USD 100 Billion Annual Loss - Cost of Neglect of Oilseed Sector

Published in Malaysian Palm Oil Council Magazine, Solvent Extractors Association of India Magazine

Neglect of Edible Oilseed Sector will cost USD 100 Billion every Year to Indian Economy

By

Vijay Sardana,  
PGDM (IIM-A),M.Sc. (Food Tech.), B.Sc. (Dairy Tech.), PG Dipl. In Int’l Trade Law and ADR (ILI) 
Specialized in Bio-economy Value Chains, Innovation Management and Capacity Building 
Blog: “Vijay Sardana Online”

Friends, you all must be shocked to see the title and you must be saying, this is no fact, I also wish if I am wrong but unfortunately, facts are more dangerous than most of us think. If so, please take out your calculator and do some calculation with me. Unfortunately, if we continue the way we are working today, by 2019 and 2024 election years, situation will be very grim.

You all must be thinking, why I am linking to the election year? I will prefer to use all food security parameters as Key Performance Indicators for the ruling government and Prime Minister, when they will go for re-election to renew the mandate.

Ground Reality:

According to author’s estimates, if we do not review our oilseed production and edible oil trade policy towards, the cost of this negligence will be more than 100 billion USD 100 Billion per year by 2025.

The foreign exchange requirement for imported edible oil, according to conservative estimates, will be about USD 40 to 50 billion by 2025. And loss of livestock productivity and production due to shortage of protein thorough oil cake and oil meals will be about additional USD 50 Billion per year.

It means, the total profit earnings in foreign exchange from IT, textile, pharma and engineering sector will not be sufficient to meet the import bill of just edible oils in India. This will have negative impact on food inflation and current account deficit. It is the duty of the government to ensure food security for the masses. To ensure that food security must be based on domestic production not based on imported food to protect our strategic and sovereign national interests and we will lose our bargaining power at international forums.  It is well known fact that beggars are no choosers.

Many of you must be thinking I am exaggerating the facts and numbers. Let me share some numbers with you all to clarify my point.

As you are aware, carbohydrates, oils and fats and protein are the basic food components for any living human beings and animals. Today we are self-sufficient in carbohydrates but not in oils and proteins (both for man and animals) due to our policies for wheat, rice and sugar. This is not food security, this is just carbohydrates security.

Why Oil and Protein security is vital for Indian society?

It is high time we should consider how to fill the gap for edible oils and protein. Unfortunately, due to too much focus on carbohydrate production, our soil health is suffering and due to protein deficiency our human and animal health and productivity is suffering. Balanced Diet is essential to ensure good health for all.

Malnutrition is a serious issue due to our economic policies which lacks qualitative focus and dimensions, we still believe in outdated concepts of imbalanced quantity concepts. That is even the produced quantity of food is also not properly managed.

Based on large number of studies, it is clear that our domestic production policies and import tax policies are not supporting production of edible oils and proteins in India and making India deficit severally deficit both in oil and protein supplies.

Please give serious attention to Edible Oilseeds – source of edible oil as well as protein:

Edible oils form an essential part of the modern diet. These oils play a role as an energy source, and provide the diet with many beneficial micronutrients. Oilcakes are also major source of protein for livestock sector.

Like any other essential commodities, the main drivers to determine the demand of oilseeds and edible oils, are population and income.

Demand Side Analysis for Oilseeds and Edible Oils in India:

Projected Population of India in 2025

According to the Report of the Technical Group on Population Projections constituted by the National Commission on Population, Government of India, the population of India is expected to increase to 1400 million by 2025 at the rate of 1.2 percent annually. As a consequence, the density of population will increase from 313 to 426 persons per square kilometer.

Projected Per-capita Income of India in 2025

According to the Chairman of Prime Minister’s Economic Advisory Council (PMEAC), it has been estimated if we grow at 9 per cent per annum, India’s per capita GDP will increase from the current level of $ 1,600 to $ 8,000-10,000 by 2025. It looks more on optimistic side, with this growth; India will become part of the middle income group of countries when it achieves $ 8000-$ 10,000 per capita income. In order to plan the commodities requirements let me take a conservative estimate growth rate of 5% and per capita income will be around USD 3,000 per year.

Projected demand of edible oils and oilseeds by 2025:

According to an FAO study, food energy requirements for South Asian population will be about 2700 Calories / caput / day in the year 2025.

In terms of edible oil demand, it is estimated that it will be about 17 kg per capita per year. It means India will need about 23.8 million tons of edible oils by 2025. It means with an average yield of about 30% oil from oilseeds, we will need about 80 million tons of oilseeds. If yield is less India will need more seeds for oil production.

Supply Side Analysis for Oilseeds and Edible Oils in India:

With the projected demand of about 80 million tons of oilseeds to produce about 23.8 million tons of edible oils, India will need two vital natural resources i.e. water and land.

Land Availability for cultivation

According to Minister of Agriculture, India will have about 0.12 ha. per capita land for cultivation by 2025. Net sown area is 140.02 m ha and it remains unchanged for last two decades. Total Arable land is about 182.47 m ha which is about 55% of India’s reporting area and about 11% of world’s arable land, out of this only one third of cultivated land is irrigated and producing 55% of food grains

About 78.17 m ha (2010) of arable land is rainfed contributing to 45% of Agricultural production including oilseeds. At the same time we have about 120 million ha. is degraded lands.

With the current productivity levels of 1.10 tons per hectare, we will need about 73 million hectare of land to produce 80 million tons of oilseeds. Where is the land for this much oilseed production? This is about 52% of the total agriculture land in India. Currently about 55% of agriculture land is already used to cultivate food gains i.e. cereals. It means with existing level of productivity and competing use of agriculture land, it is impossible to meet demand of oilseeds and edible oils by domestic production.

At present about 18 million ha. is used for production of oilseeds in India. It means we must develop an action plan to produce 4.5 tons per hectare per year from the same land to meet our demand for oil from domestic sources by 2025. Is this possible?

Water Requirement and availability:

According to Minister of Agriculture, India will have about 1700 m3 of water per person and 84% of this water will be used for irrigation purpose. This is at stress level.

According to ICAR, Water availability for agriculture is estimated to go down by up to 12 per cent from the current level by 2025 from current level. In other words, farmers, in fact, will require 25 per cent more water in 2025 than what they are consuming currently to produce food for feeding the domestic population. By 2025, the water requirement for irrigation will be 790 billion cubic meter. Where is the water?

India will remain net importer of edible oils:

According to authors estimate, the best of the efforts and resources India will be not be able to produce more than 60 million tons of oilseeds. This will be short of about 20 million tons of oilseeds. If we take the global average in oil seed production, we will not be able to produce more than 40 million tons of oilseeds, which is half of the requirement of oilseeds required to meet domestic demand.

In terms of edible oil, India will always need about 12 to 13 million tons of imported edible oil every year in the year 2025 onwards. It means with current rate of exchange rate India will spend about USD 18 to 20 billion every year in import of edible oils. If we take the inflation at the rate of 6% per year and exchange rate unchanged, India will need about USD 40 billion to meet the short fall of 12 to 13 million tons of edible oils.

For some reason if we are not able to improve our productivity from 1.10 tons ha to 2.00 tons per hectare, the import bill will multiply.

I request all policy planners to provide us the road map for edible oil security for India.

Edible Oilseeds also provide protein for Livestock population, which we are not factoring in edible policy

Today, the poultry feed is more expensive than wheat for human consumption. Milk is touching Rs. 50 per liter because feed for milking animals is also very expensive. Poor quality soybean meal is as expensive as good quality rice for common man.

According to various data, India will need about 150 million tons of milk, 15 million tons of meat, 16 million tons of fish and 17 million tons of egg. These all are protein rich diet. In other world India will need 48 to 50 million tons of animal protein per year by 2025.

 To produce these items, livestock will also need protein. Please don’t expect animals to eat poor quality grass, poor quality feed and poor quality drinking water and give high quality milk, high quality meat and egg. This is not possible anywhere. Even God can help in this.

To produce 50 million tons of animal protein, animal will need about 125 million tons of good quality proteins in diet. Who will provide? In other words, we are talking about 280 to 300 million tons of soymeal equivalents. Who will provide this input?

Implications on Indian Economy:

Considering the above facts, India will have to pay USD 50 billion for import of edible oils and at the same time India will have to forgo the production of livestock products i.e. milk, meat, egg and fish worth USD 50 billion. Today, Indian livestock is suffering due to non-availability of protein for feed application. Milk yield per animal and meat yield per animal are clear examples. If we are planning high yielding animals they will also need better high nutrient diets to yield. Feeding leftover agriculture waste in fields and grass can’t deliver high performance in animals.

The net impact of neglecting oilseed sector will cost import bill of edible oil, loss of livestock production and loss of value creation by opportunity to create local industry and loss of export market for oilseeds, protein and livestock products will be about 100 billion dollar.

Now you may add indirect cost due to poor health of people and animals, loss of employment opportunity for millions of youths in rural India, tax revenue loss due to less production and current account deficit.

Please also add cost of dependency on foreign sources for domestic food security and its implication of sovereign economic, political and foreign policy and its implications.

Oilseeds are more crucial than pulses in economic and nutrition terms.

What is the way forward to minimize import dependency for edible oils?

With growing gap between demand and domestic supplies, it is important for Government of India to come out with a time bound action plan to minimize the dependency on imported edible oils. The growing dependency on imported oil will put pressure on current account deficit and food security of the country.

Oilseeds vital for nutrition security of India:

Oilseeds are not only important source of edible oils but also very vital and important source of protein for animal nutrition as well as human nutrition. Edible oil imports, if not managed properly, will have serious adverse implications on the domestic oilseed sector. This needs a very serious and calibrated policy intervention because over dependency on imports will hurt the local oilseed production. Any adverse impact on domestic oilseed production will increase dependency on imported edible oils but will also affect the supply of oil meal or oil cakes for livestock feed industry and protein source for human and animal nutrition.

Review Domestic policies and Import duties to promote domestic production:

Unless there is incentive to produce, no farmer will produce. In order to produce carbohydrates like wheat, rice and sugar government has developed all sorts of systems and incentive plans. Why same zeal is not there for pulses and oilseeds, which are more important for good health? This clearly indicates that agriculture polices lack sound logic and influenced by politics. It is high time, Government of India and all state governments should develop food security plan for India. Please develop a comprehensive plan and communicate to people of India what is their plan to feed 1450 million people by 2025 AD. Otherwise, sorry to say, that piece meal approaches by self-claimed experts with various motives will leave India with begging bowl to feed her.

Challenges in achieving productivity targets:

Based on the global experience average yield of oilseeds in the world is about 2 tons per hectare and the best possible average is yield is 3.5 tons per ha in few countries.  Considering the global experience, It means, on an average, we will be able to produce about 36 million tons to at the best about 60 million tons of oil seeds per year. In order to meet the production target, we must adopt agro-climatic condition based production policy to include soil health policy to support proper seed technology adoption, irrigation facilities and required agri-inputs and extension services.

High yielding Oilseed Technology: India needs world class seed technology which can give quantum jump to the oilseed production. India must establish a program to produce high yielding varieties with the help of modern technologies like nanotechnology and nutri-genomics. Success parameters of such seed technology programs must be linked to the best in class in the world.  Only research program where technology is designed to deliver best in the class output should be supported by tax payers’ money. In order to achieve this even if global collaboration or partnerships are required, we should encourage this. In case new set of rules and policies are required, it should be done on priority basis to keeping national interest as priority.

Minimize Cost of Production: Edible oils will always remain essential components of basic human diet world over. Policies must be designed to encourage which should minimize the cost of production and processing of edible oils. In order to ensure this, if existing laws needs to be reviews and amended, it should be done on priority, so that corrective actions can start on time and country can save time and money.

Transaction cost and time needs to be minimized: On one side we have serious issues of ensuring food security on the other hand we have various laws which are adding unproductive cost and time lag in achieving food security for the country. It is high time we should review laws like Agriculture Produce Marketing Committee Act, various acts related to seeds and agro-chemicals, agriculture research and approval processes, etc. 

Develop Free Agriculture Production Zone in Countries with less population density:

Countries like Australia, Canada, and African Countries can offer their land bank for production of Oilseeds and pulses which can be mutually beneficial. Today, we are acquiring assets to extract energy and minerals in other countries, explore the similar arrangement for food production as well.

Indian corporates should develop oilseed and oil palm fields:

In order to ensure regular supplies to Indian markets and to avoid global dependency on edible oil supplies, in place of depending on international traders for domestic demands, Indian corporates should develop capabilities to take the benefit of domestic markets. This will ensure stability for oil supplies and also sustainable profits for Indian corporates. East Africa, Australia, and parts of East Asia can be potential locations for investment provided local governments are keen to allow investments. Look East Policy and Africa Investment Plan  can be starting point to explore these possibilities.

These are few thoughts more can be explored.

I am fully aware that various vested interests will object to any modifications in the existing regulatory and policy framework but in the national interest we should ignore these objections and move towards reforms which can ensure timely delivery and transparency in decision making process. 

This will also help India in reducing international pressures on its economic and foreign policies. Food security is precondition for any sovereign economic and foreign policy. 

Besides improving food security of India, improvement in oilseeds and edible oil sector, will help in generating employment in rural India; provide animal nutrition security which is extremely vital for national food security and also save USD 100 billion worth national wealth every year.

If Malaysia, as a small country, can produce 18 million tons edible oil Indian can do it as well.  Will government do something to revive edible oil sector in India?

I doubt because in that case government has to go against the commercial interest of large players in edible oil sector in India.  I don't see government is willing to do that. India will remain import dependent in edible oil in years to come.

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About Author:

Profile of Vijay Sardana

Vijay Sardana is Post Graduate from IIM-Ahmedabad, CFTRI, Mysore, Collage of Dairy Science and Legal Qualifications from Indian Law Institute, WIPO, Geneva and Harvard University, USA and is also Management Committee Member of Solvent Extractors Association of India, Life Member of Indian Dairy Association, AFST(I), All India Management Association, Crop Care Association of India and Consulting editor and Member of Editorial Board of five magazines on agriculture, agribusiness and food processing, besides members of other important associations and professional bodies and currently Member, Advisory Committee, Forward Market Commission, Government of India, Independent Director, ACE Commodity & Derivative Exchange, Vice President and Head, Food Security Initiatives & Agribusinesses (Policies and program) of UPL Group, Mumbai and Director, Achievers’ Resources, New Delhi, with experience of more than 20 years in various leadership positions, committed himself for the development of efficient and fair commodity markets and globally competitive agribusinesses through his knowledge, experience, insight and determination.

Special Award was presented by Shri Pranab Mukherjee during Financial Markets Conclave and on the occasion of India’s Best Market Analyst Award, in recognition of Sh. Vijay Sardana’s  contribution in the growth of India’s commodity markets and his constant efforts to make commodity markets better.

He also Consulting editor of leading agriculture publications like Agribusiness, SAARC Oils and Fats, Floriculture, Agritech, Processed Food Industry,

He has contributed extensively for the development of commodity markets and value addition in agro-commodities by implementing the concept of global competitiveness by with the deep and insightful understanding of complex interrelation between social, economic, technical, legal and political aspects of commodity markets and value added agribusinesses.

Vijay Sardana has travelled more than 20 countries and worked on wide range of issues affecting agro-commodities and agribusinesses from almost all agro-climatic situations on various aspects with wide range of business houses, international development organizations and policy making bodies around the world.

Mr. Sardana has contributed through his projects, trainings, writings, researches, critical analysis for various stakeholders and during interactions with various committees of policy making bodies, institutions and publications and invited by many national and international forums.  His blog is read in more than 140 countries and he has contributed more than 600 articles related to agriculture policy and agro-processing and related issues.

His understanding of complex dynamics of commodity markets and agribusinesses is a great asset for investors, professionals, executives, farmers and policy makers. He is among the few whose in-depth knowledge and hand-on professional work and views are well recognized in commodity trade and agro-based industries.

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