Some thoughts and questions on India’s edible oil strategy

RK Nagar
RK Nagar

Two significant announcements have been made by the government of India in a short span of one month on how India plans to deal with the twin problems of the oil sector- ever increasing reliance on imports to meet the growing demand and controlling the retail prices of edible oils.

On 10th August the prime minister announced a plan to boost domestic production of edible oils at an outlay of ₹ 11000 crores so as to do away with India’s overwhelming dependence on imports and make the country self sufficient in edible oils. 

Exactly a month after it- on 10th September, the government decided to reduce the import duty on edible oils to soften the consumer price of edible oils and if the trade circle is to be believed, the duty reduction will at best have only a marginal impact on consumer prices. 

The last time the government of India emphasised on self sufficiency was in 1989, when it realised that the efforts of the Technology Mission on Edible Oils launched in 1986 to enhance domestic production and achieve self sufficiency will have little impact unless it is backed by a strategy that ‘creates an environment conducive for the farmers to respond in a manner that helps the nation achieve self sufficiency’. As a result MIO (Market Intervention Operation in edible oils) was envisaged initially for a period of five years and the National Dairy Development Board was designated as the implementing agency. 

The choice of NDDB was made for two reasons: first, NDDB had been implementing an edible oil project that was financed by monetisation of commodity aid since 1977 and second, by 1989 it had created a network of farmer’s cooperatives with infrastructure to procure, process and market edible oils in ten major edible oilseeds producing states. NDDB thus had the required expertise in building integrated institutions that are owned and managed by the farmers themselves not only in milk but in other non perishable agricultural commodities as well. 

This background is necessary to understand what happened thereafter and how it has impacted the edible oil sector; how was self sufficiency achieved in a short span of five years; how the gains were squandered to put India in the precarious situation where almost 70% of current domestic demand is met by imports and, how the present situation challenges the government’s plans to fast track ‘Atmanirbharta’ in edible oils. 

India achieved self sufficiency

By the time MIO was concluded, India achieved self sufficiency as the commercial imports were almost zero for two consecutive years. The mandate of MIO was to contain fluctuations in retail prices of edible oils within a narrow band of 15% over an oil year. 

To achieve this mandate, what the NDDB did was to begin with disciplining the retail trade. It introduced 1 litre consumer packs and using the distribution network of the Gujarat Cooperative Milk Marketing Federation (GCMMF) ensured that these packs have a pan India reach. The most important part was that the retail prices were kept stable over long time periods thus creating an atmosphere of price stability in the market. This strategy challenged the loose oil retail market as well as 15 kg tins, consumers began to view bulk buying at the beginning of the oilseeds crushing season as unnecessary and in a short span of two years, consumer behaviour changed. This strategy gave NDDB the necessary handle to rationally link producer prices of oilseeds with the retail prices in urban markets while ensuring that the channel margins remain reasonable for the processors, bulk distributors and the retailers. 

On the procurement front, NDDB adopted a two pronged strategy. It worked back price parity for oilseeds based on urban oil prices and procured oilseeds through its network of cooperatives at the parity price, it also procured oil from private millers. Since NDDB announced the procurement prices for both the oilseeds and oils, keeping the parity and channel margins in mind, private millers had no option but to procure oilseeds from farmers at prices declared by the NDDB. In the process both the ends- procurement and retail were firmly secured within a desirable price band. 

It was this strategy that built the confidence of the oilseeds producers to boost oilseeds production. It was for the first time that increased production (through area expansion and increased productivity through better seeds and other inputs)did not ‘depress the price of their produce when their produce reached the mandis.’ When they saw it happen season after season, they responded by increasing the production. 

In the process they proved that the Indian farmers are capable of making the country self sufficient in any agricultural commodity provided the government policies are geared towards protecting their interest and are equally effectively implemented. 

But the self sufficiency was short lived. The MIO, despite its resounding success was not extended for reasons best known to the government of that time. The net result is that there has been a steady increase in the share of imported edible oils and in 2020, the imports accounted for nearly 70% of the national consumption. In terms of value, 2020 imports are placed at US $ 10 billion. The graph below shows how rapidly the domestic production grew during the MIO implementation period and how the commercial imports dropped.

Why are imports a matter of concern? 

India first looked seriously at the need to increase domestic production and reduce its dependence on imports in 1977, when the then finance minister late Shri HM Patel asked NDDB to formulate and implement a project for oilseedsgrowers and implement it on the lines of’Operation Flood’- the dairy project that transformed the lives of millions of small milk producers across India. Shri Patel put it simply, ‘India can’t afford to spend precious foreign exchange to import basic foods. We are self sufficient in cereals and now we have to become self sufficient in edible oils and pulses too’. 

The same sentiment was echoed when late Prime Minister Rajiv Gandhi launched the Technology Mission on edible oils. India just couldn’t afford to continue with ever increasing edible oil import bills. All the government programs to increase domestic production were not yielding desired results. By 1989, it became clear that all the programs directed towards increasing production will have only limited impact and pressure on our foreign exchange reserves will continue to increase. 

It is true that at that time saving foreign exchange was a major concern and the answer lay only in increasing domestic production. But today, when the country has a robust reserve in excess of 660 billion US dollars, why should an outgo of 10 billions dollars be a matter of concern? Today’s India can very well afford an outgo of 10 billion dollars. 

In my understanding, it is not the question of affordability, but a question of how it affects the income and livelihood of millions of small oilseeds growers. 

To understand thais concern, I would like to do some quick back of the envelope calculations. 

Commercial imports of edible oils were $ ‘0’ in 1995. In year 2020, the imports were of the order of $ 10 billion. In a span of 25 years we turned from self sufficient to overwhelmingly dependent on commercial imports. 

The median value of the imports works out to US$ 5 billion. Thus over a period of 25 years, our foreign exchange outgo on edible imports was a massive US$125 billions. 

I would for a minute like to take you back to 1995. Had the government of that time extended the MIO for a further period of five years and provided a budgetary support of just ₹ 500 crores, it would have not only saved 125 billion dollars but at least 60% of it would have gone as direct income to the oilseeds growers who depend on marginal and unirrigated land for their livelihood. In other words, we deprived our own poorest farmers of this income. 

Therefore the plan announced by the government in August 2021 needs to be viewed more as a plan that aims to secure the livelihood of millions of small marginalised farmers. Although India of today can very well afford to annually spend 10-12 billion dollars on imports of edible oils, it can ill afford to neglect the interest of its own farmers crucially dependent on farm income. If the plan is well implemented, it would go a long way in realising the government’s objective of doubling the income of farmers. 

But how well conceived is the plan and how will it be implemented? There are many questions that arise as there is little that has been said on the implementation strategy so far. 

What is critical? 

The plan itself has three components and each will be implemented by a ‘MiniMission’. The first one will deal with farm grown oilseeds crops, the second one with Oil palm plantations and the third one will deal with oils of tree based oils that are largely non edible and of industrial use. 

The mission document summarises the targets and strategy with regard to each mini mission as follows:

MM I on Oilseeds

Achieve production of 35.51 million tones and productivity of 1328 kg/ha of oilseeds from the present average production & productivity of 28.93 million tonnes and 1081 kg/ha during the 11th Plan period respectively.

MM II on Oil Palm

Bring additional 1.25 lakh hectare area under oil palm cultivation through area expansion approach in the States including utilisation of wastelands with increase in productivity of fresh fruit brunches (FFBs) from 4927 kg per ha to 15000 kg per ha.


Enhance seed collection of TBOs from 9 lakh tonnes to 14 lakh tonnes and to augment elite planting materials for area expansion under waste land.


The strategy to implement the proposed Mission will include increasing Seed Replacement Ratio (SRR) with focus on Varietal Replacement; increasing irrigation coverage under oilseeds from 26% to 36%; diversification of area from low yielding cereals crops to oilseeds crops; inter-cropping of oilseeds with cereals/ pulses/ sugarcane; use of fallow land after paddy /potato cultivation; expansion of cultivation of Oil Palm & TBOs in watersheds and wastelands; increasing availability of quality planting materials of Oil Palm & TBOs; enhancing procurement of oilseeds and collection & processing of TBOs. Inter cropping during gestation period of oil palm and TBOs would provide economic return to the farmers when there is no production.”

In the following analysis, I shall focus manly on mini missions I and II as their focus is to make India self sufficient in edible oils. 

I would also like to share my understanding of the ‘Self Sufficiency’. In today’s global trade environment and inter-dependence of economies, no country can be absolutely free from any kind of imports. In case of food items however, overwhelming dependence on imports is akin to ‘loss of freedom’ and is at the expense of livelihood of our own people. So long as the imports are only marginal or necessary only to tide over a temporary supply shortfall, there is nothing wrong with it. 

Now the questions

Mini Mission I

The mission’s objective is just to increase by the end of the 12th plan period ,productivity per acre by a combination of better inputs and increase in irrigated area under principal oilseeds crops grown in the country. 

The objective is quite laudable but there is no mention of how it is going to help the farmers? It is assumed that increased production will automatically increase the producers income but the past experience proves otherwise. 

Barring the brief period of five years during which the MIO in edible oils was implemented, the speculative markets have always succeeded in depressing the farm gate prices with the fresh arrivals in the mandis. Increased production invariably brings in lower returns to the farmers. Thus, in the absence of a mechanism like MIO how would the government ensure that the farmers get remunerative prices? 

MIO was implemented by the NDDB that had the ability and reach to manage both the supply and demand sides of the equation simultaneously. Today, do we have an institution with similar expertise, experience and reach to create that environment which will be conducive to give a production boost? 

Where are the farmers in the equation? Do we have farmer’s organisations and an infrastructure owned and managed by them to get them the benefit of the value addition or their role is expected to end merely as suppliers of raw materials to millers and refiners? If so, will they not remain dependent on the exploitative market mechanism? If they do not benefit from value addition, why should they risk higher input costs and lower returns? 

Mini Mission II

Before I touch upon’Mini Mission II’, I have a couple of questions that directly relate to the objectives of this mission. 

First, the per capita consumption of edible oils is stated to have increased fromaround 10 kg late 1990’s to approx 19 kg in 2017. That is the average on which demand projections have been made. Various sources place the figures differently but the averages that I have used to illustrate the point are closer to most estimates. Thus an average family of 4.4- rural or urban purchases about 84 kgs of edible oil every year. At an average price of ₹ 105, a family annuallyspends ₹ 8820 on this commodity. That is a whopping ₹ 735 per month. 

And here I would like to take a short detour.

If a family can afford to spend this much money every month just on edibleoils, where is the case to give them heavily subsidised cereals under the public distribution system? The rational to provide wheat and rice at ₹ 2 or 5 per kg – well below the minimum procurement support price falls flat. If we accept the need to provide heavily subsidised cereals under PDS then one has to take the demand and consumption figures with regard to edible oils with a pinch of salt. I believe that these are gross overestimates made only to justify massive imports as the domestic production of oilseeds may have actually declined orhas grown at a much lower rate than what the officials statistics say after 1995- i.e after the closer of MIO. 

The second important point is that the palm oil that makes up almost 65% of the imports is nowhere seen on the shelves of the retail shops. Where does this oil go then? Who consumes it and how? 

My hunch is that bulk of it is used to adulterate other sweet oils like Ground nut,  coconut and sesame. This was a common practice that the trade indulged in the 1980’s and ‘90’s when unbranded loose oil selling was the most common practice. It seems that post MIO, this practice has returned with a bang, especially in the rural markets. And this may be a major reason for sluggish farmer response to increase production despite a massive rise in consumer prices of edible oils. 

Be that it as it may, the fact remains that a large part of domestic demand is met by imports and that has adversely affected Indian oilseeds growers. And since bulk of the imports are of palm oil, the official think tank has thought it appropriate to put its weight behind ‘Mini Mission II’. 

Is oil palm the right choice?

Before I dwell further on this subject, here are a few facts about oil palm that must be recalled. 

1. For best growth, Oil palm requires well drained loamy or alluvial soil at least a meter deep and high in organic matter. In poorer soils, growth and yields will be certainly lower. 

2. Oil palm is a water intensive crop. It thrives best in areas where rainfall is evenly distributed throughout the year, atmospheric humidity is always about 90% and the ambient temperatures move in a narrow range of mid to high 20s.

 3. It requires high doses of fertilisers and if rainfall is limited to a few months a year, regular irrigation of nearly 200 litres per plant per day in the initial 3-4 years. The water requirement increases as the plants attain maturity and reach the fruit bearing stage.

 4. Fresh fruit bunches must be crushed within 24 hours of harvesting otherwise oil quality deteriorates. 

5. The life span of oil palm trees is approximately 30 years. Intercropping is possible only during first three years after which the growth of canopy and tree height provides little scope for intercropping.

 6. Full yield potential is realised only after about 8-10 years. 

Thus, once oil palms are planted, the land gets committed to the plantation for at least 30 years. 

Now let us see, how are the chosen Indian states placed in terms of these requirements, especially climatic parameters in relation to the world’s top oil palm producers- Indonesia and Malaysia. 

Indonesia: Borneo and Sumatra are the two islands that account for 96% of Indonesia’s palm oil cultivation. Oil palm cultivation in Indonesia is therefore very concentrated. 

Indonesia receives in excess of 4000 mm of rainfall annually over 190 rainy days resulting in the atmospheric humidity in the range of 80-85% throughout the year. The ambient temperatures too move in a narrow range of 27-32 degrees Celsius throughout. 

Malaysia: Four provinces-Sabah, Sarawak, Johor and Pahang account for 79% of Malaysia’s area under palm oil cultivation. Other 9 provinces account for the remaining 21%. Thus although much of the country grows the crop, the concentration is in four provinces. 

Malaysia receives +2400 mm of rain but has almost 250 rainy days in a year. The ambient temperatures range is 20-30 degrees Celsius and the atmospheric humidity is always above 85%. 

Let us now see how climatic conditions of the Indian states selected compare with that of Indonesia and Malaysia. 

As far as the selected Indian states are concerned, only the north- eastern statesand coastal regions of peninsular India come closer as far as overall rainfall is concerned. The distribution of rainfall viewed as number of rainy days, however varies a great deal since most of India depended heavily on south-west monsoon and even during the monsoon season of four months, the number of actual rainy days vary a great deal- from 60-90 days. The ambient temperatures too vary a great deal over different seasons and within a season during day and night. 

Thus, climatically even most parts of selected states are not entirely suitable for oil palm cultivation. If the past experience is any guide, then over the past 20 years or so, only a handful of farmers, mostly in Andhra Pradesh have taken to oil palm cultivation. The FFB yields realised from ten years or older plantations averages just around 4 tons per hectare a year. 

The climatic conditions in India. Indonesia and Malaysia have its own merits and limitations.  

Progress so far

The government of India embarked upon oil palm cultivation in 1991-92 under the Technology Mission on edible oils as it was viewed as a quick way to achieve self sufficiency. The achievements till 2018- that is almost after 26years of program implementation does not give us any reason to be proud of our achievements. 

The official data prove it. 

1. Over a period of 28 years, the average area brought under oil palm cultivation averages 11824 hectares per year.

 2. In  2017-18- that is after 26 years, fresh fruit production averaged just 3.89 MT per hectare.

3. Crude palm oil production from these FFB’s was just 0.17 MT per ton of FFB. 

4. 15 private entrepreneurs financially supported by the government established 24 oil mills with 312 tons of FFB crushing capacity per hour . That is 13 MT per plant. 

Mini Mission II states that the current FFB production is 4927 kg per hectare and proposes to increase it to 15000 kg per hectare. Considering what the actual production levels have been reached after 28 years, the targeted increase in production can only be a ‘wishful thinking’. 

There are other important issues with oil palm cultivation. To begin with let us look at the following:

Do we have Comparative advantage

1. Both Indonesia and Malaysia have a great advantage in terms of climate. The number of rainy days, even distribution of rainfall, high humidity throughout the year and temperature movements within a narrow band toplace them in a great situation to cultivate a plantation crop without incurring any expenditure on irrigation. Under Indian conditions, it would be a major cost component.

 2. Indian farmers will have to spend a lot more on labour since it will include the cost of additional labour for irrigation.

 3. Indian agricultural holdings are small and it would require a large number of small farmers coming together to form a compact, continuous plantation area with a commitment to keep the area under oil palm to attract investors to set up processing plants.

 4. Since oil palm would require irrigation almost daily, especially during non monsoon seasons when the atmospheric humidity drops to 40% or even less, the selected areas will necessarily have to have very high irrigation potential. Such areas are already under intensive land use and in most cases the cropping intensity is above 250%. In such a scenario, Howmany farmers would be willing to switchover to oil palm when they can take three crops a year, rotate cropping to take advantage of assured production, improving production techniques, markets and prices? In this situation, how many farmers will be willing to risk uncertainty with a long duration plantation crop? Let us not forget that in Indonesia and Malaysia, the large plantations are owned by corporates and not by small farmers. In India, most of the corporates have walked out of oil palm plantations after dabbling in it only for a few years. There are numerous instances where farmers uprooted oil palm trees even in Andhra and Tamilnadu after 3-4 years of suffering losses and returned to their previous cropping pattern.

 5. How many farmers will be willing to trust private processors who would invest in processing only after watching the progress of oil palm adoption by farmers in a given area for at least 3-4 years? Let us not forget that at the FFB production levels achieved- 5 MT per hectare, a 5 MT hourly FFB crushing plant operating for 20 hours a day will need an intake of 100 MT of FFBs daily. Over a period of an year and assuming 320 working days, it would mean 32000 MT of FFBs from a compact area so that the fruit quality doesn’t deteriorate. In other words, an exclusive ‘Oil palm shed’ of 6400 hectares. 

6. Since land holdings vary from state to state, I wouldn’t hazard a guess in terms of numbers of farmers, but even if we assume that around 3000 farm holdings can cover the required area, will these farmers take to oil palm without any say or partnership in the value chain? If not, then why should they take immense long term risk only to become a supplier to the monopoly of a single processor? 

I consider these questions extremely valid and answers must be found before more funds are pumped into Mini Mission II. 

The ambitious targets, especially in the light of experience so far may mean that we are “putting the cart before the horse”. 


Data sources:;; Indian Meteorological website;, NMOOP20114.pdf



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