Palm Oil Imports

General Studies Paper 3

Context

• According to Solvent Extractor’s Association (SEA) of India, a sharp rise in the import of refined, bleached and deodorized (RBD) palm oil is hurting the domestic oil refining industry.

Reasons for the rise in imports of RBD palm oil

• Import duty difference of only 7.5% between CPO (crude palm oil) and refined oil, encouraging the import of refined oil as compared to the CPO.
• Cutthroat competition: Malaysian and Indonesian exporters of RBD palm oil enjoy advantage (taxes) of $60 over CPO and hence they discount palmolein benefiting their refiners.

Consequences of the rise in imports of RBD palm oil

• Low capacity utilization(30% now versus 60-70% in 2020) of the Indian refining industry. For e.g. Utilization of only 18 million tonnes as against the capacity of 38-40 million tonnes.
• Losses:The refining industry will be suffering losses of Rs. 6000 per tonne on importing crude palm oil and converting it into refined palmolein.
• Contrary to the objective of self-reliance:PM’s clarion call of atma nirbhar and value addition within the country is threatened due to rising imports.
• Harm Make in India:Sustained import trends may cause transformation of the Indian refining industry into mere packers rather than producers and refiners.
• Compromising heavy investments made in the domestic refining sector for capacity enhancement and possibility of rising Non Performing Assets (NPAs) in the sector.
• Threaten oil seeds farmers: After a long time, domestic oilseeds have started selling above minimum support price (MSP) and improved farm incomes. Continued rising imports of RBD might reverse these gains.
• Edible oil inflation

About Palm Oil

• Nature:Palm oil is also known as palm fruit oil. Palm oil is produced from the fruit of the oil palm tree (Scientific name: Elaeis guineensis).

Importance: 

• Production:It may have now surpassed soybean oil as the most widely produced vegetable oil in the world.
• Refining: Palm oil is physically refined without the use of chemical solvents, thereby reducing the risk of residue contamination.
• Nutritional value: Virgin palm oil is rich in carotenoids (pro Vitamin A), tocotrienols and tocopherols (Vitamin E).
• Health benefits: Since it is a vegetable oil; not an animal or dairy product, therefore it does not contain cholesterol. It also does not contain trans fatty acids.
• Value as a natural resource: Oil palm is the only fruit that can give two types of oil-palm oil and palm kernel oil.

Applications/Usage:

• Agriculture and processing:Since its introduction, oil palm is now a leading agricultural crop. Increased planting, cultivation and refinement have led to the introduction of a wide range of processed palm oil products.
• Food and non-food applications: They can be used for frying media and for making margarines, shortenings, soap, oleo chemicals and other products.
• Cooking: It is used as cooking oil, to make margarine and is a component of many processed foods. Palm oil is one of the few vegetable oils relatively high in saturated fats (such as coconut oil) and thus semi-solid at room temperature.

Issues: 

• Palm oil is a major driver of deforestation of some of the world’s most biodiverse forests, destroying the habitat of already endangered species like the Orangutan, pygmy elephant and Sumatran rhino.
• More than 40 percent of potential landscapes for oil palm cultivation in India overlap with biodiversity-rich landscapes, especially in the North-East and Andaman & Nicobar Islands.

National Mission on Edible Oils – Oil Palm (NMEO-OP)

• It is a Centrally Sponsored Scheme with a special focus on the Northeast region and the Andaman and Nicobar Islands.
• The Mission hopes to increase oil palm acreage by an additional 6.5 lakh hectares by 2025-26 and grow production of crude palm oil to 11.2 lakh tonnes by 2025-26 and up to 28 lakh tonnes by 2029-30.
• The proposed scheme will subsume the current National Food Security Mission-Oil Palm programme.

2 major focus areas of the Scheme

• The oil palm farmers produce Fresh Fruit Bunches (FFBs) from which oil is extracted by the industry. Presently the prices of these FFBs are linked to the international Crude Palm Oil (CPO) prices fluctuations.
• Viability Price (VP): For the first time, the Government of India will give price assurance to the oil palm farmers for the FFBs in the form of the Viability Price (VP).

Way Forward

• Budgetary Provisions 2023-24: Increasing the duty difference between CPO and refined palmolein to at least 15%.
• Increasing refined duty from current 12.5% to 20% without any change in crude palm oil duty.
• Restricted List: The government can place again the import of RBD palmolein and refined palm oil under restricted list with immediate effect.