Promote oilseed production

Curbs on Malaysian palm oil import present a good opportunity

Restrictions imposed by India on the import of refined and processed palm oil, coupled with the European Union’s (EU’s) proposal to phase out the use of palm oil as transport fuel, are likely to prove game-changers for the global palm oil sector. India and the EU are the largest importers of this oil from Indonesia and Malaysia, which together account for 85 per cent of the world production. New Delhi’s decision on imports has been sparked by Malaysian Prime Minister Mahathir Mohamad’s anti-India diatribe on Jammu and Kashmir and the new citizenship law, though the need for it has been felt for long to protect the domestic edible oil industry. The EU’s move emanates from the perceived adverse impact of expansion in oil palm cultivation on the environment, owing to deforestation and habitat destruction. No doubt, this plan is set to be challenged at the World Trade Organization (WTO) by palm oil suppliers, but that may be inconsequential as the issue relates more to environment than trade.

Whether the Indian decision is also dragged to the WTO is not clear as yet. Prima facie, it does not seem to abuse any established international trade practice. It is neither country-specific nor does it amount to banning the imports. It only makes prior permission necessary for importing refined palm oil. The Malaysian economy, however, is bound to take a hit regardless of whether this move is used selectively to undermine imports from this country or not. Palm oil is Malaysia’s biggest agricultural export and accounts for 2.8 per cent of its gross domestic product (GDP). Unsurprisingly, therefore, Malaysia is already considering price discounts and barter deals involving import of Indian sugar and buffalo meat in exchange for palm oil.  Indonesia may, in fact, stand to gain by getting more business.

For India, this could be a good opportunity to restrain unabated growth of refined palm oil shipments from abroad. Malaysia frequently rejigs its palm oil duty structure to promote the export of refined oil vis-à-vis unprocessed oil. This hurts the Indian edible oil industry, which has invested heavily in creating vegetable oils refining capacity, much of which is currently lying idle or underutilised. Going by the industry’s reckoning, the average capacity utilisation has plummeted to merely 46 per cent. Many small and medium scale refineries have shut down, rendering thousands of workers jobless. Cheaper imports have also kept domestic edible oil prices down to the detriment of the local oilseed growers. This has been one of the significant reasons for the failure of the domestic oilseed output to keep pace with growing demand.

Oil palm farming has failed to make much headway in India despite liberal incentives from the government because of land constraints and long gestation period of the plantations. India, however, has huge potential to raise the output of other crop and tree-based oilseeds to meet the demand for cooking and use in industries such as food processing, cosmetics and pharmaceuticals. But assured marketing at remunerative prices is a prerequisite for farmers to invest in boosting the productivity of oilseed crops. Checking the inflow of cheaper edible oils through measures like the new curbs on import of refined palm oil can prove a step in that direction.