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India bans import of refined palm oil

  • Category
    Economy
  • Published
    5th Feb, 2020

India has banned the imports of refined palm oil, a government notification said, as New Delhi tries to curb imports from Malaysia following criticism from Kuala Lumpur on India's actions in the Kashmir region and its new citizenship law-- The Citizenship (Amendment) Act, 2019.

Issue

Context

India has banned the imports of refined palm oil, a government notification said, as New Delhi tries to curb imports from Malaysia following criticism from Kuala Lumpur on India's actions in the Kashmir region and its new citizenship law-- The Citizenship (Amendment) Act, 2019.

Background

  • India imports most of its refined palm oil from Malaysia and crude palm oil from Indonesia.
  • Indonesia and Malaysia are the top two producers of palm oil, while India is the biggest importer of palm oil.
  • Indonesia and Malaysia make up over 85% of global supply but there are 42 other countries that also produce palm oil.
  • India has cut import duty on crude palm oil (CPO) and refined, bleached and deodorised (RBD) palm oil, and also moved RBD oil from the “free” to the “restricted” list of imports.
  • While curbing oil imports was been under discussion since the Budget presented in 2019.
  • Malaysia has also been sheltering since 2017 the Islamic preacher Zakir Naik, who is wanted by India on charges of money laundering, hate speech, and links to terror.

What Is Palm Oil?

  • It’s an edible vegetable oil that comes from the fruit of oil palm trees; the scientific name is Elaeis guineensis.
  • Two types of oil can be produced; crude palm oil and palm kernel oil.
  • Palm oil is in nearly everything – it’s in close to 50% of the packaged products we find in the market.

Analysis

Why Is Palm Oil Everywhere? /What makes it unique than other oils

  • Palm oil is extremely versatile oil that has many different properties and functions which makes it so useful and so widely used.
    • It is semi-solid at room temperature so can keep spreads spreadable
    • it is resistant to oxidation and so can give products a longer shelf-life
    • it’s stable at high temperatures and so helps to give fried products a crispy and crunchy texture
    • It’s also odourless and colourless so doesn’t alter the look or smell of food products.

What Is The Problem With Palm Oil?

  • Palm oil has been and continues to be a major driver of deforestation of some of the world’s most biodiverse forests, destroying the habitat of already endangered species like the Orangutan, pygmy elephant and Sumatran rhino.
  • This forest loss coupled with conversion of carbon rich peat soils are throwing out millions of tonnes of greenhouse gases into the atmosphere and contributing to climate change.
  • There also remains some exploitation of workers and child labour.
  • These are serious issues that the whole palm oil sector needs to step up to address because it doesn’t have to be this way.

Why Don’t We Just Switch To An Alternative Vegetable Oil?

  • Palm oil is an incredibly efficient crop, producing more oil per land area than any other equivalent vegetable oil crop.
  • Globally, palm oil supplies 35% of the world’s vegetable oil demand on just 10% of the land.
  • To get the same amount of alternative oils like soybean or coconut oil you would need anything between 4 and 10 times more land, which would just shift the problem to other parts of the world and threaten other habitats and species.
  • Furthermore, palm oil is an important crop for the GDP of emerging economies and there are millions of smallholder farmers who depend on producing palm oil for their livelihood.

Has India banned import of Malaysian palm oil because of political reasons?

  • The import of RBD palm oil has been restricted, not banned and this is from all countries, not just Malaysia.
  • Also, CPO can still be imported freely.
  • Under the trade classification system that India follows, except for goods that can be imported only by state trading enterprises (such as Food Corporation of India), all goods whose import is not restricted or prohibited are traded freely.
  • Normally, a special licence is required to import a restricted good.
  • The government has neither specified what the restrictions entail nor issued any licences.

Why does India need so much palm oil?

  • It is the cheapest edible oil available naturally.
  • It stays relatively stable at high temperatures, and is therefore suitable for reuse and deep frying.
  • It is the main ingredient in Vanaspati (hydrogenated vegetable oil).
  • However, palm oil is not used in Indian homes. That, and the fact that CPO continues to be imported, makes it unlikely that the decision to restrict refined palm oil imports will impact food inflation immediately.

Will restricting imports of RBD palm oil help farmers?

  • Restricting refined oil imports will not help farmers directly, as they are not involved in the process of refining.
  • However, the restrictions have caused refined palm oil prices to increase.
  • If prices continue to hold, farmers will get a better realisation for their crop.
  • But the timeframe over which the changes in import policy will have an effect on domestic crop realisation is fairly long, given that palm trees take over four years to provide a yield.
  • Also, if the demand is met entirely by importing and refining CPO, farmers will be left out of the picture.

How will Malaysia be affected?

  • India has been Malaysia’s top import market since 2014, according to industry data.
  • Last year, India bought 4.4 million tonnes of palm oil from Malaysia, accounting for 24% of all Malaysian palm oil exports.
  • The second biggest buyer of Malaysian palm oil, China, bought just 2.4 million tonnes last year, while the third largest buyer was Pakistan with 1.08 million tonnes, according to data from the Malaysian Palm Oil Council.
  • Indonesia, the world’s biggest producer of palm oil, boasts lower production costs and has a bigger share of the market in many palm oil-consuming countries. It has also historically offered palm oil at cheaper prices than Malaysia, although recently Malaysian export prices have slumped below Indonesian rates as Indian buyers retreated from the market.

Major Impacts due to Palm oil industry

  • High scale deforestation to make room for palm plantations.
  • Orangutan population has decreased by 50 percent as the result of habitat loss from forest clearing for palm plantations.
  • There are only 6,300 Sumatran orangutans left. A major factor in these deaths being forest clearing for palm production.
  • Clearing one hectare (about two square acres) of peat forest can release 6,000 tons of carbon dioxide.
  • The palm oil industry is responsible for about 5,000 land and human rights conflicts.
  • Only 35 percent of palm growers that are members of the Roundtable on Sustainable Palm Oil are actually certified by the RSPO. Meaning the other 65 percent pay to be “members,” but have taken no action to adhere to the RSPO guidelines in their growing practices.
  • Palm oil ranks among the U.S. Department of Labor’s top four worst industries for forced and child labor.
  • Sumatran tiger population will be extinct in less than three years if nothing is done to protect their habitat or combat poachers.

Major Palm Oil producing countries

  • Indonesia
    • Indonesia is by far the largest producer of palm oil, and this is supported by the ever-rising large palm growing areas in the country and export figures.
    • It is estimated that by 2020, the palm oil project in Indonesia will cover approximately 12 million hectares.
    • Indonesia was producing 35% of the world’s palm oil in 2012, and India and China are the importers of Indonesia’s palm oil.
  • Malaysia
    • Currently, Malaysia is second in palm oil production after Indonesia with its overall production accounting for 39% of the global production, while its palm oil exports account for around 44%.
    • Malaysia possesses large plantations, and as of 2016, the country’s total palm oil production amounted to 2.1 million metric tons.
    • Production of Palm oil in the country is categorized into three; private, smallholder, and joint venture.
    • However, the economic activity poses a serious environmental threat in the country by polluting water sources, leading to the loss of biodiversity, and deforestation.
    • Malaysia is the leading exporter of the palm oil with its primary importing countries being the European Union, Pakistan, China, the US, and India.
  • Thailand
    • Thailand is the third top producer of palm oil in the world, and the majority of the producers in the country are the small-scale farmers, who are responsible for 76% of the country’s output.
    • The province of Surat Thani had the highest production of palm oil accounting for 26.59% of all the country’s production.
    • Most of the palm oil produced in Thailand is used locally, and a small portion is for export.
    • Some of the challenges facing the palm oil production in the country include lack of appropriate knowledge in managing palm oil, lack of finances, low quality of seedlings, and low rainfall.

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