Why Indians might find it difficult to cut down on their palm oil demand?

Price volatility may lead some companies to reduce palm oil consumption and seek alternatives, but its historically lower cost will likely keep it as the top choice for consumers

The global palm oil trade and industry are up in arms against the decision of some major FMCG companies to reduce their palm oil consumption, citing price volatility and environmental concerns.

Recently, the Asian Palm Oil Alliance (APOA), a not-for-profit alliance of palm oil-consuming countries, stated that the move by major FMCG companies is unwelcome and disturbing, as millions of farmers depend on palm oil for their livelihood.

The Alliance also disputed claims that palm oil prices are more volatile than other oils, asserting that prices are a function of demand and supply, and palm oil is no different.

Regarding allegations that palm oil is less sustainable than other oils, the Alliance noted that the efficiency of oil palm cultivation in terms of yield per hectare and resource use efficiency remains unmatched by alternatives.

“Oil palm yields 4,000-5,000 kgs of oil per hectare, whereas alternatives yield just 700-800 kgs, which is significantly lower in productivity. To replace palm oil with other oils, you would need much more land,” said Sanjay Goenka, President of the Oil Palm Developers and Processors Association (OPDPA).

Studies show that palm oil accounts for around 36 per cent of the world’s edible oil production but uses less than 9 per cent of the cropland devoted to edible oils.

Health-wise, palm oil is considered a healthier option as it has zero trans fats and balanced fatty acids. The Dietary Guidelines for Indians-2024, from the Indian Council of Medical Research (ICMR) and the National Institute of Nutrition (NIN), placed palm oil alongside other edible oils like groundnut, cottonseed, sesame, and olive, noting its richness in monounsaturated fatty acids and its health benefits.

India, one of the world’s largest consumers of palm oil, is deeply involved in the debate due to its significant consumption levels. According to industry data, India began importing edible oils extensively in the 1990s. Over the last 20 years, imports have risen by over 160 per cent in volume terms, and their value has increased from Rs 7,000 crore to almost Rs 117,000 crore in 2020-21. 

In 2022-23, India imported its highest-ever volume of edible oils at almost 16.46 million tonnes, valued at nearly Rs 140,000 crore. Between 2017-18 and 2022-23, the value of India’s edible oil imports rose from around Rs 66,942 crore to nearly Rs 138,000 crore, an increase of over 106 per cent in five years.

Currently, India annually imports around 14-15 million tonnes of edible oils, of which 63-65 per cent is palm oil. Of this, 8.5-9.5 million tonnes of palm oil, 45-50 per cent comes from Indonesia, and the rest from Malaysia, with the remainder being soy oil and sunflower oil.

According to the Solvent Extractors Association (SEA), by 2025-26, India’s reliance on imported edible oils will remain around 12-13 million tonnes per annum if the current trajectory in domestic oilseeds production and growth continues. Thus, India's voice is crucial in the debate on whether it is prudent to reduce palm oil consumption. 

Industry sources indicate that given India's large consumption volume, the country cannot afford to ignore palm oil. “India presents a huge potential for growth as global production and demand for palm oil rise. In 2022-23, India's palm oil consumption increased by 24 per cent and is set to continue rising, with its use spanning from food to cosmetics. India consumes 24 million tonnes of edible oil annually, of which 15 million tonnes are imported, with palm oil accounting for 56 per cent of it. The bottom line is that India needs palm oil,” an industry official stated.

The National Edible Oil Mission-Oil Palm (NMEO-OP) demonstrates India’s commitment to promoting domestic palm oil production to reduce reliance on imports. Announced in August 2021, the NMEO-OP involves an investment of over USD 1 billion (Rs 11,040 crore), with Rs 8,844 crore from the Central government and Rs 2,196 crore from states. 

The ambitious plan aims to triple domestic production to 1.1 million tonnes by 2025-26 and 2.8 million tonnes by 2028-29, with oil palm cultivation expanding to 1 million hectares by 2025-26 and 1.7 million hectares by 2029-30.

While price volatility may lead some companies to reduce their palm oil consumption and seek alternatives, the fact that palm oil has historically been much cheaper than alternatives will likely ensure it remains the first choice for consumers.