Finding the right policy for edible oil

Achieving self-sufficiency in edible oil has been on the agenda of successive governments at the Centre for decades, but without making much headway in this direction. Union Finance Minister Nirmala Sitharaman also promised in her Interim Budget speech this year to formulate a strategy to achieve “atmanirbharta” (self-reliance) in edible oil. She had, in fact, talked about it in 2019 as well. Yet, the gap in the indigenous production and requirement of edible oil has steadily been widening, increasing the dependence on import, which has grown now to over 60 per cent. While the output of oil has risen annually by about 2.2 per cent, the demand has surged at almost double the pace — 4.3 per cent. Consequently, edible oil purchases from abroad have gradually swelled from less than 1.5 million tonnes in the mid-1980s to a record 16.71 million tonnes in the Oil Year 2022-23, which ended in October 2023, costing a whopping Rs 1.38 trillion. Even on a regular basis, import has been averaging over 15 million tonnes a year, making vegetable oil the third-largest import item, after crude oil and gold.
 

Import dependence of this order for a mass-consumed essential item like cooking oil is neither desirable nor economically sustainable, especially considering that the bulk of such import consists of palm oil and its products, sourced from just two countries — Indonesia and Malaysia. Any disruption in supplies from these areas, for whatever reason, can pose problems which might be hard to surmount.
 

No doubt, usual factors like growing urbanisation, rise in population and income levels, and changing food habits of people have contributed to the worsening demand-supply mismatch, but the key cause is the government’s ill-advised pricing policies. These are tilted heavily in favour of consumers, disregarding the producers’ interests. Even a marginal spike in consumer prices invites government intervention by way of stock limits on oilseeds and trade in oil, cut in import tariffs, and various kinds of incentives for imports. Such measures deter local farmers from raising output in oilseeds by expanding the area under these crops or investing in yield-boosting inputs. The unduly low-import duties on edible oil, such as mere 5.5 per cent at present, tend to favour growers of other countries, to the detriment of local producers.
 

The strategy mooted by the finance minister to attain atmanirbharta in edible oilseeds like mustard, groundnut, sesame, soybean, and sunflower involves research on high-yielding crop varieties, widespread adoption of modern farming, market linkages, procurement, value-addition, and crop insurance. However, none of these measures is novel or innovative. Most of these have been, in fact, already being attempted but without getting the desired results in the absence of appropriate pricing policies to improve the profitability and competitiveness of oilseeds vis-a-vis their competing crops.
 

Technology is, indeed, not a major constraint in boosting oilseed production. This is evident from the vast difference in crop productivity on farmers’ fields and the yield levels obtained in research farms with the already available technology. According to a Policy Paper on edible oil (No. 122), brought out recently by the National Academy of Agricultural Sciences (NAAS), the gap in the actual and attainable yield of different oilseeds is, on average, as large as 60 per cent. It ranges from 22 per cent in sesame to 80 per cent in safflower. In the case of major oilseeds like groundnut, soybean, and mustard, the yield difference ranges from 25 to 50 per cent. If this yield gap can be narrowed to 20 per cent, the annual output of oilseeds can be stepped up by 13-14 million tonnes, the NAAS paper maintains.
 

The closest India reached self-reliance in edible oil was in the early 1990s, thanks to the setting up of the Oilseed Technology Mission in 1986 and giving it a freehand in formulating and implementing policies concerning the import, export, and domestic pricing of oilseeds. This Mission allowed the prices of oilseeds and edible oil to float freely within a stipulated range, which protected the interests of both producers and consumers. Government intervention, by way of changes in import duties or marketing curbs, was resorted to only when prices tended to breach the set barriers. This strategy facilitated expansion in the area under oilseed crops, as also the use of better technology, resulting in a perceptible spurt in production — hailed commonly as the “yellow revolution”. But, regrettably, the Mission’s autonomy and the policy-making powers were trimmed and its focus was obfuscated by burdening it with other responsibilities, thereby frittering away most of the gains.
 

A game plan, somewhat similar to the one conceived and implemented by the Technology Mission, is called for once again to become atmanirbhar in edible oils. Making oilseed cultivation economically rewarding through well-judged pricing and external-trade policies holds the key to achieve this goal.

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surinder.sud@gmail.com