India’s Major Crops: Palm Oil
Palm oil is principally obtained from Oil Palm (Elaeis guineensis) also known as African oil palm or macaw-fat. This perennial crop originated in West Africa and spread in different parts of the world from there. Two types of oil is produced from this plant viz. palm oil from mesocarp of its fruit while palm kernel oil from its seed kernel. Both these oils are used in culinary as well as industrial purposes.
Importance of oil Palm
The import bill for edible oil is around $10 billion which is India’s third-highest overseas spending after oil and gold. This has many problems. It widens the current account deficit and it poses a challenge to the economy. There is a dire need to increase domestic production of edible oils. This can be done by two ways. One is to increase the productivity of existing oilseeds such as mustard, groundnut etc. or promote cultivation of a crop which surpasses all of them in productivity. Such crop is oil palm.
The palm oil plant is known for its high yield of edible oil. While productivity in other oil seed plants is less than 1 tonne per hectare; oil palm gives around 4 to 6 tonnes per hectare of palm oil and 400 to 500 kilo palm kernel oil from its 4th year to 25th year. It has price advantage and good digestibility make it readily acceptable as cooking medium. It is also used as a raw material to manufacture oleochemicals used in making soaps, candles etc.
Production worldwide
Although the plant originated in West Africa, it has naturalized in the tropical regions within 20° of the equator. The plant is most abundant in South East Asian countries because of favourable climatic conditions there.
Global production of palm oil is around 50-52 million tonnes of which 85% is produced by Indonesia and Malaysia. With 28.4 million tonnes of palm oil production in 2013, Indonesia is world’s largest producer currently. These two countries also supply most palm oil imports of India.
The importance of Palm oil in global edible oil economy can be gauged from the fact that it accounts for one third of total global edible oil production from only 6 % of the total global Oilseeds Harvested Area. It has about 60% share of the world’s trade in Edible Oil.
Consumption and Import in India
Currently, India is world’s largest importer of edible oil. The demand supply gap is such huge that India has 60-65% import dependency in case of edible oils. The import bill for edible oil is around $10 billion which is third-highest overseas spending after oil and gold. Palm Oil, imported from Indonesia and Malaysia, accounts for about 80 % of total Edible Oil imports.
Production in India
India’s share of palm oil production is small, accounting for 0.2% share in the total world produce on 1% of the global acreage. However, the acreage has been growing at a significant rate of 20% in last few years. Under various government schemes, palm oil production in India has also grown but as of now, India will remain net importer of this oil.
Currently, area devoted to oil palm is around 200,000 hectares and output is around 70,000 tonnes a year. Largest area was under Andhra Pradesh (including Telangana). These states & UTs include Andaman & Nicobar Islands, Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Karnataka, Kerala, Maharashtra, Mizoram, Odisha, Tamil Nadu and Tripura. By 2013 figures, Andhra Pradesh is the leading palm oil producing state in India contributing approximately 86 % of country’s production, followed by Kerala (10%) and Karnataka (2%).
Government Policy towards Oil Palm Promotion
The first major policy initiative of the government of India was the Oil Palm Development Programme launched in 1991-92 under the Technology Mission on Oilseeds and Pulses (TMOP). The objective of this programme was to expand the area under oil palm cultivation. From 2004-2005, the scheme is being implemented under Integrated Scheme of Oilseeds, Pulses, Oil Palm & Maize” (ISOPOM). Currently, this scheme provides support for oil palm cultivation in 12 states viz. Andhra Pradesh, Assam, Gujarat, Goa, Karnataka, Kerala, Maharashtra, Mizoram, Orissa, Tamil Nadu, Tripura & West Bengal.
In 2011-12, the government also rolled out a new scheme called Oil Palm Area Expansion (OPAE) Programme in order to bring an additional 60,000 hectares area under oil palm cultivation. Further, government has announced various subsidies for oil palm growers for planting, buying pump set and drip-irrigation systems, partial compensation in case of loss during the gestation period and support for processing units.
Current Government Stance on Oil Palm
The current NDA government is pushing to make India self sufficient in edible oils in this decade. The government is planning to spend $1.5 billion in the next three years to help farmers grow oil palm trees.
Protection of Oil Palm Cultivators – The Oil Palm Acts
Once planted, the oil palm tree has a productive life beginning at 4th year and ending at 25 to 30 years. The oil is extracted from the mesocarp of its fruit and its seed kernel. Each palm tree produces around 5-12 fruit bunches every year. Each bunch weighing average 25 kilogram has around 2000 fruits.
One of the key requirements of this cultivation is that the Fresh Fruit Bunches (FFBs) of oil palm are highly perishable and need to be processed within 24 hours after harvesting. If there is delay in processing, quality and quantity both will suffer. This implies that oil palm plantation must go hand in hand with the development of processing facility. However, at farm level this facility can not be viable owing to small size of farms in India. Due to this, some states have enacted laws to mandate the nearby factory to immediately purchase all FFBs produced in the area.
Such acts are in force currently in Andhra Pradesh, Tamil Nadu, Goa and Mizoram. Andhra Pradesh was the first state to promulgate such legislation. This act empowers the state government to declare by notification any area as “factory zone” for the purpose of supply of the Frech Fruit Bunches by the farmers to the factory. The farmers in that area will supply all FFB to a designated factory and not anyone else. This factory needs to buy all FFB produced by all farmers in the factory zone at a price not less than fixed by the government. If the factory fails to buy the FFB without any valid reason, it will be liable to pay compensation to farmers.
Major constraints in domestic cultivation of oil palm
There are several constraints in domestic cultivation of oil palm in India. These are discussed briefly here.
Geographical location
Although the tree has naturalized in the tropical regions within 20° of Equator; yet the most ideal location for oil palm tree are within the 8° latitude north and south of equator. Thus, India’s mainland is not ideal geographical position for oil palm cultivation.
Irrigation
The oil palm tree needs regular rainfall, a characteristic of tropical climates. The hydrology of most states in India is such that it does not support the abundance of oil palm.
Long gestation period
Although oil palm has high productivity in comparison to other crops such as mustard. Yet, the cultivator needs to wait for four years for trees to start yielding oil.
Small farm holdings
The farmers in India have small farm holdings and this makes palm cultivation challenging.
Unstable policy
Domestic prices of Oil Palm are significantly affected by cheaper imports from Malaysia and Indonesia, thus demoralising the production. Further, there is only an ad-hoc and un-remunerative FFB price fixing formula. Further, the financial support and institutional credit to this sector has been insufficient.
Limited investments by private sector
Unlike Malaysia and Indonesia, the entry of large corporate into planting has been limited in India and subject to much regulation including Land ceiling rules.
The Land Ceiling Issue in Oil Palm Cultivation
Contrary to the captive plantation in Malaysia, the Oil Palm is cultivated in small holdings in India. Land is a state subject in India and various state governments have passed the land reforms acts. Such acts restrict the size of land holdings by individual farmers and purchase of land by non-agriculturists. This land ceiling problem occurs with only Oil Palm because so far Oil palm has not been recognized in India as a plantation crop like tea, coffee and rubber. This means that large scale cultivation is not possible by private / firms / individuals because oil palm needs massive land to be cultivated in economically viable way. The logic of the states to limit palm coverage is that the corporations might take over large tracts of the land at the cost of other crops. This is an important reason as to why land ceiling laws don’t allow commercial cultivation of oil palm by private companies in India.
Palm Oil Cultivation and Sustainability Issues
In recent times, there has been a constant rise in demand of palm oil from all parts of the world. This has led to a high rate of growth in oil palm production at a CAGR of more than 6% both by high yield and high acreage. But this has raised several sustainability issues globally. The major problems created include deforestation; loss of biodiversity; climate change; misuse of pesticides etc.
One example is that in Indonesia and Malaysia, almost one third forest was lost in only last one decade due to expansion of the oil palm. Forests are cleared and peat swamps are drained, also burnt which causes air pollution (haze) in large areas and ultimately contributes to global warming. Loss of natural forests results in loss of several ecosystem services; loss of livelihoods; and also imperils the wild species because their natural habitats are being destroyed. Some of the most affected species include Sumatran Rhino, Sumatran Tiger, Elephant and Orangutan.
Here, the notable point is the Oil Palm itself is not a problem. The problem is how it is cultivated and palm oil is produced. If it is done right – for example, degraded land is used to grow oil palm instead of bringing down forests; it can serve as a catalyst to growth of livelihoods and enhance biodiversity. Roundtable on Sustainable Palm Oil (RSPO) and Green Palm are such initiatives that promote the sustainable production of palm oil.
