Business Opportunities in India
India’s potential to grow oil palms is 1 million hectares
Our Bureau
Date of posting: 26-02-08
      In a few days, the Government of India will present the new budget for the next fiscal year, starting from April 1. During the budgeting season, industries and sectors usually present their wish list about taxes, customs duties or subsidies.

      One sector from the food industry expressing wishes is the edible oil sector. Two oil industry associations, the Solvent Extractors' Association of India (SEA) and the Central Organisation for Oil Industry and Trade (COOIT) have been reported by media as saying that the customs duty on imported palm oil should not be reduced. The associations’ stand would be that any reduction in duties would only allow the export countries to increase the price, and the Indian consumer would therefore not benefit from any reduction. Instead, the duty receipts should be used for poor consumers.

      Palm oil is used across various food industry segments, especially in the confectionary and sweets industry, but also for cooking. At present, the effective duty on crude palm oil is 46.35%, a figure which had been reached in July 2007 when the government had reduced the basic duty already from 50 to 45%. Export countries from where India receives palm oil are mainly Malaysia and Indonesia. Other producers like Thailand or Colombia seem not to play a role in India. In the proposed Free Trade Agreement (FTA) between India and the 10-member Asean countries, palm oil is part of a “highly sensitive list” of products. This consists of crude palm oil, refined palm oil, black pepper, tea, and coffee. Malaysia and Indonesia want to export more and want lower customs duties. Any reduction or non-reduction of the customs duty of palm oil might therefore have implications for other traded goods.

      SEA has reported that the import of palm oil during November 2007 to January 2008 was 990,453 tons, compared to 737,528 tons for the same period of last year, an increase of 13%. In total, India imports every year roughly 3 - 3.5 million tons of palm oil and its variants. The domestic production of oil fruits, which is processed by member companies of the two associations to palm oil, is quite low at only 50 to 60.000 tons.

      According to the National Research Centre for Oil Palm in Pedavegi , Andhra Pradesh, the potential for planting oil palms has been assessed to be in a height of 1 million hectares across 11 states. The three states with the highest potential are Andhra Pradesh with 4 lakh hectares, followed by Kerala and Tamil Nadu. At the moment, oil palm is grown only on 70.000 hectares. Subsidies are given to mainly small farmers who should switch crops to oil palms to support them during the gestation of the tree. Farmers can harvest in the third year.

      This process of convincing and training of small farmers seems to very slow. Industry association COOIT has therefore another stand on that matter on how to rapidly expand the local plantation of oil palms.

      “India has a huge potential for cultivation of oil palms, the climatic conditions to do that are very good. Industry body Central Organisation for Oil Industry and Trade has therefore requested the government repeatedly that oil palms should be declared as plantation crop so that corporate investment can be made to tap the huge potential”, D.N. Pathak, Executive Director, COOIT told

      As long as crops have not been declared a “plantation crop” like tea or coffee, the allowed land holdings are limited, and a corporate house might not want to invest.

      The political task to promote the Indian palm oil production and its actors, the small farmers and landless labourers, as well as the legitimate interests of the Indian palm oil processors, and balance that all with the interests of the Indian confectionary industry, of Indian consumers, and also of so far reliable foreign exporters, seems difficult, but certainly not impossible.

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