Surging demand for edible oil has not induced a supply response. Govt has forgotten the lessons of the 1980s.
The country’s edible oil economy is a victim of policy deficiencies. The fate of this sector, with an annual turnover of over Rs 1,00,000 crore, relies largely on imports and the government’s wavering taxation policies. While domestic edible oil supplies have been growing steadily, the increase has been nowhere near enough to meet demand, which is surging annually at a pace double that of foodgrain. Total vegetable oil imports are projected to swell this year (2011-12) to over 9.2 million tonnes, against the anticipated demand of around 15.5 million tonnes; thus, nearly 60 per cent of the need will be met through imports. The import bill, too, will soar to a whopping Rs 35,000 crore. Such dependence on imports for an essential item of mass consumption – especially one that can be produced locally – is untenable. Indeed, it is ironic, because unlike pulses, where the lack of improved production technology makes heavier imports necessary, oilseeds have seen technological breakthroughs capable of lifting both productivity and production.
History teaches us that this supply crunch is not insurmountable. A demand-supply schism of over 45 per cent in the mid-1980s was successfully bridged in just a few years, making the country nearly self-sufficient by the late 1980s. The Oilseed Technology Mission was set up in 1986, and given a free hand to take and implement policy decisions concerning production, pricing and imports. Unusually for agricultural policy in India, the Mission focused specifically on prices as a tool to spur oilseed farming by inducing improved technology and higher input use. The Mission, notably, allowed the domestic prices of oilseeds and edible oils to fluctuate within a stipulated band that guarded the interests of both producers and consumers.
Regrettably, sensible policy was abandoned in the middle of the 1990s, and now heavily favours edible oil consumers at the cost of growers and the oilseed industry. With easy imports, edible oil prices have seen no significant spurt. Consequently, incentives to invest in yield-boosting inputs or better technologies have been eroded; oilseed cultivation has been pushed on to marginal lands, with low fertility and without irrigation facilities. Unless oilseeds are once again grown on wholly or partially irrigated land, and farmers use new high-yielding seeds and fertilisers and pesticides, supply will not be able to respond to surging demand. And unless prices are allowed to be more reflective of the supply-demand situation, these necessary investments in productivity will not yield the desired outcome. Another way to ease demand-supply mismatch is to note that edible oil imports are mostly palm oil. Consumers have clearly accepted this as a cooking medium. A government-appointed committee had identified, way back in the 1970s, over 10 million hectares of land in several states that could safely be put under oil palm plantations. Much of this potential is still untapped. Sustained supplies from these perennial plantations will lend some much-needed stability to edible oil supply, besides reducing India’s reliance on dicey imports. Oilseeds, in which the state has already demonstrated its effectiveness at promoting a supply response, are a test case for the government’s ability to contain demand-driven food inflation.
