By Ashok Gulati & Ritika Juneja

The 12th Ministerial Conference (MC12) of the World Trade Organization (WTO) struggled to find satisfactory answers to some very complex questions relating to world trade. This included appropriate responses from member countries during abnormal situations such as the coronavirus pandemic, whether to adopt a waiver on Trade-Related Aspects of Intellectual Property Rights (TRIPS) for vaccines, whether to relaxing rules on public stockholding for food security purposes, reduction/elimination of fisheries subsidies, WTO reforms and e-commerce, etc. predictably and as freely as possible, based on certain agreed rules of the game.

With regard to agricultural trade and food security, the challenge is to determine the most appropriate trade rules in extreme situations such as a pandemic or war, social/political disruptions or natural disasters. Many countries at this time turned inward and imposed outright export bans citing their national food security needs. This includes Russia’s export ban on wheat and sunflower oil, Ukraine’s export ban on staple foods, India’s palm oil export ban. Indonesia (which was later lifted), Argentina’s beef export ban, Turkey’s, Kyrgyzstan’s and Kazakhstan’s bans on a variety of grain products, wheat export bans by India, etc As a result of such sudden actions, the pressure on world trade is exacerbated and world prices for these products soar, threatening the food security of net food importing countries.

Supply disruptions during the pandemic and the long Russian-Ukrainian war have led many countries to think about “self-sufficiency” in essential food products, or at least to reduce their “over-reliance” on others for certain essential food products. India is no exception. Its edible oil import bill in FY22 topped $19 billion (for more than 14 million metric tons, or mmt, of imports). Its dependence on edible oil imports accounts for 55-60% of total consumption. This is considered “very excessive”, and efforts are already underway to reduce this dependency.

It would be interesting to bear in mind that “self-sufficiency” and “autonomy” are two different concepts with very different political implications. While “self-sufficiency” would imply substituting at all costs all imports of this product (e.g. edible oils in the case of India) (thereby increasing import duties exorbitantly), “the self-sufficiency” would always incorporate the principle of “comparative advantage” in its efforts to reduce their dependence on imported oil.

Take the case of India. Its agricultural exports in FY22 reached $50.3 billion, compared to agricultural imports of $32.4 billion. This means that Indian agriculture is largely competitive on a global scale. But its main agricultural import product, edible oils, accounts for 59% of total agricultural imports. This is despite the very high import duties that have generally been imposed on imports of edible oils. Among edible oil imports, more than half is palm oil, followed by soy and sunflower. Imports of edible oils are followed by fresh fruits and vegetables (F&V), pulses, spices, and cashews, among others.

This “overreliance” on edible oil imports has raised the tone for “atmanirbharta”, and as a result, the National Edible Oil Mission-Oil Palm (NEOM-OP) was launched in 2021. The makers Indians are aware that if they try to achieve atmanirbharta in edible oils through traditional oilseeds such as mustard, groundnuts, soybeans, etc., they would need an additional 39 million hectares of oilseeds to entirely replace the 14 million tonnes of imports. Indeed, the existing oilseed complex gives about 360 kg of oil per hectare. This necessary area cannot be made available without reducing the area devoted to staple foods (cereals), which can endanger food security. Thus, to reduce the dependence on edible oil imports, a rational option is to develop oil palm in the country and ensure a productivity similar to that of Indonesia and Malaysia, of about 4 tons of oil. oil per hectare – more than 10 times mustard can give existing yields.

India has identified 2.8 million hectares of area suitable for oil palm cultivation. NEOM-OP’s goal is to put at least 1 million hectares under oil palm by 2025-26. Given the surge in international edible oil prices over the past year (by more than 70%), it is time for India to step up its efforts in oil palm development. The problem with oil palm is that it is a long gestation crop. Maturity takes 4-6 years, during which smallholders need to be supported. The support (subsidy) could be the opportunity cost of, for example, profits from growing paddy, which is largely the crop that oil palm will replace in the coastal and upland areas of Andhra Pradesh, of Telangana and the North East. In addition, the Fresh Fruit Buns (FFB) pricing formula needs to be aligned with the likely long-term average landed price of crude palm oil, with appropriate flexibility in the import duty structure. Trigger points need to be identified when the import duty should be increased when world prices fall, and when it should be reduced (world price increase). In addition, the process industry must guarantee an oil recovery of at least 18-20%, which must be incorporated into the pricing formula.

The other option is to declare oil palm as a plantation crop and allow companies to own/lease land long term to develop their own plantations and processing units. Given existing socio-political realities, this does not seem like a high probability. Overall, unless India thinks holistically and takes a long-term view, the chances of reducing its edible oil imports from 14mmt in FY22 to 7mmt d ‘here exercise 27 seem weak.

(The authors are, respectively, the professor of the Infosys Chair and the consultant, ICRIER.)