GOVERNMENT(S) EXPOSE AGRO-TRADE TO HIGHER RISKS
If one mentally scans through agro policy profiles of various Governments across the globe, they are generally irrational, full of rhetoric for political agenda and lack pragmatism. Thus trading entities fear “increased” risks from Governments than odd developments in the market triggered by supply-demand mismatch, weather, speculation, or going wrong on trading positions.
A few illustrations support the above assertion in the foreign trade policies of some governments. Starting from India, Government is talking about four million tons of sugar exports via barter trade. Prime destinations of Indian sugar are Sudan, Somalia, Sri Lanka, Tanzania, UAE, Iran, Ethiopia etc. Barter with whom and in what time frame? Is it practical to structure barter in a highly volatile commodity and in such countries?
Sugar is largely traded amongst private parties based on criticality of international parities. Induction of two Governments, their official agencies, banks with escrow accounts etc. to facilitate barter in export process and additionally involving non-sugar related private /public entities—be it of pulses, edible oil, crude oil or any engineering project etc—is the best way to abort sugar export any way. The talk (that cannot be walked) definitely projects an illusion to public/farmers that Government is serious in remedying the glut of sugar stocks—though trade fully understands the passivity of the policy. The upgraded version of barter is called “counter trade”—which in this case implies “counter to the trade” and therefore a mere rhetoric.
Can the recent Indian action to impose 10% duty on wheat import is in public interest? Flour millers in South India are directly affected by destabilization of a steady duty free policy of last 7-8 years. Government is attempting in vain to protect its own turf for disposing FCI owned low quality wheat at higher prices while restricting import of good quality cheaper grain from abroad thereby inducing inflationary pressures. The right way forward would have been to discount its official prices at which the low quality grain is tradable otherwise short life of this grain will render it inedible for human and feed consumption. All cost will be then sunk cost
Typically comparable with above stated Indian sordid saga is the Thailand paddy pledging scheme when Thai Government in 2011-12 and 2012-13, in order to generate political populism of farmers, introduced procurement of paddy at about $500/mt versus market price of $280-330/mt. Good and bad paddy was procured not only from Thailand but even through illegal entry from Cambodia/Myanmar/Vietnam. Thai traders lost their primacy in world’s rice market due to non-competitiveness. Today the new Thai regime is struggling to dispose of 18 million tons of accumulated rice of which 6 million tons is unfit for human consumption and 10 million tons require reprocessing. Estimate of unverified loss is about $16 billion.
Iran, though prohibited import of Indian Basmati rice in 2014-15, has imported about 0.9 million tons in the same year. The fact being that Basmati rice is banned officially but select parties are given quotas and licences to import from nominated Indian suppliers. This amounts to state sponsored canalised import via private importers. Official ban is a camouflage and represents crony nexus between the powers that be.
China imports soy seed (74 million) and corn (4-5 million ton) is imported annually primarily from USA, Brazil, Argentina. Such cargos are exposed to rejections by citing phyto or GM related issues which rattle world markets. By such negative actions, Chinese buyers hammer down world prices or enter into renegotiated contracts at lower values. Traders/foreign suppliers sustain losses silently. Indeed such actions would have the tacit support of Chinese Government. Traders fear to go legal for the fear of reprisal in future Chinese businesses.
China does not buy Indian non-basmati rice though it sources same from Pakistan. India is world’s largest exporter of rice. Denial by Chinese government is irrational and pro-Pakistan political signal. Right now annual rice import from Pakistan is very limited (0.5 mill tons), but considering appetite of Chinese market in coming years, India will be at disadvantage if this issue remains ignored. The ambiguity in China’s decision is inexplicable while it continues to acquire all shades of rice from Cambodia, Myanmar, Vietnam and Thailand totalling up to 5-6 mill tons annually.
Nigeria is another example of distorted rice import policy for political patronage. Annual rice imports are 3-4 million tons. Indian exports to Nigeria are about 1-1.5 mill tons. Nigerian importers who have stake in domestic production can import rice at 30% duty—while standalone/pure traders pay 70% import tax. Effectively, anyone having rice mill can import with 30% duty—while others are denied equitable treatment. Licensed tonnage depends upon proximity with ruling elite. Neighbouring Benin also imports huge volume of rice which is smuggled with connivance of the customs for sale in Nigeria. Flexibility of custom authorities depends upon the signals from political bosses. All rice traders—Indian or Thais or elsewhere have earned, and lost too, substantial money by applying Benin route to Nigeria.
Russia exports about 20-25 mill tons of wheat annually against production of 53-60 mill tons. Its government is known for abrupt bans/export duties. None can decipher when an intervention will take place. Since Russian grains are one of the lowest priced commodities, the world has to live with the antics of the Russian Government.
There are other factors like monthly “estimation” provided by various Governments of sowing/yields /production/ demand//exports/imports which influence the markets. Estimates are only “Guess- estimates” or at best some reasoned conclusion based upon assumptions and weather reports. For example Indian official forecast of “monsoon” has gone wrong so far while there have been contrary privates forecasts. Monsoon news heightens speculation and volatility all the more.
The final word is that Governments are seldom right. Since they wield authority to act arbitrarily and without accountability, nations, people and the trade suffer mutely.