BIG AND SMALL RIVALARY IN AGRO SPACE.
India’s agro exports have zoomed from $25billion in 11-12 to $41 billion in 12-13 and then to $45 billion in 13-14. This exceptional attainment is due to cumulative efforts of farmers, relatively stable Government policies and active involvement of trading community consisting of Small and Medium sized Enterprises (SMSEs) and small traders, large Indian corporates and India based multinational trading companies (MNCs),
FARMERS VS TRADERS
Farmers’ gross margins exceed 50% of cost of production in MSP for major commodities (CACP report). Their awareness, incomes, holding power, disposal strategies have considerably increased by escalating exports. But traders/exporters are exposed to varying degree of risk with a limited reward of 2%-3%. Traders survive on larger volumes. Will traders be able to expand their share/volumes or will it shrink with swearing in of new Government and changing geo-political realities triggered in Black sea region. All this is unnerving trading community. A silent but acrimonious blame game between big and small parties has commenced.
BIG AND SMALL AS RIVALS
During last 10 years, MNCs (e.g. Glencore, Cargill, Louis Dreyfus, Bunge, Olam, Noble etc.) raised their stakes in Indian farm space. Concurrently, large Indian corporates e.g Ruchi, Adani, Shri Renuka, ITC asserted their positions in oil seeds, edible oils, sugar and wheat respectively. Likewise SMSEs can now transact with outside world on real time basis and are rivals to MNCs/ large corporates. Smaller players feel that MNCs influence policy formulation by lobbying with bureaucracy and Indian corporates do so through political connectivity. SMSEs have no such access. Truth is--Governments are seldom rational but generally political to service their own agenda of power perpetuation.
A decade back, small traders had high dependency on MNCs/ large corporates, but not anymore. Now a days, MNCs increasingly depend on SMSEs who have better access to mandis and farmers. Despite deep financial pockets, large players may not be swift in decision-making, as concurrence is remote controlled from abroad or head office. They also cannot transact business in parallel market, where small players can manage effectively. That is ground reality of Indian system rather than reflection on weakness of mega corporates.
Some businesses can only be run with Indian mind-set and techniques. No MNC has risked direct/standalone investment in some sectors e.g rice milling, sugar, pulses. Thus, small and big need each other.
MSMEs appear and disappear with little noise. Even MNCs like Marc Rich, G. Premji, Tradigrain, Andre, ITC Global etc have vanished or merged with new entities. Australian Wheat Board and Canadian Wheat Board stand dismantled. China’s COFCO now controls MNCs like Nidera and Nobel. Perception that all MNCs are better managed is flawed.
Why exports caught buoyancy in last three years and why this rivalry? Here is an explanation-- apart from “revealed comparative advantage” of Indian prices during triennium ( 2011-14), upswing is attributed to some other factors like--- Iran’s Rupee payment agreement that permitted shipments of several commodities at a premium to the world prices, while MNCs could not transact trade due to US sanctions; Thailand’s irrational pricing of paddy/rice eliminated competition where Indian MNCs are virtually absent while SMSEs thrived; more containerized shipments from inland depots are easily managed by smaller parties efficiently; depreciation of Indian Rupee by more than 11-12% in 2013-14.
But there is a change in horizon. Iran is trying to source cheaper commodities from other origins on expectations of lifting sanctions soon; Thailand has slashed rice prices below market and Rupee is expected to be stronger with new Government. Ruchi and Adani importers, refiners and traders of edible oil are also threatened by the market manipulation of smaller players for cash dealings and blending with cheaper quality oils.
In 2000-04 BJP led Government cleared about 33 million tons of FCI’s excess stocks through exports. Any repeat in the coming months can deflate prices in open market and rein inflation. Stronger rupee value is negative for exports, while cheaper imports can put pressure on domestic supplies of edible oil and pulses. What will be India’s call on Pakistan from May 2014 onwards and on nuclear policy for regional stability? Whether monsoons will be normal? Nervousness of the trade is thus not misplaced.
Instead of mutual acrimony and envy, each company need to reinvent its strategic role in dynamic environments of markets that is coupled with weather, political compulsions, geo- political realities, product substitution etc. That is the right way forward.