A tradition of contradictions : Indian Agriculture
India is a unique country in many ways. But our food consumption dynamics present a very interesting fact. Farmers are the biggest retail buyers of food despite being the biggest wholesale producers. Our halo of food security and availability is limited to low-value cereals like rice and wheat and highly perishable fruits and vegetables. When it comes to high-value produces like cooking oil and pulses, our supply lines are exposed to external shocks. Immense demand is India’s food sector has been exploited, despite passing on its benefits to farmers or consumers.However, it needs to be understood is that this entire challenge can still be dealt with systematically without resorting to knee-jerk reactions.
The primary advantage that we as a country have is an abundant supply of quality arable land. Despite our large population, per capita availability of land in India is second only to USA; which is incidentally three-times larger than India. It’s not an overstatement that there’s no crop in the world that can’t be cultivated in India. The presence of almost all types of agro-climatic regions and mind-boggling diversity of crops have the potential to make India the ‘food bowl’ of the world. Historically it is our agricultural surplus that powered the exploits of all major Indian dynasties and western colonialism. Our mercantile traditions and a strong base of capitalists have traditionally countered the advances of international players. The presence of indigenous capitalists is the single largest factor that controlled the exploitation of our farm-sector and economy, or else our country would have gone the African way with an unabated exploitation of all natural resources by neo-colonial forces.
Due to positive policy interventions, India managed to reclaim almost complete self-sufficiency in cooking oil production in 90’s. However the advent of globalization and trade restrictions in WTO regime slowly withered our gains. India became a dumping ground for global commodity players, driving away the incentives associated with cultivation to Indian farmers. Indian Industry was forced to depend on imports to meet the indigenous demand. However the real challenge emerged in 2011 when Indonesia / Malaysia introduced a higher export tax on export of crude Palm Oil vs Refined Palmolein, thereby making Refined Palmolein price same or cheaper than crude Palm Oil. Palm was the primary component of our cooking oil imports, with huge capacities developed around it’s processing.
The then government surprisingly responded by reduced import duty to NIL on Palm stearin and Palm fatty acid distillate. Both these products are byproducts of CPO refining and constitute 25% of the value. Whilst import duty on these products was made Nil, the duty difference between CPO & Refined Palmolein was kept at 7.5%, making CPO Refining route more expensive.
This anomaly literally rang the death knell for Indian edible oil producers. Importing refined edible oil emerged as a more profitable proposition.Many edible oil refineries have become bankrupt in past few years and are a part of the NPA of banks. The refineries which are surviving are the ones which have moved away from Palm Oil Refining into other oils like Soya oil and Sunflower oil were refined oil is not imported due to quality reasons. This increased the unutilized capacities many folds and caused inventory pileups.
Any human endeavor has to be profitable to be sustainable. Lack of profit in farming in India is the root cause of all that ails our farm sector. India is a ‘farmer majority’ country. Food inflation is thus hardly a cause for concern. The positives far out weight the ill effects when it comes to creating local demand. Increase in farmer’s income will spike the rural demand which in turn will further drive the Indian economy to new heights. This phenomenon is invariably proved by the direct link in Industrial production index and success of monsoon almost every year.
The recent hike in import duty on cooking oil is a step in the right direction. Farmers and Indian Industry will now again move towards oilseeds. Need of the hour is take similar initiatives across the verticals in the farm sector and completely revamp the Agricultural policy. Such positive initiative have the potential to completely transform India's farm sector and usher a new era of prosperity for every Indian.