — for instance, Malaysia for palm oil and Mercosur nations for soyabean and sunflower oils.
  • Bilateral FTAs (Free Trade Agreements) are easier to undertake than multilateral ones. A staggered approach, ensuring food security first and then adding other items later, could help achieve faster outcomes.

Way Forward

• It is desirable to increase domestic oilseeds production to reduce import dependency in an uncertain geopolitical environment amid the increasing de-globalisation trend across the world, as huge reliance on imports could compromise the national interest in the long run.
• It has become imperative for a country like India to become not only self-reliant but also self-sufficient to the extent possible, which is economically prudent, as well as strategically sensible.

Sources: The Hindu BL

Mains Question:

Q. Discuss the reasons for edible oil import in India and suggest measures towards making the nation self-reliant in edible oils. (250 Words).