AS one of the world’s largest consumers and importers of palm oil, India’s appetite for the commodity is likely to expand over the coming years. According to the US Department of Agriculture, India’s palm oil imports are expected to rise from 9.2m to 9.7m tonnes this year on growing demand for the vegetable oil.

India imports about $10bn worth of edible oil every year, of which palm oil alone accounts for about 75pc. Edible oil imports rank third among the list of imported items after crude oil and gold.

Palm oil has emerged as a contentious commodity with environmentalists around the globe battling growers in countries including Malaysia and Indonesia. Activists claim that the high yield from oil palms has resulted in widespread cultivation of the trees and oil palm monoculture, leading to clearing of forests and endangering animals including the orangutan and the Sumatran tiger.

The Roundtable on Sustainable Palm Oil laid the foundations for certified sustainable palm oil (CPSO) and consumers in the developed world have been boycotting palm oil without the certification. In India, however, there is little awareness among consumers about these issues and demand for the commodity continues to soar.

Worried about the rising import bill, the National Democratic Alliance (NDA) government is now toying with the idea of subsidising oil palm cultivation in the country. The government is expected to invest about $1.5bn in a programme to encourage farmers to grow oil palm. Farmers have been reluctant to cultivate palm because of the long gestation period of about five years.

The government’s ambitious programme envisages raising the area under palm 10 times from about 200,000 hectares at present. India launched the Oil Palm Development Programme in the early 1990s to expand oil palm cultivation to about half a dozen states. It was later expanded to cover six more states including some in the northeast.

One of the most active states is Mizoram, where the local government has earmarked more than 100,000 hectares for oil palm cultivation. But activists have warned that farmers may end up burning bamboo forests to raise oil palm, adversely impacting the environment. Oil palm is also a water-intensive crop and many parts of Mizoram — especially those meant for oil palm cultivation — suffer from scarcity.

In Odisha, farmers in nine districts took up oil palm cultivation enthusiastically when it was launched last year. However, there were no buyers for the fruits when they matured. For optimum oil extraction, the fruits have to be processed within a day of being harvested. Frustrated farmers then destroyed the crop grown on thousands of hectares of land and decided not to opt for it.

According to the Solvent Extractors’ Association (SEA), India imported 976,000 tonnes of palm oil in July, a record high. The SEA claims that massive imports are hurting Indian oilseeds cultivators, who are reluctant to continue farming because of lower yields.

International palm oil prices have been declining sharply over the past year. Most of India’s imports are from Malaysia and Indonesia, which have been facing a problem of excess supplies. But with the situation easing a bit, Malaysia re-imposed 4.5pc export duty on crude palm oil in April.

Both Malaysia and Indonesia had withdrawn export duty on palm oil to clear the surplus stock over the past few months. While Malaysia has about 5.5m hectares of oil palm, Indonesia has about 10m hectares of the crop under cultivation.

Besides the insistence on CPSO in western countries, demand has slackened because of sharply declining oil prices. With oil prices having fallen, demand for biodiesel — palm oil is used for bio-diesel production — is also slackening.

According to research report on by Grand View Research, a US-based agency, global palm oil demand — estimated at 74m tonnes in 2014 — is expected to top 128m tonnes — and valued at $88bn — by 2022.

The key factors driving global demand are a consumer shift towards consumption of vegetable oils containing low trans-fat, and rising environmental concerns leading to increased demand for bio-fuels.

LAST week India launched its B5 (bio-diesel 5pc blended) programme, with state-owned oil

marketing companies offering the biofuel at four outlets in New Delhi, Haldia (in West Bengal) and Vishakhapatnam and Vijayawada (both in Andhra Pradesh).

According to Dharmendra Pradhan, India’s oil minister, the biodiesel programme is part of the government’s move to slash energy imports and also reduce carbon emission. Pradhan said that the government would expand supplies of the biodiesel across the 50,000-strong network of the oil companies as and when its availability improved.

For a nationwide rollout, India needs 3.5m tonnes of bio-diesel, while current production capacity is just 1m tonnes.

India has to import 80pc of its petroleum products and 70pc of natural gas. With oil prices having fallen sharply, its import bills have come down dramatically in recent months. But Prime Minister Narendra Modi wants the import bills to be cut by half by 2030 by introducing biofuel.

The ministry of petroleum and natural gas recently allowed direct sale of biodiesel (B100) to bulk consumers including the Railways, the shipping ministry and state road transport corporations. It is also pushing the ethanol-blended petrol programme, and is raising the percent of ethanol blending with petrol from 5 to10pc.

According to the ministry, ‘promoting and encouraging biofuels will not only reduce the import of fossil fuel but also save foreign exchange and emphasise on the ‘Make in India’ mission.’

Last month, the ministry of road transport and highways had sent a proposal to the law ministry for clearing a notification that would enable automakers to develop engines that run exclusively on bio-diesel.

The government is also proposing to change the National Policy on Biofuels, which would allow producers to sell fuel to bulk consumers such as the railways.

Published in Dawn, Economic & Business, August 24th, 2015

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