Explained: What Is Palm Oil Scheme And Why India Wants To Produce It On Large Scale

In a business summit organized recently in Guwahati to attract investors to the North Eastern states, Assam Agriculture Minister Atul Bora disclosed the plan of bringing 1,500 hectares of land in another 17 districts under palm oil cultivation.

Further, Union Agriculture Minister Narendra Singh Tomar, who was present at the summit, also announced that North Eastern states will turn into an oil palm hub of the country.

Currently, there are two districts of Assam-Goalpara and Kamrup where farmers are engaged in oil palm cultivation.

The summit is part of Prime Minister Narendra Modi's national scheme to support the growth of palm oil in India.

AFP/Representational image

What is a palm oil scheme?

In his Independence Day speech this year, the Prime Minister announced a scheme to boost palm oil production in regions with high rainfall, since these crops require rainfall throughout the year for successful growth. Three days later, on August 18, the Cabinet approved a ?11,040 crore outlay over five years for the National Mission on Edible Oils - Oil Palm (NMEO-OP), emphasising on the argument of reducing India's dependence on importing edible oils.

The government has also announced that ecologically sensitive northeastern states and eastern archipelago of the Andaman and Nicobar islands will be used for cultivation of the oil.

India currently produces palm oil on more than 3,00,000 hectares of land and plans to cover an additional area of 6,50,000 hectares by 2025-26.

But, the palm oil mission proposes to cover an additional area of 6.5 lakh hectares by 2025-26 to increase crude palm oil (CPO) production to 11.2 lakh tonnes by 2025-26 and up to 28 lakh tonnes by 2029-30.

What is palm oil and why is it important?

Oil palms grow bunches of fruit that look like dates or small plums, flanked by prickly fronds.

The fruit is pressed, yielding palm oil - which is used in all sorts of packaged and processed foods, soaps, ice creams, cosmetics and even biofuel.

The very versatility of the oil has made it an effective substitute for other kinds of oil. The government also includes palm oil in food rations for the poor.

With 1.3 billion people, Indian consumption of this oil has exponentially increased in the last two decades simply because it comes cheap. However, the domestic market in the recent past has been marred with food inflation, including high prices of edible oils despite the government cutting down on import duty on crude palm oil to 10% from 15% and refined palm oils to 37.5% from 45%.

Since the duty has been cut on palm oil and not soya bean or sunflower oil, which middle-class Indians widely use. Palm oil is used mostly by institutions, hotels and commercial establishments, and hence the commodity prices continue soaring.

Why this scheme?

Malaysia and Indonesia supply more than 80 percent of the world¡¯s palm oil. On the other hand, India is the world's largest palm oil importer heavily dependent on these two countries to meet about 60 percent of its annual needs.

Early this year, Indian palm oil importers had effectively stopped all purchases from Malaysia after the Modi government privately warned them to shun imports after Malaysia's Prime Minister had criticised India's actions in Kashmir and its new citizenship law.

However, the purchases were resumed after a four-month gap following the formation of a new government in Kuala Lumpur, and a signing of a new deal with India to buy a record 100,000 tonnes of Indian rice.

Consequently, after this whole diplomatic spat, the government announced the scheme in August. To achieve its production targets, the NMEO-OP scheme increases input cost assistance to farmers for oil palm cultivation, from Rs 12,000 per hectare to Rs 29,000 per hectare.

It will also offer cultivators a fixed price for their output, along the lines of a minimum support price. In case of market volatility, farmers will be paid the price difference on their produce via direct benefit transfers.

The government has also promised to provide seed gardens with financial assistance of up to Rs 1 crore per 15 hectares in northeastern states and in the Andaman and Nicobar Islands, and Rs 80 lakh per 15 hectares in the rest of India. Currently, Andhra Pradesh and Telangana account for over 90 per cent of India¡¯s crude palm oil production.

Is it the first such scheme?

No, the similar goal was already present in the ¡®VISION 2030¡¯ document of the government¡¯s Department of Oil Palm Research (DOPR), together with promises to easily avail land to corporate owners and to remove the 25-ha ceiling.

The Ministry of Agriculture had initially launched the Oil Palm Development Programme in 1991-92. It has continued in one form or the other since then.

The National Mission on Oilseeds and Oil Palm was initiated in 2012, as part of the 12th Five Year Plan (2012-17), and it identified two million hectares of cropland where palm oil could be cultivated.

Incentives, like the one currently proposed under the latest scheme, were offered. In short, the NMEO-OP will subsume the previous programmes.

Why is the scheme being criticised?

The very first criticism came when the cabinet categorically approved the plan despite the Indian Council of Forestry Research and Education not having agreed to palm-oil plantations in biodiverse areas like the Andaman and Nicobar Islands.

As mentioned above, palm oil is a fast growing and large plant and requires a lot of water, which is the major problem in India unlike Indonesia and Malaysia, since India¡¯s average annual precipitation comes to a little over 1,000 mm.

The demand for water cannot be met by rain alone, and needs irrigation systems.

This, in turn, means greater strain on water sources, especially groundwater, which leads to a falling water table. The water problem has also witnessed a switch to coconut oil cultivation in Andhra Pradesh which is one of India's largest palm oil producers.

Apart from this, the leading players in palm oil production are corporate players such as Patanjali-owned Ruchi Soya, 3F Oil Palm Agrotech, and Godrej Agrovet.

Questions are also being raised on why the government, often said to be reconsidering a minimum support price for essential commodities, guaranteeing a profit for just this commodity, and that too from taxes that are most likely to be paid by other farmers.

Hence, subsidising both the production and buying of the oil is viewed with suspicion by experts.

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