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The other oil crisis
Business Standard / New Delhi September 03, 2007
Edible oil imports are expected to surge 10 per cent in the new oil year that begins in November, despite the expectations of higher domestic output this kharif. This is a matter of concern, as the imports will be required at a time when global edible oil prices are on the upswing due largely to their diversion to bio-fuel production. The projected scale of imports will also take total Indian imports beyond 5.2 million tonnes, from 4.7 million tonnes this year, as a result of which global markets are likely to stay bullish on prices. The import bill is expected to swell to a whopping Rs 15,000 crore, and may end up being even bigger if prices scale new highs, as some analysts fear.
 
What should engage attention is the underlying trend growth in demand (4 per cent and more). It is hard to match that with comparable growth in indigenous production. The danger therefore is that the country may soon face in edible oils the problem that it already faces with regard to pulses — the global bazaar will be unable to deliver the quantities required to feed Indian demand. Supply-side constraints in the global market have already surfaced as huge capacities are coming up in many countries for producing bio-fuel from vegetable oils. While soyabean oil is the preferred choice of the bio-fuel industry in the US, rapeseed oil is the favourite in Europe. Palm oil, which is the major constituent of the Indian oil import basket, is also being routed to the bio-fuel sector in the major producing countries of Malaysia and Indonesia. All of this is driving prices northwards, and the landed cost of imported palm oil remains high despite frequent cuts in import duty. What should cause worry from a food security perspective is that the country’s dependence on imports for meeting its edible oil demand has already escalated to 40 per cent and is increasing each year. Like pulses and onions, edible oils are part of every-day diet and the political risks of a steady spurt in prices are another complicating factor.
 
What should the government do? For a start, take a hard look at the flawed Policy of focusing more on consumer prices than on incentivising growers to produce more by investing in cash inputs and raising oilseed crops on irrigated lands. In the absence of such an environment, oilseed cultivation has been pushed to marginal lands, resulting in crop productivity which is barely half the world average. It is worth recalling that a positive policy response to a similar edible oils crisis in the mid-1980s had paid rich dividends, making the country nearly self-sufficient in cooking oils. What did the trick was the setting up of a technology mission for oilseeds in 1986, and giving those in charge the authority to take policy decisions. The most significant step, other than technology upgrade, was to let domestic prices rule within a stipulated band, as this ensured a fine balance between the interests of consumers and producers. As a result, domestic production zoomed and import dependence dropped dramatically to just 2 per cent by 1992-93. Unfortunately, though the technology mission is still in place, it has been reduced to another powerless government set-up. The emerging scenario in edible oils provides the right incentive to re-visit this and give a fresh boost to domestic edible oils production.

 
 
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