marketing problems and prospects of oil...

Volume 4, Number 2, April – June’ 2015

ISSN (Print):2279-0934, (Online):2279-0942

PEZZOTTAITE JOURNALS SJIF (2012): 3.735, SJIF (2013): 5.020, SJIF (2014): 5.996

International Journal of Retailing & Rural Business Perspectives © Pezzottaite Journals. 1644 |P a g e

MARKETING PROBLEMS AND PROSPECTS OF OIL PALM SECTOR:

A CASE STUDY OF KRISHNA DISTRICT, ANDHRA PRADESH

Dr. N. Bindu Madhavi32 Dr. V. N. Sailaja33

ABSTRACT

Oil palm is the highest oil producer among perennial oil yielding crops. India is the largest consumer of Oil palm in the wor ld

(18% of world consumption) and largest importer of Oil Palm (45% of world imports). Andhra Pradesh is the leading Palm Oil producing state in India (85% of country’s production) followed by Kerala (10%). The West Godavari, East Godavari and

Krishna districts of Andhra Pradesh are the extensive cultivators of Oil Palm.

The Government of India has been supporting oil palm through subsidies (Planting, fertilizers, and micro-irrigation) and

various State Governments including AP State Government is providing assistance for oil palm development. Even though the Government has been trying to expand area under Palm oil cultivation, marketing problems associated with oil palm

cultivation are causing very slow growth rate in expansion of Oil palm cultivation. In this context, the present paper is an attempt to address the marketing problems of Oil palm cultivators in Krishna district of the state of Andhra Pradesh.

KEYWORDS

Oil Palm, Palm Kernel Oil, Fresh Fruit bunches, Zonal System, Market Intervention Scheme etc.

INTRODUCTION

Oil Palm is the richest source for vegetable oil production with a capacity of 4-6 tons of oil per ha per year. It is the most sustainable crop to feed the hungry mouths of the world as it is recognized universally as the most efficient, effective and highest

yielding form of edible oil production. Oil Palm is widely used as cooking oil and has excellent health attributes. Oil is extracted from both the pulp of the fruit (Palm oil) and the kernel (Palm Kernel Oil). It can be used in formulation of cooking fat such as

Vanaspathi and in the manufacture of biscuits, ice-creams, soaps, detergents, shampoos and so on. Further Palm Kernel oil has variety of industrial uses. Oil Palm plays significant role to meet the vegetable oil requirements in India. India is the largest

consumer of palm oil in the world, consuming around 18% of total world consumption. Increasing demand and low production of

oil seeds in the country has necessitated the import of vegetable oil, to meet the demands of ever-growing population. India is the largest importer of palm oil accounting to 45% of world imports. In India, oil palm is being cultivated commercially since 1990.

Andhra Pradesh has been the leading palm oil producing state in India contributing approximately 85% of country’s production followed by Kerala (10 percent).

While implementing the massive expansion program, the State Government of Andhra Pradesh involved the private and co-

operative entrepreneurs to take up oil palm development. There are twelve entrepreneurs in Andhra Pradesh. These entrepreneurs

procure import/ indigenous material, raise nursery, identify suitable farmers, distribute seedling to them, provide technical advice and procure the fruits when they are ready. Oil palm Fresh Fruit Bunches are processed and converted into palm oil and palm

kernal oil in these processing units. The Oil Palm Act regulates the relationship among the Government, the farmer and the entrepreneur. Problems associated with Oil Palm cultivation should be identified and rectified to improve the performance of

existing cultivators and to encourage the new entry. The present study is intended to make an in-depth analysis of the Problems associated with Marketing of Oil Palm in India with special reference to Krishna District.

REVIEW OF LITERATURE

A glance of some of the previous studies is as follows. Narasimha Rao (2013) in his article “Oil Palm Cultivation in Andhra Pradesh State – A Study of the Problems and Prospects” made study of the production of oil palm in Andhra Pradesh and the

paper analyzed important issues of oil palm cultivation with focus on problems and prospects. Srinivas et al (2011) in their study attempted to study seasonal effects of bunch components and fatty acid composition in the wet and dry seasons. Rama Rao and

Rajendra Prasad (2010) in their study assesses the impact of WTO on production and productivity of Oil seeds in AP. Rao (2009) in his study on “oil palm development in India – past, present and future” opines that Andhra Pradesh is leading in oil palm

cultivation from Nellore to srikakulam and also in terms of production and productivity of the crop. He suggested further learning

from the experiences of Malaysia, Indonesia and other countries He concluded that adequate training and effective dissemination of technologies should be given prime importance. Rethinam (2000) in his study on the “Role of oil palm in meeting the

domestic edible oil needs” finds that palm oil is versatile oil being used for more than 5000 years as domestic oil and 21st century

32 Assistant Professor, K. L. University Business School, K. L. University, Andhra Pradesh, India,

[email protected] 33Assistant Professor, K. L. University Business School, K. L. University, Andhra Pradesh, India, [email protected]

mailto:[email protected]

mailto:[email protected]





will depend on promising and high - yielding crops with higher nutritive value. Sukumar (1999) through his study on “Status of oil palm in Andhra Pradesh” opines that Andhra Pradesh has tremendous potential for oil palm cultivation. He focused on the

incentives given to the farmers, constraints in the implementation of oil palm project along with the oil palm act.

OBJECTIVES OF STUDY

The current research paper has broad research objective of studying marketing aspects of oil palm cultivation with special

reference to Krishna District. The specific objectives include the following:

To identify marketing problems of oil palm cultivators.

To present a broader view of oil palm cultivation in India.

To suggest measures for overcoming the marketing problems. METHODOLOGY USED

Both primary and secondary data are used for the present study. This paper explores the social and economic basis of oil palm

cultivation in Krishna district in the state of Andhra Pradesh. Data were obtained by conducting a questionnaire survey of 200 farmers who cultivate oil palm in the Krishna District of Andhra Pradesh during the year 2013. The survey involved completing a

questionnaire covering marketing aspects of oil palm cultivation during a face-to-face interview with each farmer. The social

backgrounds of the farmers and their attitudes to oil palm cultivation were explored by empirical analysis and cross tabulation of questionnaire data. The sources of Secondary data pertaining to the study are Department of Agricultural, Ministry of Agriculture,

Directorate of Oil Seed Development, Ministry of Oil seeds (Hyderabad), Directorate of Oil Palm Research (Pedavegi), Agriculture University Library, Bapatla and Hyderabad and Horticulture Department, Vijayawada.

SCOPE AND IMPORTANCE OF STUDY

In India, the demand for vegetable oils is expected to increase from the current level of 16 million tonnes to 22 million tons by 2020. The vegetable oil demand growth rate has been faster than the domestic production growth, which is really an alarming

situation. Hence, serious measures are required to be adopted to bridge the gap between production and consumption of edible oils in India. Oil palm has been recognized as one of the important segment of edible oils, which is well suited for ecofriendly

environment and forms an excellent import substitute to save foreign exchange. However, oil palm is subjected to marketing related problems, which became major constraints for increasing the land under the cultivation of oil palm. In view of the above,

an effort has been made to identify these marketing problems and to suggest the measure to overcome these problems.

RESULTS AND DISCUSSION

India is the net importer of palm oil, which constitutes about 80 percent of country’s total edible oil imports. India’s impo rt of

crude palm oil was estimated at 9 million tons in 2011-12 and Malaysia is the leading supplier of oil palm. After a detailed study of marketing problems of oil palm growers of Krishna district of Andhra Pradesh, the key findings are presented below:

Andhra Pradesh Ranks 1st in area and Production in India. Total potential area under cultivation of oil palm is 4.79 lakh Ha. Area

so far covered is 1.38 lakh ha (73,086 farmers). Average productivity of Oil Palm crop in Andhra Pradesh is 12.0 tons FFB per

Ha. 7.90 lakh tons of FFBs (Fresh Fruit Bunches) produced during 2012-13 and 1.27 lakh tons of CPO (Crude Palm Oil) were produced during 2012-13.

Table-1: Area Covered under the Cultivation of Oil Palm in Andhra Pradesh

District Area Covered up to 31.03.2013 (ha)

East Godavari 24779

Khammam 12973

Krishna 12355

Nalgonda 402

Nellore 3845

Srikakulam 3132

Visakhapatnam 6038

Vizianagaram 9707

West Godavari 64370

Anantapur 271

Total 137872

Sources: Authors Compilation





Graph-1: Area covered under the cultivation of Oil palm in Andhra Pradesh


The above graph and table indicate that West Godavari. East Godavari, Khammam and Krishna are the districts in Andhra

Pradesh with highest area under the cultivation of Oil Palm.

Though there are two zones in Krishna District, major part of Krishna District is covered by Ruchi Soya Industries Ltd, Ampapuram. A minor part (Musunur Mandal of Krishna District) is served by Godrej Agrovet Ltd.

Market Intervention Scheme

During 1999-2000, the crude oil rates and fruit bunches rate collapsed and the farmers were put to heavy loss. The State and Central Government came forward with a Market Intervention Scheme due to heavy pressure put forth by State Oil Palm Farmers’

Association. Under this scheme, Minimum Support Price was fixed at Rs.2750 per Ton. The processing companies paid Rs. 2300 per Ton and Government of India and Government of Andhra Pradesh paid the rest.

In the year 2008, the oil palm Fruit Bunches rate fell down from Rs. 6200 per Tons to Rs. 3500 per Tons due to International

Market Price variation. Many farmers started uprooting their Palm Gardens due to non-remunerative price. To prevent other

farmers from following the same path and to prevent increase in imbalance between production and consumption, Government increased MSP (Minimum Support Price) to Rs. 5000 per Tons from March 2009.

Role of Oil Palm Farmers Associations

Untill 1995 District and Zonal Farmers Welfare Associations were in force and later the Andhra Pradesh Oil Palm Farmers

Association was established, since then the associations are functioning with the objective to get remunerative price to the oil palm bunches. In the beginning, Government used to fix the rates based on the percentage oil recovery from the fruit bunches. For

example 16% of oil recovery fruit bunches rate was fixed as 10% of crude oil rate. With this system, the oil palm farmers have to

depend on the companies for the percentage of oil. Due to the persistent struggle of the Association scientific formula is worked out which is in existence until date.

In the year, 2008 National Oil Palm Farmers Association was established by the representatives from oil palm growers from all

the states. Since then the welfare measures are being taken care by this association. Marketing Constraints for Oil Palm Farmers

Although the farmers through Oil Palm Processing Unit sell oil palm FFB readily, yet there are some problems:

Non Availability of Skilled Labour

As and when the fruit ripens, bunches of fresh fruit are harvested using chisels or hooked knives attached to long poles.

Each tree has to be observed every 10-15 days as bunches ripen throughout the year. Harvesting involves cutting of the bunches from the tree. These fruit bunches (each bunch weighing about 25 kg) are then collected and transported either

to collection centre or processing unit. Harvesting becomes difficult with the increase in height of oil palm tree. It requires skilled labour. Scarcity of skilled labour for harvesting increases the cost enormously.

010000200003000040000500006000070000

Area i

n h

a

Area covered up to 31.03.2013 (ha)

Area covered up to 31.03.2013 (ha)





Perishable Nature

Fresh Fruit Bunches of oil palm are highly perishable in nature. After harvesting, they have to be disposed immediately within 24 hours. If not, Free Fatty Acid content increases and so oil content decreases. At collection centers FFBs’ are

weighed and collected on a specified day usually once in a fortnight. Due to scarcity of skilled labour, it becomes

difficult for all the farmers to harvest all their crops one day before collection.

Periodic Collection of FFBs’(Fresh Fruit Bunches)

Collection centers are located in oil palm cultivating mandals and the collection time is determined basing on the convenience of Processing Unit executives. The collection dates may not match with the ripening time of the bunches. If

the processing unit is distantly located from the field the farmer has to wait for collection, date irrespective of readiness of bunches. Bunches are collected weekly once in season and fortnightly once in unseason. Farmers want to have

collection system in such a way that the centers are open throughout the year.

Zonal System

In Andhra Pradesh, there is zonal system for the processing of oil palm bunches. Zonal system avoids competition among the processing units and enables them to make effective utilization of market potential. The factory in the

concerned zone should buy all FFB produced by all the oil palm growers in that zone. Out of 200 respondents, 160 respondents expressed that they were exploited by the monopoly of processing units under zonal system. They desired

more than one processing units in each zone to have more facilities to the farmers.

Minimum Support Price

In India, oil palm is not a voluntary crop. During the last quarter of the 20th century, India depended on other nations for

cooking oil. Central Government identified the need for developing self-reliance in this sector and undertook many measures. As one of the measures, Central Government introduced oil palm on experimental basis in 1990 under Oil

Palm Development Program. However, during 1999-2000 the oil palm prices fell down drastically. Many oil palm farmers were demotivated and as the crop was completely new to them, they were uncertain about the future returns and

so they started uprooting their crops and those farmers switched back to seasonal crops, fruits and vegetables. To prevent that situation, Government introduced Minimum Support Price under Market Intervention Scheme. Even now if

price falls below the Minimum Support Price, Government has to pay the rest of the amount. All the respondents are

dissatisfied with the Minimum Support Price, which is at present Rs.5000/ton. All of them want Government to increase Minimum Support Price to meet the rapidly increasing cost of cultivation. They demand that MSP should be increased

to Rs.8000/ton.

Imposition of VAT

Another major problem faced by oil palm cultivators is imposition of VAT on the oil palm FFBs. Usually VAT is imposed on manufactured products but with regard to oil palm, it is fixed after deducting VAT. All the 200 respondents

expressed their dissatisfaction on imposition of VAT on oil palm. Their argument is that they are made to pay Value Added Tax though there is absolutely no ‘Value Addition’.

Inability to Cope with Monthly Price Fluctuation Price fixation system, which is followed in our country, is considered defective from the point of view of farmers. Price

is to be fixed based on the cost of cultivation but it is not considered. The price is fixed based on International crude

palm oil price. Price is revised on monthly basis, which makes the farmer insecure and uncertain about future returns. Out of 200 oil palm respondents, 190 respondents strongly felt that it is very difficult for them to adjust to the

continuous price alterations.

Graph-2: Price fluctuations in oil Palm Fresh Fruit Bunches


0

2000

4000

6000

8000

2003-20042004-20052005-20062006-20072007-20082008-20092009-20102010-20112011-20122012-20132013-2014

PR

ICE

/MT

(R

s)

PRICE CHANGES IN OILPALM FFB

AVERAGE PRICE /MT(Rs)





Transportation Costs

Another major problem faced by oil palm cultivators is with regard to transportation from field to either collection centre or processing unit. As the FFBs are heavy, they have to be transported in either Truck or tractor. Harvesting is

done weekly in season and fortnightly in un-season all through the year. Therefore, considerable amount has to be spent

on transportation. The farmer is paid transportation costs if the produce is taken to the processing unit only. Transportation costs are paid at the rate of Rs.225/Ton for 15Km. Respondents opinion is that the transportation costs

are not sufficient for delivering the produce to the processing unit.

Increasing Cost of Cultivation

The cost of cultivation increased with the increase in the cost of inputs like fertilizers, pesticides, transportation, harvesting and labour cost. Harvesting becomes difficult due to increase in height of palm tree and due to heavy weight

of the palm bunches. In addition, labour cost has become doubled. Paradoxically the price of Oil Palm bunches is not in proportion to the increase in the cost of cultivation.

Delayed Payments

Oil palm cultivators have to open a bank account. Payments are made through bank within 14 days after delivering the

FFB. Out of 200 farmers 147 farmers opined that this time should be decreased to enable, the farmers can make required repayments in time. Otherwise, low prices, delayed payments and the basic increase in the cost of cultivation make their

problems more and more intense.

Non Payments

Whenever the price of Oil Palm price is below the Minimum Support Price, Government is supposed to pay back

farmers the difference between the existing price and the Minimum Support Price. However, Government failed to make the payment in time. Promises to pay compensation through the MIS are made every year, but they are not at all kept.

By October 2010 itself, the State and Central Governments had to pay Rs.50 crore to oil palm farmers in Andhra Pradesh on 50:50 bases.

RECOMMENDATIONS

Owing to sensitiveness of oilseed crops to market forces, the support price needs to be continued and strengthened. Although the government has continued with support price policy, there has not been any market intervention in recent

years when the market prices fall below the support prices leading to distress sale and diversion of oilseed area to other

crops. Effective market intervention to prevent distress sale by farmers is the prime requisite continued patronage of oilseeds by the farmers. It is also important to develop a market mechanism of offering higher price for quality oilseeds

with higher oil content and of better quality. Hence, while announcing the support prices, quality consideration as a matter of principle should be kept in view to provide a sense of direction to the researchers and oilseed growers. The

government should also strictly enforce quality regulations.

As harvesting becomes difficult with the increase in age and length of Oil Palm, harvesting machines should be

introduced by National Research Centre or the imported machinery from Malaysia and should be made available to Oil palm Cultivators. Oil palm farmers are of the opinion that harvesting costs should be borne by Processing units.

India is the largest importer of edible oil in the world. Import duty structure is the main tool in the hands of the government to regulate imports. The liberalized import policy appears to have brought stability in the prices of edible

oils during the lean season, while it has failed to take care of the situation in peak seasons. In fact, this policy generally

safeguards the consumers’ interests in the way of enough supply of edible oils at steady price, but the interests of farmers, processors and oilseed sector as a whole need to be integrated to provide sustainable momentum for balanced

growth. This can be taken care of to some extent by following the system of “Seasonally variable import duty” thereby having higher and lower import duties during peak harvesting season and lean season, respectively.

Oil palm should be exempted from VAT Taxes. VAT is imposed on the FFB of Oil palm bunches. Usually VAT is

imposed on manufactured goods but for oil palm price is fixed after deducting VAT.

Oil Palm farmers find it difficult to cope with the continuous changes in the price of oil palm FFB. Therefore, measures

should be taken by the Government to control the price fluctuations and to support the oil palm cultivators in order to

increase the area under cultivation of oil palm.

It has been observed that the price of oil palm is low, when the output is high and vice versa. Hence, the farmers state

that Minimum Support Price should be 7000-8000/- irrespective of the output.





As majority of the cultivators are of the opinion that Zonal System is giving monopoly to entrepreneurs, more than one

processing unit should be established in each zone to increase benefits for cultivator. In addition, there should be continuous collection of Oil Palm Bunches to overcome the problem of perishable nature of these bunches.

To attract farmers towards cultivation of Oil palm, the problem of non-payments and delayed payments must be resolved by the Government.

CONCLUSION

21st Century is looking for promising and high yielding crops coupled with higher nutritive value, eco-friendliness and sustainability. Oil Palm has been recognized as one of the best yielding crops, which can yield of 4-6 tons of oil from 3-30 years

of life span and produces two distinct oils i.e. Palm oil and Palm Kernel Oil, which are used for culinary as well as for industrial purposes. Oil palm with high yield of 4-6 tons oil per year compared to other nine annual oil seed crops and high nutritive value,

rich in vitamins A& E, provides sustainable income. Moreover, it suits well for eco-friendly environment and forms an excellent import substitute consequently; it helps in saving foreign exchange. So oil palm cultivators if encouraged and if given support in

getting good return, then imbalance between demand and supply can be corrected efficiently. LIMITATIONS OF THE STUDY AND SCOPE FOR FUTURE RESEARCH

There are certain limitations to the study. This study is confined itself to oil palm growers and excluded other oil seed cultivators.

It is also confined to selected area of Andhra Pradesh i.e. Krishna District. Personal prejudices and biases of respondent may act as hindrance to the study. Non-response error has occurred in research process because a few respondents refused to give the

information regarding the questions in brief because of their unwillingness. To overcome these limitations cited above care has

been taken to make the responses more objective and accurate.

Since Palm Oil has several advantages and health protecting effects, necessary steps could be taken to enhance its production and consumption. Further studies can be helpful to increase the production and thereby make large quantities of this non-conventional

oil available for human consumption.

The present study focused on the marketing problems of oil palm growers in Krishna district of Andhra Pradesh. These problems vary from one area to another area. Hence, it can be said that there is scope for further research in other areas where the oil palm is

cultivated. The present study is confined to the problems of Oil Palm growers. To increase the potential of our country in the oil

sector, it is necessary to identify and resolve the problems of other Oil Seed growers. So similar studies can also be conducted in this regard. REFERENCES

1. Narasimha, Rao V. (2013). Oil Palm Cultivation in Andhra Pradesh State – A Study of the Problems and Prospects. Indian Journal of Applied Research, 3(7), 399-401.

2. Hegde, D. M. (2008). Oil Seed Scenario in India-Past, Present and future, Sustainable Production of Oilseeds.

Udaypur: Agrotech Publishing Academy.

3. Mamoria, C. B. (1982). Agricultural Problems of India. Kitab Mahal.

4. Oil Palm Development in Andhra Pradesh (Rastriya Krishi Vikas Yojana (RKVY) Programme.)

5. Rao, M. V. (2009, July). Oil palm development in India – Past, present and future. In Proceedings of National

Conference on oil palm.

6. Rethinam, P. (2000). Role of Oil palm in meeting the domestic edible oil needs. Proceedings of National seminar on

Oilseeds and Oils-Research & Development Needs in New Mille mum . Indian society of oilseed Research.

7. Richard, L. Kohls, & Joseph, N. (2002). Marketing of Agricultural Products. Prentice Hall of India Private Limited.

8. Sukumar, A. R. (1999). Status of oil palm in Andhra Pradesh, pp. 102-107. Oil Palm Research and Development,

National Research Centre for Oil Palm.

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