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Crude Palm Oil Prices Rising As Covid-19, Heavy Rains Disrupt Supplies, Crop

Author: Dasari Sreenivasa Rao/Wednesday, September 23, 2020/Categories: Exclusive

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Crude Palm Oil Prices Rising As Covid-19, Heavy Rains Disrupt Supplies, Crop

Crude palm oil (CPO) futures recovered from late August and entered the uptrend phase. The CPO futures contract (Sept30 expiry) on MCX was trading at Rs808.50/10kgs (trading unit 10MT) on Monday. The CPO futures (October 30 expiry) were at Rs809.30. The CPO (Sept) may continue to witness gains and move higher towards Rs810-815 levels, observes SMC Global Securities. If it breaks out Rs814, then CPO futures contract may touch Rs822. Its data suggests Rs785 as stop loss for both the expiries, while holding uptrend for the palm oil futures contracts. The upward journey of CPO futures begun from Rs614 on June 1 to Rs660 on June 22 and corrected to Rs622 on June 30, since then it’s been continuing upward move Rs798.30 on September 17, while spot market price at Kandla was at Rs808.30/ 10kg.

After hitting record high of Rs800/10kg pre-Covid period, CPO prices fell to Rs650 in April on MCX. Of late, the crude palm oil prices started picking up. Recent heavy rains damaged the oil palm crop and the supplies were further hit by the Covid-19. Majority of Indian households from lower-income and mid-income groups use palm oil. The average daily turnover rose to Rs274 crore as against Rs250cr. In 2020 so far, the total CPO futures trading volume was Rs48,951.44 crore on MCX. 

Oil Palm Developers And Processors Association (OPDPA), the nodal agency for oil palm cultivation in India, suggests for a stable pricing mechanism to be put in place for protecting the Indian oil palm farmers from price fluctuations. A fixed MSP mechanism as suggested by the draft CACP report of 2018, will go a long way in this regard, said Sanjay Goenka, president of OPDPA and  MD of 3F Oil Palm.

Goenka further adds: “The expanse of oil palm cultivation in the country is very negligible today as compared to the potential the crop possesses. We have seen the transformation this crop has brought about in the lives of farmer community in Andhra Pradesh and we hope to emulate the same in other states including those in the Northeastern part of India. A strong and robust long term policy mechanism needs to be introduced to give this crop the required push across India. Given the Prime Minister’s Atmanirbharta vision, India can truly achieve its goal of self-sufficiency in Edible Oils by pushing for development in the Oil Palm Plantation sector.”

Prime Minister Narendra Modi-led NDA government is focusing on reducing imports of farm products. India imports over nine million tonne per annum from Malaysia and Indonesia. India’s curbs on Malaysian palm imports stir up edible oil trade. India’s ban on Malaysian palm oil imports in February impacting global edible oil trade dynamics. With Indonesia shifting supplies to India, Malaysia in a hurry to tap markets left behind by Jakarta, and India substituting palm with other oils.  

Oil Palm Yield

Any edible oil-bearing crop generally yields a maximum of 500 kgs of oil per hectare, while oil palm produces about 4,000 kgs of oil per hectare at a yield rate that is eight times higher than any oil seed crop. The oil palm crop life cycle is estimated at 25 years.

As per the industry statistics, even at a lower per capita consumption of 18 kgs of edible oil per person per annum in India versus the world average of 27 kgs, India is still producing only 40 per cent of its requirements and the balance 60 per cent is met through imports.

“Palm oil constitutes 70 per cent of the countries edible oil imports. India is importing about Rs 75,000 crore of oil palm every year. Any increase in per capita consumption will further increase the import bill and change the entire dynamics. Encouraging oil palm cultivation to enable India becoming self-reliant in edible oils will save a huge burden on the state exchequer,” remarked Goenka.

Multiple benefits to farmers include subsidy support from the central government towards sapling, creating of irrigation infrastructure, fertilizer and harvesting equipment for the first four years to the tune of about Rs 2.7 lakh per hectare. Farmers are insulation from the ambiguity of price fluctuations due to market conditions as price fixation is government by the Government. Processing companies transfer the dues directly into the bank accounts of farmers ensuring elimination of middleman.

Potential in Telangana & AP

Currently, oil palm is being grown in only four districts of Telangana in 45,000 acres producing 30,000 tons of crude palm oil, while the state’s current edible oil requirement is around four lakh tons per annum. The deficit can easily be fulfilled by cultivating just two lakh acres of land resulting in 5-7 lakh tons of palm oil being produced. This will place Telangana as the first state to emerge as a self-reliant state in its edible oil requirements. The state has a potential to increase the cultivable land to 7 lakh acres and the Telangana has identified 25 districts including the existing four districts, which have the potential to grow oil palm in the state.

Telangana and Andhra Pradesh can emerge as the largest oil palm destination in India. “With aggressive push from Telangana government to cultivate oil palm in over seven lakh acres and increase production capacity to 15 lakh MT of palm oil, the state will become self-sufficient in edible oils and lead to thousands of direct and indirect employment in the state,” said Goenka. Oil palm is being grown in only four districts- Nalgonda, Suryapet, Khammam, Bhadradri- in Telangana and is cultivated in about 45,000 acres producing 30,000 tons of crude palm oil. Telangana’s current edible oil requirement is around 4 lakh tons per annum. The deficit can easily be fulfilled by cultivating just 2 lakh acres of land resulting in 5-7 lakh tons of palm oil being produced. This will place Telangana as the first state to emerge as a self-reliant state in its edible oil requirements. The state has a potential to increase the cultivable land to 7 lakh acres and the Telangana has identified 25 districts including the existing four districts, which have the potential to grow oil palm in the state.

Goenka said: “By reaching the targeted 7 lakh acres, Telangana will be in a position to generate additional revenues by selling the surplus produce to other states. Palm oil is a very versatile and affordable oil simply because of its high productivity and ability to flourish with minimal requirements. This will hugely benefit the farmers, increase employment as well as attract investments from processors. We are greatly motivated with the opportunity and are working closely with the Government towards fulfillment of the potential.”

Telangana is poised to become one of the largest cultivators for oil palm cultivation in India due to availability of fertile land and favorable conditions for growing this crop on a large scale. The multiple irrigation projects in the state have contributed to improved conditions for cultivation making Telangana a prominent state for oil palm plantation and processing activities. Oil palm is a very versatile crop and has multiple benefits for farmers, it gives the highest yields and returns per acre compared to most commercial crops.

Further, Telangana’s pro-farmer policies such as Rythu Bandhu, irrigation facilities, free and quality power supply are leading to the growth prospects. Coupled with Government of India’s subsidy and the focused approach by the Telangana government towards promoting this crop, farmers will be hugely benefitted by adopting this crop. Successful adoption by farmers in Andhra Pradesh is testimony to the sustained and guaranteed regular income from oil palm cultivation. 3F Oil Palm has operations in West Godavari, Vizianagaram, Visakhapatnam and Nellore in Andhra Pradesh (AP). The state has a potential of 63,000 hectares for oil palm cultivation. Recently, 3F Oil Palm acquired Simhapuri Agro Products Pvt Ltd in Nellore. It also has operations in Tamil Nadu (5,000 hectares), Orissa (25,000 hectares), Chhattisgarh (20,000 hectares), Mizoram (20,000 hectares), Arunachal Pradesh (20,000 hectares) and Gujarat (20,000 hectares).

It is necessary for the oil palm crop to be processed within 24 hours from its harvesting. This will help ensure investments in the rural area as the processing units need to be located closer to the plantations, and in turn increased employment opportunities and development of the region.

The writer is a business journalist with 27 years of experience

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