India's palm oil promise: A 2030 blueprint to reduce import dependence

Earlier in July this year, the Indian government kickstarted a mega oil plantation drive. The second drive, which follows the last year’s drive, is in sync with the National Mission of Edible Oils – Oil Palm (NMEO-OP) aimed at reducing the country’s import dependence and achieving self-reliance in edible oils, thereby increasing farmer’s income.

 

However, for a country that recorded a season-high of 1.081 million tonnes of palm oil imports in the same month, urgent interventions are required to optimise policy and coordinate efforts to address persistent on-ground challenges to realise the 2030 vision of raising domestic production of palm oil to 3 million metric tonnes.

 

 

Overcoming growing pains 

 

For a crop with a four-year gestation period before farmers can expect consistent fruit and income for two to three decades, NMEO-OP offers vital subsidies for oil palm cultivation.

 

However, this extended support is often undermined by uneven implementation across different regions. While a Rs 1.69 lakh subsidy has been allocated under the policy for four years, it’s essential to regularly assess on-ground realities to ensure the policy’s goals are met without delays or obstacles. Given the water-intensive nature of oil palm, subsidies for drip irrigation are particularly crucial to encourage farmers. Currently, the NMEO-OP provides Rs 22,000 per hectare for drip irrigation, but as the actual cost may rise to Rs 60,000, this creates a significant barrier at the outset of cultivation. Similarly, it provides Rs 29,000 support for saplings which needs to be increased because the need is for very high-quality seeds that can aid in increased yields and lower gestation periods.

 

Additionally, the policy also has a provision for fertilisers used during intercropping. However, the implementation of these subsidies has been inconsistent in some regions. To address this, strengthening the disbursal process is critical, besides the need to promote and incentivise intercropping on oil palm farms more widely. This practice not only improves soil health but also provides farmers with an additional source of income during the crop’s gestation period, offering economic resilience and sustainability. Revisiting the subsidy structure is therefore necessary to help overcome these financial challenges.

 

Empowering farmers to make India self-sufficient

 

While palm oil production elsewhere in the world is conducted on large-scale plantations, it is small-scale farmers in India who are the key to boosting production. Imported palm oil is competitively priced, which is a major deterrent for farmers to pursue oil palm cultivation. The NMEO-OP introduced an innovative mechanism to provide price assurance to farmers: Viability Gap Payments (VGPs). Building a safety net for new oil palm farmers by stabilising their incomes is a significant measure of support as oil palm cultivation can be a financial constraint on farmers, and Fresh Fruit Bunch (FFB) price volatility can cause farmers to uproot the crop.

 

VGP has two components: the Formula Price (FP), which is calculated monthly based on market price, and the Viability Price (VP), which is based on the average price of crude palm oil over the past five years, adjusted for inflation. This is crucial because the raw material for crude palm oil is FFBs, which are subject to market fluctuations. VGP kicks in for farmers when the FP falls below the VP. If the viability price is Rs 100, and the formula price is Rs 80, then processors bear the difference to ensure that the farmers receive an assured price for their crops.

 

However, uneven adoption of NMEO-OP across states means that this support is not available to all farmers. The support offered by VGP is vital to farmers, who face cash flow issues in the gestation period of palm oil cultivation. Hence, oil palm growing states, and the Centre need to work towards building a consensus to ensure that farmers across India are financially empowered to grow oil palms.

 

Additionally, the existing mechanism of VGP needs to be strengthened, in particular by ensuring timely disbursement. India’s Digital Public Infrastructure (DPI), such as the India Stack and the newly launched Digital Agricultural Mission to reach farmers directly and digitally, needs to be leveraged to address payment delays and enhance data collection for policy design. 

 

Investing in R&D to leapfrog production

 

As India increases its domestic production of crude palm oil, it still imports the seeds for oil palms. Hence, investing in internal capabilities to develop domestic varieties of seedlings is not simply a matter of self-reliance but is essential for the sustained growth of crude palm oil production.

 

Indian climatic conditions are diverse and particular, and ensuring the optimum yield requires investing in research and development to engineer seeds best suited for Indian agriculture. For example, since India imports seedlings from Malaysia, achieving optimum yield during Indian winter remains a challenge.

 

For India’s palm oil ambitions, quantity cannot come at the expense of quality or even inefficiency. Increasing acreage under palm oil cultivation is a necessary step, but to achieve the targets, this needs to be complemented by a focus on research and development of high-quality palm seedlings suited for the Indian climate. To facilitate this 360-degree support for palm oil production, it is essential to allow greater private investment and intellectual property (IP) protection in this sector. 

 

This influx of knowledge and resources would be instrumental in developing superior seedlings that are more resilient and productive than the current import. The government and industry stakeholders must collaborate to promote high-density planting techniques that balance yield improvement with environmental sustainability. Such a Public Private Partnership (PPP) model, leveraging India’s DPI, will help integrate sustainable practices, such as soil conservation and biodiversity preservation, into oil palm cultivation. Such partnerships will prove key to tackling industry challenges and are essential for the long-term success of India’s blossoming palm oil sector. 

 

One nation, one way forward

 

India’s crude palm oil production USP is compelling: it is completely deforestation-free. Under the NMEO-OP, only current crop-growing areas and barren land can be used for oil palm cultivation, making it an attractive and sustainable sector to strengthen, while empowering small-holder farmers. As a water-intensive crop, situating oil palm plantations in regions that receive heavy rainfall can further improve efficiency and foster greater sustainability. In India, one such region has been identified as the North East states. Despite its promise of building an Atmanirbhar Bharat, palm oil production continues to be beset by challenges, many of which are regional. While it holds massive potential, North East India presents unique challenges for oil palm cultivation, such as inadequate infrastructure and high operational costs. An immediate solution to this issue is to consider offering subsidies to offset transportation expenses until the region’s oil palm clusters reach critical mass, around 1,000 hectares of yielding area. These subsidies, when disbursed timely, would make it economically viable for farmers in this well-suited region to undertake oil palm cultivation, helping to accelerate the growth of these clusters to become self-sustaining.

 

By addressing the key imperatives concerning farmers, domestic capabilities, and policy optimisation, India can unlock its oil palm potential and meet its 2030 vision. This will turn over a new leaf for domestic palm oil production and write the latest chapter in India’s self-sufficiency story.

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The writer is a managing director at Godrej Agrovet Ltd

 

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