Sustainable Palm Oil Dynamics in India

India in one of the largest importer of palm oil and the domestic consumption for palm oil is growing with rising population and improvement in economy. In recent years India has imported an average of approx. 8 million tons of palm oil every year and the market demand is ever rising. The demand of palm kernel alone is expected to go higher with an average of 6.3% rise per annum. Interestingly, palm oil finds its use in both food based and non-food based products and is extracted from the fruit (mesocarp and kernel) of palm tree. Food based use of palm oil primarily include use as cooking oil, substitute for butter, fats etc and the non-food based products include use as bio fuel and lubricants, cosmetics, oleo chemicals, toiletries etc.

Government of India realized the potential of palm oil in early 2000’s and after a few initial setbacks is again exploring options of incentivizing oil palm plantations to fuel its insatiable growing domestic demand. The economic cropping period for most of the plantations range between 25-30 years with first harvest starting from 4th  year on wards. Overall yield of fresh fruit bunches/ha/yr can be around 15 to 30 tons that makes palm oil as cash rich plantation crop. In recent attempts to promote R&D and technology transfer for better cultivation Indian government has proposed a plan to permit 100 percent FDI to any palm oil plantations. It has also started incentivizing large farmers with financial aid to promote production of crop. There has been a proposal of $ 1.5 billion in terms of financial aid to farmers for meeting domestic demands of palm oil.

The government has set task force that would identify areas in region where the plant can grow with favorable climatic and land conditions. Schemes and programs like Oil Palm Development Program (OPDP), Special program for Oil Palm Area Expansion (OPAE), National Mission on Oilseeds and Oil Palm (NMOOP)  were set to augment the production of palm oil by 2.5 to 3.00 hundred thousand tons over the years. Several centrally sponsored integrated schemes such as Integrated Oilseeds, Pulses, Oil Palm and Maize (ISOPM) were also started to improve the cultivation of palm oil in India. The National Mission on Oilseeds and Oil Pam (NMOOP) is focused on oil palm area expansion and productivity increase and has been implemented in 12 states, viz ; Andhra Pradesh, Telangana, Chhattisgarh, Tamil Nadu, Kerala, Gujarat, Karnataka, Odisha, Mizoram, Nagaland, Assam and Arunachal Pradesh.

Indian government has put special focus for promotion of oil palm in all North Eastern (NE) states. NE states have been promoted throughout by Indian government as special states for a plethora of incentives and schemes. Mizoram particularly has seen more than 27,000 ha area under palm oil cultivation. Government is aiming to meet the planting materials requirement for new plantation both from indigenous and imported sources and to support farmers for planting materials, inter cropping & maintenance cost for gestation period (4 yrs), bore well, drip irrigation, harvesting tools etc.

Government is also encouraging local and international investors to take the free market demand to grow the plant and produce oil. For example, it has contracted several companies that would commercialize plantations and provide the country’s market with both crude and refined palm products and the finance ministry has plans to impose a cess of 0.5% on import of crude palm oil (CPO) and refined bleached deodorized palmolein (RBDPL) for creation of ‘Edible Oil Development Fund’(EODF). Similarly the government has also relaxed its limit on land ceiling policy to enable growers to plant more with less constraints[3] and is also aggressively looking to support oil palm growers through Market Intervention Scheme (MIS) thereby providing remunerative prices of FFBs as and when international CPO price fall below $ 800 per MT. These schemes are aimed at making more local producers to take advantage of the available production funds and grow palm locally for palm oil production.

Though India has been trying hard for the last two decades to become self-dependent on palm oil cultivation with domestic demand rising up to 230 percent. Farmers are still finding it hard to invest in the crop as firstly it takes long time to mature with a minimum of four years gestation period and secondly the continuous need for irrigation and pesticides for plantation. This is limiting the role of small scale farmers due to the lack of government infrastructure . Currently the financing mechanism, targets the wealthy and well established farmers in the region who can promise tangible results.  The change in ecology in the North Eastern states where the crop is mostly grown is still questionable[4]. The regions agriculture follows a shifting pattern technique for planting & cultivation thereby planting crops in rotation. Palm oil being a mono crop plantation doesn’t appeal much to the small scale farmers.

However, with recent interest of private sector in palm oil production and the large and medium industrial cooperation, India boasts a palm oil production capacity of around 300 tons/hr. There has also been a keen interest by large Indian companies such as Godrej Oil Palm, Godrej Agrovet, Ruchi Soya Industries to set up production industries and the capacity will grow in coming years. Furthermore, large farmers and farm holders are likely to accept the change and become more proactive in achieving palm oil infrastructural growth and adopt cooperative scheme set by government.

With strong government incentives and steep demand for consumption it is very likely that the domestic production of palm oil will grow with several private and government agencies setting up production facilities. With a total of 1.7 million hectare area identified for palm oil plantation and 0.2 million hectare alone in the north eastern states the future of palm oil cultivation looks bright. However, with progressive schemes and declaring oil palm as a plantation crop might sidestep the prevalent land ceiling laws, but cultivating palm by discreetly encouraging slash and burn technique to clear forestlands will become more lucrative than buying well-irrigated lands at prevalent plush prices. While palm oil plantations may suffer from the general challenges and issues of the agro-forestry sector, they also bring a new perspective for addressing such challenges sustainability. For example, the feasibility of oil palm growth in waterlogged areas of the Gangetic delta[5] in southern West Bengal gives a good opportunity for developing clustered  plantations. Looking at these clustered plantations with a sustainability lens will help in ensuring that the basic rights of indigenous landowners, local communities, plantation workers and smallholders and their families are respected and considered.

Expecting the government to set clear framework for sustainably sourced palm oil may be a bit overambitious but the recent emergence of private sector in the driving seat for demand and supply of palm oil may unfold promising results. It will be interesting to see the positioning of some large and reputed global sustainable palm oil lobby groups to focus on demand and production lifecycle in India.

Conventional sustainability standards and protocols developed by agencies such as Indian National Palm Oil Sustainability Framework (IPOS) currently focus on the learnings of different countries and do not take in account the local socio economic impacts of plantations, farm size, socio-economic conditions, systems of agriculture and environmental conditions that are completely different in India than its counterpart countries. Broadly looking at the areas and states identified for palm oil plantation and the demographics with environmental conditions  (based on the annual socio economic performance report of districts), the diversity itself is a big bottleneck that must be addressed before implementing any sustainability agenda. Similarly the environmental impacts must also be taken in account. For example, Oil palm is a water intensive crop comparable with the water requirement of paddy or sugarcane. But the latter are seasonal while oil palm requires round-the-year water supply. Probably it is time that sustainability agenda for palm oil in India should take in account the various natural and social capital elements in while designing the framework for Indian palm oil industry. The framework should not only focus on compliance with set of rules but also take a wider approach of material and perceived risk mapping of agro-forestry sector.

Also taking in account the lessons from past, various sustainable palm oil lobbying agencies may strategize themselves for the domestic sustainable palm oil market dynamics by catalyzing the stakeholders-corporate relationship. Such a pragmatic approach will instigate an era of sustainable palm oil in India with a multi stakeholder dialogue with the agro based demand side multinationals. With promising government policies and push from production companies, India may finally start its journey of fulfilling its domestic demands for palm oil. With strong advocacy on sustainably produced palm oil both demand and production side can not only help in setting a good practice sustainable framework for palm oil cultivation & production  but also evolve the procuring standards for meeting domestic demands.

As always I will be very eager to hear your views. Please share your views at nish at insightbynish.com

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