Tuesday, February 25, 2014






Tejinder Narang
Thailand produces about 20-21 million tons of milled rice and India processes 23-24 million tons of sugar annually. The largest single denominator between the two commodities is that while Thai Government fixes paddy price unrelated to rice’s marketability, States Governments in India determine assumed cost of sugarcane irrelevant to the tradable value of sugar.  Such policies of electoral populism have backfired in both countries. Net effect is that Thai Government is accumulating stockpiles of paddy and facing farmers’ wrath for non-payment of arrears of paddy while Indian sugar millers are exposed to payment of outstanding amount to sugarcane growers with inventory of sugar that can be disposed of at loss only in domestic /export markets.
In 2011, Thai Government headed by the Prime  Minister Yinglik Shinawatra decided to pay farmers about $500/mt for paddy (un-milled rice), 66% above market value of around $335/mt as a well thought of strategy of political compassion. She imagined that world prices of rice will climb up in tandem with her wishes and that Thais will rule like raja in global rice trade.  But exactly the opposite transpired. Prohibition on Indian rice exports was lifted in Sep, 2011 and rice prices tanked, including that of Vietnam.    Thus, Thailand became the highest price payer of paddy anywhere in the world.
Paddy from neighbouring countries like Vietnam, Cambodia, and Myanmar also landed in Thai warehouses through unholy nexus of farmers and middlemen to earn a fortune. From the world’s largest exporter, Thailand became virtual importer of rice. Local millers also sold their stockpiles of paddy to Government through farmers.  Farmers laughed their way to the bank.
Price parity of Thai rice exports was derailed.  Traditional export business came to a halt. Some traders switched sourcing to third countries to salvage their on-going agreements. Paddy processors dependent on exports of 8 million tons of rice have argued with Government to terminate the scheme but with little success.
The current rice export price is significantly lower than the acquisition cost. These shipments are made from blend of pilfered paddy and cheaper poor quality illicit entries through borders, while most of official holdings remain intact on paper.   What a mess? Trade distortion has made WTO worried too.
In last two years, paddy equivalent to milled rice of 15 million tons (with bare cost of $7.5 billion) is lying rotting.  Efforts to export high priced rice via G to G MOUs have hardly materialized. Government funds stand blocked. Selling at lower values to exporters implies underwriting losses and facing investigations.  Banks are refusing to lend to “caretaker” Government and farmers remain unpaid this year.
This scheme of financial/ economic unsustainability has expired end February 2014. Farmers have tasted blood. Should the Government fail to extend the scheme, local prices are bound to crash. That will lead to global fall in rice prices—affecting India, Vietnam, Pakistan and others.
Unreasonable support or subsidies once dispensed cannot be easily withdrawn. Farmers are furious for loss of their promised earnings and are threatening suicides.  This is the vengeance of misplaced political compassion and Indian authorities must draw logical conclusions even for Food Security Act.
Replace paddy with sugar cane; swap huge inventory of paddy/milled rice with excess sugar of 9-10 million tons; substitute political masters from Thai PM to Indian Chief Ministers (CMs) and the scene shifts from Thailand to India. Earnings of sugar cane farmers—as per CACP- are currently 55% over the comprehensive cost. Sugar cane production remains over incentivised. Such an irrational sugarcane pricing is decided by CMs of various states, while market realization is much below the cost of sugar production. Indian sugar mills are trending to sickness. Even overseas market is less than supportive.  
CMs treat farmers as electoral islands without realizing mills capacity to service the price to the farmers. Central Government is evasive in rectifying this distortion. A partial quick fix solution is recently found to debit the Sugar Development Fund for arrears and export subsidy.
Apparently banks are not convinced of any viable financial improvements of mills by ad-hoc measures. They are reluctant to lend as is the case with Thai banks for paddy. Soon the Central/state governments will shift to “caretaker mode” for coming elections. Ministers, CMs or secretaries will become inert for next six months. Export subsidy is also in breach of WTO’s compliance. Short term interventionist mechanism of somehow finding funds to keep industry in survival mode by oxygenating it when gasping is no remedy.  
Reducing cane prices will also have withdrawal syndrome and growers can also threaten retribution as seen in Thailand. Political will is needed to provide input-output equilibrium for all stakeholders. One can hope that coming regime delivers the right medication before chronic infection of price irrationality becomes cancerous, mills close down while farmers let the sugarcane rot and India becomes a net importer of sugar by political and  policy-negligence.

Saturday, February 22, 2014





What belongs to man? Nothing!! However, all of us remain under a delusive guidance that this body, mind, soul are “our property”.  This body is not by our choice. Mind and soul also come woven with body. Thus mind and soul are also not of our selection. How can this trilogy be our possession?
 All interim relationships with other bodies are also made under mistaken presumption that they are the owners of their selves. That generates hyper delusion.
The body goes through birth, growth, decline and death—over which one has only a limited control. The knowledge of physical formation, deformation and reformation of all beings is constrained by research of medical science. The more medical researchers have discovered, the more they realize how little they know.
Due to inherent mortality of body, some religions suggest repetitive meditation on “that I am not the body but the soul”—beyond time, birth and death. But this meditation is done by mind. Mind believes “I think (or I meditate)” therefore “I am (all in all), which projects another deception. How relative and limited perception of mind can be inferred from the decisions we take in life which often go wrong and we repent. Mind too creates multiplicity of aberrations.
Then we explore realm of soul—which is said to empower mind/body. Soul too remains an object of speculation except that mystics/religions endorse it as part of eternal Divinity. Even mystics are mystified by riddle of life. In the infinite vastness of cosmic conundrum, all beings have microscopic existence.  Saint Kabir concluded this existentialism as “bubbles” formation that appear and disappear on the surface of water for no rhyme or reason.
Bubbles in a babble we are indeed.

Tuesday, February 11, 2014


This is an article from Business Line, appeared on 11th February, 2014

Please click on the following link to read :

Tejinder Narang
Implication of Government’s pronouncement that Indian wheat output of 2014-15 will be around 100 million tons (mt) are analysed here. This official projection presumes that going forward growing conditions will stay normal, though weather and politics are unreliable allies anyway. Is this a reliable estimation? Will the farmer be getting “market premium” over and above MSP? How much FCI /agencies will acquire for PDS? Will it tame wheat inflation? Whether it will stimulate exports? Whether exports are WTO compliant?  
Estimates right or wrong?
A declaration of 100 mt, implies that last year output of 93 million stands surpassed by 7 mt. Supply will exceed “annual” demand escalation of about 2%-3%. For 2013-14, USDA maintained wheat output at 87 mt, though Government has retained it at 93 mt.   Against expectation of 44 mt, only 25 mt were sourced by FCI and agencies in 2013-14, while 38 mt were procured in 2012-13. Market values jumped by 13% at harvest time of 2013, which is quite unusual. 
Previous year output remains suspect and therefore extending same logic may not be appropriate.  Wheat futures for April 2014 are Rs 15300/mt ($249) vs MSP of Rs 14000/mt or( $228). Farmers thus are poised for a “market determined premium” of Rs 1300/mt (9.5%), despite higher tonnages.  Apparently, futures prices do not support what Government is saying. But some speculation in futures cannot be ruled out.
Food Security Act (FSA) is currently in abeyance but proposal for upward revision of buffer norms of wheat and rice to max 61 million tons vs 32 million tons, as of now, is already made by the Food Ministry to Cabinet. Madhya Pradesh (MP) is expecting 19 mt production (about 2 mt more than Punjab) and also offering bonus of Rs. 150/qtl.  Procurement from MP has been 60-70% of the output in that state. FCI may end up procuring 38-40 million tons this year, raising the stocks to 58 mt(20mt carry-in and 38 mt procurement)  by end June 2013—that may starve the market and push the wheat inflation.
If the crop is somewhat of poor quality/higher moisture, farmers will offload more to the Government than in the open market. That too will be negative for curbing wheat inflation. Flour millers may thus expect higher wheat prices in the market despite a bigger crop. Exporters, who sold short basis speculative decline in open market values in April-May, may have to worry for retaining positive margins.
Total storage capacity of FCI and state agencies, as on 1st April, 2013, was 72 mt—53mt covered and balance under Cover and Plinth (CAP). MP government needs to be prepared for massive hygienic warehousing.
Considering about 58 mt in central pool by end June 2014, only 30 million is required by the Government for TPDS and flour millers. Thus disposable/exportable surplus will be minimum 28 mt. At economic cost of Rs 20000/mt, its worth is Rs.56000 crores ($9.0 billion). The paradox is that Government cannot afford to procure less specially in the election year and yet cannot sell in the domestic market or export at a loss. Net result will be of excessive inventories as usual and colossal deployment of funds in the next fiscal.
Bearish for export
100 mt output has sent a signal of bearishness in open market. That prompted Indian exporters  contracting at $270/mt fob ( or Rs 15700pmt-ex Gujarat)  for April shipments. This is bound to lower value realization of FCI/CPSUs (STC/MMTC/PEC).  Black Sea wheat prices are down too by $20 pmt in January 2014 due to depreciation of Rouble. Since November 2013, FCI/CPSUs (STC/MMTC/PEC) have contracted about 1.1 million tons at about average value of $285 fob which may not be maintainable in the near term. Realizing price closer to $270-275 fob by CPSUs will be a challenge in coming months, unless appropriate marketing strategy is applied. Once reserve price of $260 is breached—there may be pressure to review the value below this parity.  
Controversy at WTO that Indian wheat export from FCI is below domestic price is factually incorrect. At $285 fob, rupee eq (1$=62) is 17670/mt while open market for flour millers is Rs 15000/mt (OMSS price—open market sale scheme) plus logistics of Rs 2000 ($32) or eq to Rs17000/mt=$274. Even OMSS accounts for local taxations, while taxes are refundable for exports. Minimum support price is Rs 13500 ($218) for 2013-14 and adding $32 as logistics, price up to $250 fob is WTO compliant. 
Comparisons of Indian grain with soft or feed wheat for justifying lower prices are unjustified. Indian wheat is comparable to 11.5% protein with max 12% moisture—better than 13-14% moisture generally traded internationally.   Poor reputation of Indian export shipments is consigned to history of last decade.  There has been a significant improvement in overall quality parameters of Indian cargos.  Contractual implementations are efficient with guaranteed performance. Geographically India has advantage for realizing better prices in Mid-East and South-Asia. This year-- shipments to Far-Eastern markets may not be lucrative as buyers are importing cheaper corn than wheat as feed.
Better dollar value realization has been the policy perspective for the last two years. Despite excessive stocks, Food ministry is not targeting any large volume business except only about 4-5 mt annually which is about 3% of world trade of wheat of 140mt. Volume business up to 10-15 million tons can be achieved by market friendly approach.
Incredibly, highest ever wheat production of 100 mt still means higher inflation, more wastages due to poor storages, poor liquidation of stocks due to slow pace of exports, though some better earnings for farmers.  

Tuesday, February 4, 2014


Please click on the following link to read the item ECONOMIC TIMES DATE 4TH FEBRUARY 2014:


1.“Government is not a charity shop”—President of India, Republic Day Speech-- 25TH January 2014.

2. Bailing out sugar sector without taming SAP is like feeding a tiger and let it roam as a man eater! 
To augment export of Indian Raw/White Sugar up to about 4 million tons in next two years, Government is considering subsidy of Rs.2000/- to Rs.3500/mt or $32-$55/mt for two years. This subvention is being justified because of availability of money in Sugar Development Fund (SDF). Firstly, SDF is the excise duty collected by the Government from the mills like any other revenue that lawfully accrues to the central exchequer. Subsidy payments out of SDF means, revenue earned and foregone. Secondly, the subsidy benefits more the coastal mills or those near the port towns.  It therefore amounts to discrimination to the mills situated in the interior, unless local freight component up to port is provided in addition to this subsidy for factories in U.P and land locked states..  The caveat should be that the disbursal has to beneficial to all concerned. This, in any case is not an all-inclusive initiative. Export subsidy also implies cheaper sugar for overseas consumers and expensive for Indian users that contradicts WTO rules.
Sugar prices have fallen by $100/mt on year to year basis. World sugar supply demand mismatch (ending stocks on raw value basis) is 44 million tons, about 17% of annual availability of 270 million. Price decline is further exacerbated by deep depreciation of “Brazilian Real”. Apparently, the subsidy will be neutralized by continuous plunging prices of Brazil.  Even additional depreciation of Indian rupee may not be sufficient as economies of competing origins Thailand and Brazil are equally fragile and USA’s Federal Reserve “tapering effect” is bearish for the commodity prices in general. Efficacy of the subsidy will be less than marginal.

International sugar trade is also highly volatile. Recent raw values are 15cent/lb and in next two years they can either be 12-13c/lb or 20-25c/lb. and each cent moves the price up or down by $23/mt. How the subsidy will be pegged and assessed once the price moves up the trajectory to say 20c/lb in the next two years remains vague.

In deregulation notified in April 2013, GOI decided to keep its hands off in marketing of sugar. It looks highly odd that despite declared policy, Union Governments gift such sops, which are also in contravention to WTO guidelines. This amounts to outright arbitrariness while the right way forward is to disconnect the socialism of cane prices—called State Advisory Price (SAP) and let them be aligned with decontrolled market values of sugar.

Due to unrealistic sugarcane prices applied by U.P. Government and backlog of arrears to the farmers, Central Government agreed to give interest relief from SDF to the industry for the loan amount of Rs 6600 crores drawn from the banks. Any relief beyond this issue is totally uncalled for. There are procedural issues of disbursal of this loan amount that need to be taken care of rather to find quick fix solution of demand expansion by unworkable subsidies and exposing the country to severe criticism at WTO.

 Also, the very act of subvention of sugar for export evokes some fundamental collateral and controversial issues.  These could be --Why compensatory support is not made for minimizing the domestic losses of all sugar mills directly or out of sugar development fund? Why financial support is limited for export only when the industry is distressed due to disparity in production cost and sugar cane value? Why similar dispensation is not accorded for maize and soybean meal where the exports are also lagging? In fact the pace of exports of maize/meal will be much faster and more remunerative.

Administered price regime of SAP brings Industry and farmers back to the Government for bailing them out of the crisis. In years of profitability, the consumers pay higher prices, while stakeholders of sugar sector benefit.  Privatization of profits and socializing the losses—cannot be the generalized economic policy prescription. Ad-hocism of export subsidy/ interest free loans etc are ostrich like approach and the problem gets deferred for coming years. Bailing out sugar sector without taming SAP is like feeding a tiger and let it roam as a man eater!