OR
http://goo.gl/Q0sWL0
365 DAYS OF INDIAN AGRO
TRADE – CONTENTS AND CONTRADICTIONS
Tejinder Narang
A 365 days scan of Indian agro-
trade reveals a blend of positives and negatives in 2014-15. There is a legacy
built by momentum of the past and proactive actions taken this year which augur
well for economic reforms. There are also static traditional policies which continue
to complicate supply demand mismatch and threaten export realization. With
steep fall in crude oil prices, biofuels’ demand stand compressed. This led to retreat
in world’s agro-commodities values which have severely dented India’s export
competitiveness in wheat, sugar, corn, oil meals. Lower exports also diminish
demand pressure. That may keep inflation down but provides poor realization to
producers.
Ironically, India in FY 16 will
turn out to be net importer of superior quality wheat estimated at one million
tons from consistent exporter since 2011. (Half million tons already contracted
at landed prices cheaper than local cost). Imports from Australia, Russia,
Ukraine and France are foreseen.
Wheat and Rice
Shedding political populism,
Government wisely hiked MSP of wheat and paddy by a trickle of 4% and shunned
extra bonuses gifted earlier both by the Centre and States. Credit must be given to Food Ministry for
reducing grain stocks by managing procurement and offtake of wheat and rice in
central pool from peak of 60 million tons( mts) in FY13 to 38 mts in FY14
and then to 34 mts in FY15. This implies lower commitment of public funds for
surplus stocks, more market availability and sharp drop in inflation to the
advantage of macro economy. There are two bullet points which led to such
reduction —first, abolition of levy rice policy and second, evacuation of 4 mts
of FCI’s wheat through exports in last
two years.
Eliminating levy rice policy has
ensured substantial availability of non-basmati rice in market at lower prices,
thereby enabling exports competitiveness. India registered world’s largest rice
exports in FY15 at 12 mts while Thailand is tracking at 11 mts in world trade
of 42 mts.
Wheat stockpiles could have been
further pushed below by another 2-3 mts had Government not dithered in marginal
adjustments in contracting at $290-$299 per metric ton fob and later on at
$260-$270 fob range, due to depreciation of rupee from 55 to 61 in last two
years. Niche opportunities were missed
by sheer inflexibility in decision making.
There is no possibility of low
quality/lustre loss wheat exports from India in 2015-16 as world prices may dip
below $185-$195 per metric ton fob unless authorities demonstrate pragmatism to
match international values of shorter shelf life wheat abundantly procured this
year. Another paradoxical complexity that Government now encounters is whether
low quality wheat will be distributed under TPDS or alternatives will be explored
for its disposal, and at what value.
Sugar
Over supply of sugar (27-28 mts)
vs demand (23 mts), bulging carry in stocks of 10 mts and lower prices (-9%
from a year ago) are staring with predicaments of scary farmers’ arrears of
about Rs 21000 crores, cash losses of 550 millers resulting into rickety
financials of the industry, banks burdened with risky liabilities/litigations
and exports down to 0.5 mts versus expectation of 2.5-3 mts. Fixing artificial
cane pricing by States has been politicised for wooing vote bank. Neither Centre nor States are willing and
keen to set macro-policy right by linking cane cost to marketable value of
sugar.
Farmers, even if they remain
partly unpaid, continue to produce excess cane because they still make money.
Thus more and more sugarcane is going to come out from farms in future with
adhocism of annual hikes in SAP. Granting WTO non- compatible export subsidy
for raw sugar which Brazil intends to contest, pushing for non- workable
proposition for creation of buffer of three mts by the Government from public
funds, hike in import duty or chasing mills for payments to farmers are ostrich
like solutions. The necessity is to catch the bull of State Advisory Price (SAP)
by horns and tame it once for all. SAP has to be significantly reduced under
current market dynamics of sugar in India and abroad. It can be raised up if
market conditions so permit. Policy perspective should be prioritized rather
than hollow polemics.
Oilseeds
India imports about 12-13 mts of
edible oil per annum –palm oil constitutes 80% while the balance 20% is soy,
sunflower and canola oils etc. The world
prices of edible oils (from Indonesia, Malaysia, Brazil, Argentina, USA) are
declining in tandem with fall in values of all agro commodities worldwide. The wholesale prices are also reflecting the
same trend. But domestic industry demands higher import duty to nullify lower
cost of imported oil against higher cost of production of oil crushed locally.
The culprit is higher seed prices either due to low production attributable to
poor yield, lesser area, weather etc. or speculation in future exchanges or
hoarding by the farmers etc. Likewise oil meals export is down by 55%.
Why the consumer should pay higher
prices of edible oil when world markets are bearish and why Government should become
an accomplice with industry for inflation because of drift in oilseeds policy.
World’s prices will continue to plunge down with higher yields/ production of GM
crops. If our cropping trend remains inconsistent with world’s genetic
engineering and bio-technology excellence, sickness in industry is assured.
Logically, oilseed production prescription needs to be reviewed for high
yielding verities- non GM hybrid types or GM- than to tinker with superficial
issues for short term reliefs.
Pulses
Pulses’ inflation of 15.38 % is
the only “black sheep” in the array of commodities while milk, fruits and
vegetables are reflecting marginal deflationary disposition which might witness
trend reversal from May 2015 due to reports of inclement weather in coming
months. Import Intensity of pulses will be
significantly move up (see article “Avoid panic in pulses” FE 25th
May 2015 http://goo.gl/HP4gOu
). 70% of pulses grown are Rabi (winter) crops where gross area of cultivation
competes with wheat each year—another Rabi crop. Wheat predominance in sowing
area due to dedicated government support-- MSP and procurement-- overshadows
preference for growing pulses. Pulses remain the secondary option in sowing. Four to five million tons of import of pulses
by private sector is foreseen with substantive price escalation from Canada,
Australia, USA, Myanmar, and some African nations.
Government has to address the
issue of disposal of low quality wheat with caution, have the courage to get
out of the nightmare of SAP for sugar, take a view on high yielding varieties
of oilseeds to augment supply side (of oilseeds) and should not mess up import
of pulses by State’s/PSU’s intervention or subsidy.
No comments:
Post a Comment