Palm oil industry's profits slip 25%, small firms shut shop

HYDERABAD | KOLKATA: India's palm oil industry saw profits tumble by around 25 per cent last year, burdened by droughts, rising production costs and, chiefly, cheaper imports, forcing several small firms to shut shop, according to industry sources.

India imports nearly 70 per cent of its edible oil requirements from Malaysia and Indonesia; the rest is met from domestic production.

"Area expansion under palm oil fell by over 50 per cent over the last couple of years due to low prices of crude palm oil and poor rainfall," said Sanjay Goenka, chief executive of 3F Oil Palm Agrotech, representing the Oil Palm Developers and Processors Association. “Karnataka and Odisha suffered the most among the oil palm producing states.“

Industry experts added that most of the refineries are currently operating at 50 per cent capacity utilisation.

"Almost 30 years ago, 1.9 million hectares of land were identified to grow palm. However, till now only 2,50,000 hectares are under palm production. While a hectare of land can yield 300-400 kg of groundnut oil, nearly 4 tonne of palm oil can be produced from a hectare of land," said BV Mehta, executive director, Solvent Extractors' Association.


Also, as the Land Ceiling Act caps land holding by companies, the nature of land holding gets fragmented and collection of produce from various farms located at far off places increases the input costs by up to 25 per cent. The domestic companies, who sell at a lower cost to remain competitive, are unable to pass on the increased costs to the customers fearing loss of business.

Resultantly, companies manufacturing edible oil are not keen to enter palm production.

"Internationally, there is huge supply of palm oil at a much cheaper price. Malaysia and Indonesia are major producers of palm oil. Moreover, the weather in India is not conducive for palm crop. It also has a three-year gestation period before it starts producing oil. In that way it is not remunerative to grow palm,“ said Angshu Mallick, chief operating officer, Adani Willmar, which produces edible oil under the brand Fortune.

The industry has been asking the Union government to give plantation status to palm crop for the last ten years and also to amend the land laws.

Mehta said, "We had written to the ministry of agriculture on amending the land laws so that palm plantation can come up. But land is a state issue. So states have to amend laws to allow companies, who are interested in palm production, to buy land and start producing the crop."

Sources said that the Centre has asked the states to look into the issue and Karnataka and Arunachal Pradesh are likely to have exempted companies from the cap on land ceiling.

Vindo TP, research analyst at Geofin Comrade, said that the demand has already picked up pace on account of the upcoming Ramzan festival and is likely to improve from July August.