This post has been authored by Punyaa Juneja and Purujit Dash, Economic Analysts at Arthashatra Intelligence

Ever since the onslaught of the pandemic, the spending habits of most people can be best described as frugal. In contrast, the prices of essential as well as non-essential products has been on an upward spike; Palm Oil being the focus here. The reason for the spike might be associated with inflation and the rise in petrol prices but there is a second aspect to the story.

Palm Oil is one of the most consumed vegetable oils in the world, and India is no exception. Infact, India is among the top consumers of Palm oil in the world along with China and EU. But have we ever thought about where Palm oil comes from?

Well,for most of the world,the Palm Oil is provided by Indonesia and Malaysia accounting for 50% of world global exports.The Netherlands, which is third in the race of export, has 9 times less export than Malaysia. Thus,one could clearly state that the Palm Oil market is concentrated in two nations and definitely holds the price hegemony. After the outbreak of the pandemic, the price of palm oil increased higher than what was expected. This happened due to the shortage of labour in Malaysia and Indonesia, as the majority of labor went back to their native place after the lockdown.At the same time, China started to stock Palm Oil to make sure the local demand is met despite the disruption in the global supply chain. Both these factors led to an increase in the global Palm oil prices.Interestingly, the EU and China use only 46 per cent and 58 per cent respectively of their palm oil in food-related productions while the rest goes into cosmetics, oleochemical and pharmaceutical products.

It\’s not just the supply chain and the prices that the palm oil industry has been impacting adversely as the global production quadrupled to meet the demands in the past 3-5 decades ;South-Asian Nations like Indonesia, Papua New Guinea and Malaysia have lost tremendous amount of forest coverage leading to wildfires through deforestation and the climate. Further, in recent years, the  entirety of  South-Asia has started to be covered in  smoke-haze affecting millions of people. China and the EU, being one of the biggest import markets, have started consumer awareness campaigns and shifted government policies to reshape the demand to be more sustainable. Today India plans toward creating 100% sustainable palm oil imports as 58% of its imports currently are covered under the NDPE policies.

India’s enormous population has grown rapidly over the last 3 decades. Consumption patterns and domestic productions have failed to keep up with the insatiable demand for Palm oil in India. In 2021, India is expected to import more than 90 lakh tonnes of palm oil of which 94.1 percent  is used in cooking purposes. In the palm oil industry, it is said that the Indian imports are extremely sensitive to prices as it has always focused on finding the lowest price of the numerous grades of palm oil but were not overly concerned as to how the commodity is produced. In June of this year, the government took the decision to cut down the import prices by 10% which is expected to bring the prices down. Another reason for the imports to rise in the past two decades has been due to the growing geopolitical relationships between the exporter nations. In the dawn of the 21st century, India was involved in many bilateral such as the India Malaysia Bilateral Trade Agreement and free trade agreements such as the ASEAN-India Free Trade Agreement (AIFTA) that offered tariff free access to a range of commodities, amplified the ease of trade and allowed negotiations for adjustments to duty rates of palm oil, which helped in Malaysia-India’s case the agreement didn’t allow the duty rates to rise above 45%

We  can now ,by full confidence, say that India needs to work on domestic production of palm oil which is why this month the Honorable PM has launched the ‘National Edible Oil Mission-Oil Palm (NMEO-OP)’ scheme to make farmers “Atmanirbhar”. Under this scheme, the  center plans to raise the domestic production of palm oil by three times to 11 lakh MT by 2025-26. This will involve raising the area under oil palm cultivation to 10 lakh hectares by 2025-26 and 16.7 lakh hectares by 2029-30. Andaman and Nicobar Islands and north eastern states will be the prime focus, primarily due to the favourable weather conditions. The Government ,in the past, has also opened the sector for foreign technology and capital in order to boost production but this is not the first time such steps are taken. India has tried to subsidize palm oil production through incentives but at that time two of the major producers supplied the market at devalued prices which made Indian farmers difficult to sustain.

Few of the problems faced in the past by farmers which demotivated them to continue with palm production are oil palm uptake of water being twice that of coconut averaging to about 300 liters per plant per day , significant distance between the mill and farmers and the fresh fruit bunches requiring immediate processing. These structural problems and supply chain issues need to be configured by government policies and end users although many multinational and Indian Companies along with the Government are participating to create a Sustainable Toolkit to rectify the ground issues associated with the trade and production of the palm oil industry. The road is long but we have taken the first step to right our wrongs.

References

• Finshots. 2021. Edible Oil to the Moon. 12 May. https://finshots.in/archive/why-are-edible-prices-on-the-rise/.
• India, WWF. n.d. WWF-Palm Oils. https://www.wwfindia.org/about_wwf/making_businesses_sustainable/palm_oil/.
• PANDEY, SAMYAK. 2021. To make India ‘atmanirbhar’ on palm oil, Modi govt approves separate National Mission. 18 August. https://theprint.in/india/to-make-india-atmanirbhar-on-palm-oil-modi-govt-approves-separate-national-mission/717963/.
• Sarkar, Soumya. 2020. As world’s largest importer of palm oil, India has a duty to push for ethical production practices. 13 July. https://scroll.in/article/967186/as-worlds-largest-importer-of-palm-oil-india-has-a-duty-to-push-for-ethical-production-practices.
• Shrivastava, Rahul. 2021. PM Modi announces palm oil initiative to make India self-sufficient in edible oils. 9 August. https://www.indiatoday.in/india/story/pm-modi-palm-oil-initiative-to-curb-imports-check-edible-oil-prices-1838673-2021-08-09.
• Urs, Aruna. 2015. The curious case of oil palm. 16 November. https://www.business-standard.com/article/punditry/the-curious-case-of-oil-palm-115111600136_1.html.
• Suseela Devi Chandrana, K.S. Nathan. 2015. \”Malaysia-India Economic Cooperation: Fixing the Jigsaw Puzzle.\” Procedia – Social and Behavioral Sciences 359 – 366.