Context: The Centre will offer price assurances, viability gap funding and planting material assistance to oil palm farmers to boost domestic production and reduce dependence on imports via a new mission approved by the Cabinet recently.

About new mission on Palm Oil production:

  • According to the Agriculture Ministry, this financial outlay for the National Mission on Edible Oil-Oil Palm (NMEO-OP) will be over a five-year period.
  • The National Mission on Edible Oil (NEMO) proposal would aim to: 
    • Reduce import dependence from 60% to 45% by 2024-25, by increasing domestic edible oil production from 10.5 million tonnes to 18 million tonnes, a 70% growth target.
  • It projected a 55% growth in oilseed production, to 47.8 million tonnes. 
    • It is not clear whether these targets have changed under the final version of the mission.
  • The NMEO-OP’s predecessor was the National Mission on Oil Seeds and Oil Palm, which was launched at the fag end of the UPA government’s tenure and later merged with the National Food Security Mission
    • Laying out its achievements in May 2020, the Agriculture Ministry said oilseed production had grown 35% from 27.5 million tonnes in 2014-15 to 37.3 million tonnes by 2020-21.
    • Although oilseed acreage rose only 8.6% over that six-year period, yields rose more than 20%.
  • The government aimed to reduce the risk for farmers facing price fluctuation of the fresh fruit bunches from which oil is extracted, due to volatility in the international market.
  • Price Mechanism:
    • The government will develop a mechanism to fix and regulate palm oil prices. 
      • So if the market is volatile, then the Centre will pay the difference in price to the farmers through direct benefit transfer.
    • This is the first time the Centre will give oil palm farmers a price assurance, with the industry mandated to pay the viability gap funding of 14.3% of crude palm oil prices. 
    • In a bid to encourage oil palm cultivation in northeastern India and in the Andaman and Nicobar islands; 
      • The Centre will bear an additional cost of 2% of the crude palm oil prices in these States. 
      • The scheme has a sunset clause, ending November 1, 2037.
    • The Mission will also more than double the support provided for the cost of planting materials.
  • On the Biodiversity front:
    • The Indian Institute of Oil Palm Research had found 28 lakh hectares across the country which could be safely used for oil palm cultivation. 
    • Less than four lakh hectares are currently planted with oil palm.

Related Facts

India’s edible oil consumption:

  • With rising incomes and changing food habits, consumption of edible oils has been rising over the years.
  • The mustard oil is consumed mostly in rural areas.
  • The share of refined oils (sunflower oil and soybean oil) is higher in urban areas.
  • Between 1993-94 and 2004-05, monthly per capita consumption of edible oils increased from 0.37 kg to 0.48 kg in rural areas, and from 0.56 kg to 0.66 kg in urban areas.
  • By 2011-12, it had risen further to 0.67 kg in rural areas and 0.85 kg in urban areas.
  • According to the Ministry of Agriculture and Farmers’ Welfare, the per capita availability of vegetable oils in the country has been in the range of 19.10 kg to 19.80 kg per annum during the last five years.

Domestic Production and Imports:

  • According to the Agriculture Ministry, the demand for vegetable oils has been in the range of 23.48–25.92 million tonnes between 2015-16 and 2019-20.
    • However, domestic supply in this period has been much lower, in the range of 8.63–10.65 million tonnes.
  • In 2019-20, domestic availability of edible oils from both primary sources (oilseeds like mustard, groundnut etc.) and secondary sources (such as coconut, oil palm, rice bran oil, cottonseed) was only 10.65 million tonnes against the total domestic demand of 24 million tonnes.
    • Hence India depends on imports to meet its demand.
  • In 2019-20, the country imported about 13.35 million tonnes of edible oils worth Rs 61,559 crore, or about 56% of the demand.
  • Major sources of edible oil imports are:
    • Brazil and Argentina for Soyabean Oil,
    • Malaysia and Indonesia for Palm Oil, and
    • Ukraine and Argentina for Sunflower Oil.

Probable cause for price rise:

  • The increase in domestic prices is basically a reflection of international prices because India meets 56% of its domestic demand through imports. 
  • Price in international market jump due to various factors such as:
    • Less production because of regional restrictions due to COVID-19.
    • Breakdown of Supply chain.
    • Increasing demand.
    • Making of biofuels from vegetable oil,
    • Buying by China,
    • Labour issue in Malaysia,
    • Below average yield of the raw crops,
    • Impact of La-Niña on palm and soya producing areas, and 
    • Export duties on crude palm oil in Indonesia and Malaysia.

Import duties on Edible oil:

  • The effective rate of import duties on 
    • Refined, bleached and deodorised (RBD) palm oil is 59.40%.
    • Soybean Oil is 38.50%.
    • Sunflower oil is 49.50%.
    • The policy for the import of crude palm oil is “free”, while for RBD palm oil it is “restricted.” 
  • The effective rate of import duties includes agriculture infrastructure and development cess and social welfare cess.

Edible Oil Economy:

  • There are two major developments, which have significantly contributed to the development of this sector. 
  • One was the setting up of the Technology Mission on Oilseeds in 1986 which was converted into a National Mission on Oilseeds and Oil Palm (NMOOP) in 2014.
    • Further, it was merged with NFSM (National Food Security Mission).
  • This gave a thrust to the Government's efforts for augmenting the production of oilseeds. This is evident by the very impressive increase in the production of oilseeds from about 11.3 million tons in 1986-87 to 33.22 million tons in 2019-20.
  • The other dominant feature which has had a significant impact on the present status of the edible oilseeds/oil industry has been the program of liberalization under which the Government's economic policy allows greater freedom to the open market and encourages healthy competition and self-regulation rather than protection and control.
  • The Yellow Revolution is one of the colour revolutions that was launched to increase the production of Edible oilseeds in the country to meet domestic demand.
  • The government has also launched the Kharif Strategy 2021 for oilseeds.