The Global Hunger Index 2019 ranks India at 102 out of 117 countries [i], and with a population of 1.37 billion people, all policy making in India is pivoted on food security, and palm oil (in the form of edible vegetable oil) lies at the crux of this equation.

Even as over 50% of all retail (and FMCG) products [ii] continue to use palm oil or one of its derivatives, the most commonly used and low priced edible oil is imported to India from the producing geographies of Indonesia and Malaysia – both associated with large-scale deforestation, biodiversity loss and peatland destruction that triggers an increase in greenhouse gas emissions and global climate change [iii].

Due to its versatility in the kitchen and comparatively cheap prices, palm oil form the bulk of India’s vegetable oils sector and indeed the edible oils market as well, with the relatively inelastic demand (wherein the demand is not determined by the prices) of palm oil in the short run.

Palm oil consumption has drastically increased by almost 230% over the last two decades. This links directly to India’s growing population and the associated increase in the demand for loose and unbranded oil – primarily consumed by low socioeconomic status (SES) households and industrial consumers such as snacks and halwais (sweets shops). The increased demand is also associated with the growth of the blended oils segment where palm oil remains a key component of multiple vegetable oils sold in the Indian market.

Palm oil and its ecological footprint remain absent from attention in the Indian retail and consumer context. More importantly even consumers that may be aware may not prioritize off-shore deforestation risk.

India is the largest net importer of palm oil and consumes 13.5% of the global production of palm oil.

In India, domestic consumption significantly exceeds domestic production, which comes to about 260,000 MT annually, [i] while the gap continues to be plugged by imports upwards of 10 MMT.

According to RSPO’s estimates, approximately 98% of palm oil (crude, refined and processed) consumed in India is imported from other countries of which less than 1% is certified sustainable (CSPO). While consumers will remain difficult to limit, at this point, more advanced markets are looking at responsible production which anchors itself in increasing and incentivising the inclusion of best management practices in production, standards and certification and associated public opinion shaping. The learnings for India are especially important at this time.

India is at once both at a significantly higher deforestation footprint as well as a great strategic position to take on a stewardship role in regional trade to drive the demand for responsibly/sustainably sourced palm oil.

The factors that have made palm oil a success have also brought with it well-documented environmental and social challenges. The most prominent among these are links to deforestation, labour rights, and damaging effects on nature and the environment, particularly when grown unsustainably.

The thrust of the problem lies in the fact that despite the environmental challenges associated with it, palm oil continues to sustain the developing world. Three billion people across developing contexts including India, sub-Saharan Africa and South-East Asia consume palm oil due to relatively low prices and the neutral taste/odour profile.

Per FAO estimates in The State of Food Security and Nutrition in the World report, 194.4 million people are still undernourished in India, highlighting further the need for the country to prioritize food security. This results in prioritizing low-price options for meal preparations for 1.37 billion people, many of who continue to live below the poverty line. Palm oil emerges as a front-runner  in the edible oil category due to its low prices and availability along with its versatility in blended segments with mustard, coconut, groundnut and sesame – locally produced and traditionally used vegetable oils for all Indian cooking.  The most dominant cooking medium in India called Vanaspati, (hydrogenated vegetable oil) is made primarily from palm oil.  It is also extensively used by the food industry — for everything from traditional Indian sweets and savories to confectionery, breads, biscuits and noodles — as well as in the fast growing quick-service restaurants.

Demand continues to drive supply with the average Indian consumer being largely unaware of  the impact of their purchases. Most Indians shop for their daily groceries in street markets and small family-owned stores.

These purchases are driven primarily by a “minimum price-maximum value” mindset, aimed at getting more quantity in given prices and most often have little to do with brand association.

Because of this way of interaction with the oil, the largest segment of this particularly price sensitive consumer group remains brand-agnostic and certification-agnostic, and thus is ignorant of the need for responsible sourcing.

On average, prices in India are 10-30% lower as compared to other markets, adjusting for purchasing power parity. For example, the bottle of the same vegetable oil is differently priced in India and in other geographies. This is reflected at various stages of the palm oil value chain – from production to retail. At various stages, any additional cost centres (i.e. the cost of certification) need to be removed by FMCG companies in order for a product to remain relevant to the Indian market.

While there has been some media coverage mentioning the impact of India’s palm oil imports on global deforestation and offshore biodiversity loss there has not been much progress in terms of consumer awareness. In this, NGOs and civil society have been working to build consumer awareness in order to push for greater uptake of sustainability standards for at least a decade

However, the end-consumer typically does not look beyond price, much less at the adverse effects of the value chain of the product in their hand – and the demand for unsustainable palm oil continues to grow.

It is estimated that the difference in prices between sustainable (CSPO) and conventional palm oil would come to over $30–$50 per ton owing to the cost of certification. Indian companies argue that with no policy push and the negligible demand (for higher-priced “sustainable” products owing to no perceivable difference or health impact of product), it is difficult to afford this cost of certification. 

It is also becoming clear (and perhaps most important) that for the Government of India the increase in domestic production, aimed at import substitution with a view to increasing food security will continue to take precedence over sustainable sourcing from other geographies at this stage. This has been further amplified now by the strong emphasis laid on local supply chains (Atma Nirbhar Bharat Abhiyan) in the aftermath of the COVID-19 crisis.

Compounded by the lack of consumer action, highly elastic demand and the absence of on-product sustainability labeling, sustainable palm oil is faced with a chicken-and-egg problem of who moves first – policy actors, consumers or brands and indeed how.

The FAO Vegetable Oil Price Index has declined 12 percent in one month, [i] mainly stemming from falling palm oil prices and rising uncertainties over the pandemic’s impacts on global markets. India’s edible oil market went down by 32.44% even as it suspended import licenses for refined palm oil on alleged rule of origin violations in early May 2020. [ii]

There is now, an urgent need for private sustainability governance with progressive multinationals with global commitments leading with example. Companies with strong sustainability practices are being seen as more resilient in the current global crisis. Large companies with global value chains (Unilever, Cargill, PepsiCo and a few others), were already looking to match their India operations with global public commitments on responsible sourcing.

With support from the Government of the Netherlands, three National Initiatives for Sustainable Climate Smart Oil Palm Smallholders (NISCOPS) have been set-up in cooperation with the governments of Indonesia, Malaysia and Nigeria.

IDH, along with our global partner Solidaridad is actively seeking new partnerships with states, companies and other value chain actors with an interest in developing sustainable palm oil supply chains. The program provides a way out of the increasingly polarized debate on palm oil, both for producer and consumers countries.

IDH’s Palm Oil program aims to make sustainable production of palm oil mainstream and thereby reduce tropical deforestation. Our Palm Oil program supports the production of traceable and sustainable palm oil at scale. We do this by working on governance at the field in Indonesia and Malaysia, and on the market side in consumer geographies of India, EU and China, to increase uptake of responsibly produced palm oil.

Through our palm oil market program, we aim to mainstream the  uptake of sustainable palm oil. Larger uptake will create benefits of scale, reducing sourcing costs. And increased demand will create economic incentives for palm oil producers to delink deforestation from their production and implementing good agricultural practices.

With three pillars of engagement: convening market and sustainability actors, policy engagement for import regulation and increased uptake of responsibly sourced palm oil, IDH India works with various actors in the Indian value chain towards bringing sustainability from niche to norm.

Our Intervention in India works towards

• Convening large palm oil buyers operating in India to build reporting and disclosure.
• Remaining inclusive and standard-neutral.
• Influencing demand in the short term and encouraging responsibly sourced supply in the long term.
• Monitoring the uptake of responsibly sourced/sustainable palm oil.
• Building a strong engagement with the Government of India.

Learn more about our Palm Oil work in India

Contact

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  Sneha Maheshwari

  Assistant Program Manager - Markets

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