Insight - Indian state bets big on oil palm to cut US$19bil vegoil imports

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Growth potential: Workers prepare oil palm seedlings at a nursery in the Khammam district in Telangana. The southern state, which occupies an inland region on the Deccan Plateau, is keen to emerge as India’s main palm oil hub. — Reuters

PULLARAO Daravathu and thousands of fellow farmers from Telangana in India’s south are busy planting oil palms as their home state aims to add more area under the crop within four years than the entire country has in decades.

Telangana is targeting two million additional acres under oil palm cultivation in the next four years, and is going to great lengths to achieve this goal – from building large dams and irrigation canals to importing millions of germinated sprouts.

Generous government subsidies and bumper profit potential compared to other crops are also encouraging farmers like Daravathu to shift to oil palms.

“Oil palm is giving more than 200,000 Indian rupees (US$2,536 or RM11,302.95) per acre return to farmers who planted the crop some years back.

“In rice, I am struggling to earn 40,000 rupees (RM22,64.83) even after putting in lots of effort,” said Daravathu, who was planting oil palm on his five-acre farm at Sathupally, nearly 300 km east of Hyderabad, the state capital.

The recent rally in palm oil prices has more than doubled prices of fresh fruit bunches, which farmers sell to oil mills.

For years, price volatility, water scarcity and a gestation period of nearly four years limited oil palm plantation in India to less than one million acres, mostly in coastal Andhra Pradesh, the state that Telangana was carved out of in 2014.

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But Telangana, which occupies an inland region on the Deccan Plateau, is now keen to emerge as India’s main palm oil hub, with an area target that would place the state as the fifth largest oil palm grower globally – from a negligible base currently.

The drive could reduce India’s mammoth vegetable oil imports, which cost the country a record US$18.9bil (RM84.24bil) a year ago and widened the national trade deficit.

India fulfills two-thirds of its vegetable oil demand through imports of around 14 million tonnes annually, including around 8.5 million tonnes of palm oil.

The federal government is keen to increase palm oil output to slash those expensive imports, which lifted inflation this year to multi-year highs after top supplier Indonesia abruptly halted exports.

“In the next four years, most of the palm planting would be done, and after seven to eight years Telangana could be producing four million tonnes of palm oil,” L. Venkatram Reddy, director of horticulture at the state government told Reuters.

India currently produces less than 300,000 tonnes of palm oil and relies on imports from Indonesia, Malaysia and Thailand to fulfill its requirements.

Even if Telangana manages to grow oil palm on only one million acres and produces two million tonnes of palm oil, it would be a huge achievement, said Chava Venkateswara Rao of Godrej Agrovet Ltd, the country’s biggest palm oil producer.