In 1992, a team of government officials visited our village to pitch for palm oil cultivation. Armed with generous subsidies for seedlings, bore well and drip irrigation, a support package to sustain the four years of gestation and soft loan for land development, the officials were only able to convince a few to take up palm cultivation.
The skepticism then was not because of unfamiliarity. The government had been issuing palm olein through PDS at a subsidized price. The oil was an instant hit among lower income households, as it was substantially cheaper than groundnut oil. As demand drove more imports, the government devised an Oil Palm Development Programme to increase domestic production.
The motive to augment domestic production was right on the money. The palm tree yields more oil per hectare than any other oil crop. Up to 4 tonnes of palm oil and another 500 kilos of kernel oil per hectare. Focus on domestic production would save precious foreign exchange and provide a stable year round income for farmers. At least on paper.
Just like any other industry, early adapters in agriculture either reap rich dividends or face an expensive failure. Unfortunately for the few who had been convinced to take up the cultivation, the timing of the onset of production couldn’t have been worse. Planted in 1992-93, the plants started bearing fruits in 1997. The two major producers, Malaysia and Indonesia, were facing a full-blown currency crisis. Private companies in both the countries had been ramping up the production leading up to the crisis. Plentiful supply and devalued currencies washed away hopes of a bountiful harvest here. Those who could sustain the farm despite poor realisations kept the trees; others simply uprooted and went back to growing short-term cash crops or opted for coconut saplings.
Along this adventure, the government and the farmers realized that cultivating oil palm here was no walk in the park. Keen to switch farmers to oil palm, officials positioned oil palm as coconut equivalent in terms of production. But later it realized that oil palm uptake of water was twice of the coconut and in hot summer months the recommended quantity was 300 liters per plant per day. Erratic power supply resulted in water stressed palms. The linkage between farms and processing mills were tenacious at best. The fresh fruit bunches should be processed within 24 hours of harvest to obtain good quality oil. A delay leads to build up of free fatty acids. Farmers near processing facility benefited more than the farmers who delivered the produce to a collection center. On a fixed days twice a month, farmers were requested to bring freshly harvested fruit bunches to designated collection points. On a day before collection date, there would always be a few bunches that were not ready for harvest but would be over-ripe by the next collection date. Moreover, the price of fruit bunches are fixed monthly by a formula derived from international crude palm oil prices. The monthly variations and 30-day credit to processors created cash flow issues. All this and persistent labour issues have limited oil palm acreage and output. After two and half decades, oil palm acreage has not crossed 2.5 lakh hectares with production not exceeding 1.7 lakh tonnes.
Meanwhile, India’s demand for palm oil appears insatiable. It has become ubiquitous thanks to demand from ice cream makers to cake bakers. This year alone, India is expected to import more than 90 lakh tonnes of palm oil. So it is not surprising that the government has finally resorted to opening up of the sector to the foreign technology and capital to boost domestic production. 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 in Sumatra, Borneo and Brunei is far more lucrative than buying well-irrigated lands at prevalent plush prices here. The only point of solace with continued dependence on imported palm oil would be that we are offsetting for the water exported through many of our food exports.
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Aruna Urs farms in his village in Mysuru, Karnataka. He was co-founder and CEO of a database management company in Mysuru. Prior to that, he worked as an adviser to the government of Timor-Leste (East Timor).
Aruna blogs about farming, rural & agri economy on his blog, Rural Dispatch, a part of Business Standard's platform, Punditry.
He tweets as @arunaurs