USDA GIVES WRONG REASONS FOR INDIA’S RISING AGRO EXPORTS
This paper editorial “Cultivating Exports” of 6th September 2014 (http://goo.gl/928ZJl ) has appropriately commented upon USDA report “India’s Agricultural Exports Climbs To Record High” of 29th August2014 (http://goo.gl/boZyfM ). USDA’s certification of steep ascension in agro exports from $5 billion in 2003 to $39 billion in 2013 may be flattering but facts and figures cited are debatable while conclusions are less than credible.
It states that “one of the driver’s behind India’s export growth has been the dramatic growth in government support provided to agriculture, particular for wheat and rice”. The truth is that Government support through of Food Corporation of India (FCI) during 2003 to 2011 was highly erratic (chart below).
In 2003-05, FCI’s non-Basmati rice export was 3 million tons (mts) and wheat about 8mts. FCI thereafter withdrew from exports. In next two rears-- 2005-07-- all Basmati (aromatic) and non-Basmati rice exports originated from private holdings. In 2006-08, FCI “imported” 7.2 mts of wheat. Effective October 2007, Government prohibited Non-basmati Rice and wheat shipments on pan India basis though Basmati deliveries continued. (Refer Government notifications http://goo.gl/4dn0ta).
From September 2011, Wheat and Non- basmati and wheat export was again revived unconditionally. It is grossly erroneous to label such go-stop-go signals and frequent policy interventions during 2003-11 as Government “support”.
The upsurge in rice export after 2011 is attributable to India-Iran rupee payment agreement owing to US sanctions, higher yield per hectare of hybrid varieties ; India’s virtual monopoly in Basmati exports; Thailand over–pricing its paddy procurement; China’s rice import form Vietnam leading to firming up prices. An “arm’s length approach” is the only support accorded by the Government for the rise in rice exports.
USDA believes that higher MSP in last six years of rice (increased by 75%) and wheat (raised by40%) led to higher procurement and subsequent releases of stocked grains in the domestic market lowered prices “making Indian supplies more competitive”. On the contrary higher Government purchases led to inflationary pressures in domestic market making exports non-competitive. Furthermore rice was never released or auctioned in the domestic market but supplied only to targeted beneficiaries under PDS (Public Distribution System). State governments are reluctant to lift such additional PDS releases for various reasons.(http://goo.gl/gvo93S).
USDA’s tabulation of data to arrive at $85 billion (table below) as government support to agriculture is out right questionable. It covers -- capital and revenue expenditure on rural development (road, drainages etc.); major and minor irrigation, agro research; financial institutions’ support, export promotion boards, soil and water conservation, forestry/ wild life/animal husbandry etc. These add up to “extra” of $47 billion and do not constitute subsidies to farmers or traders by any stretch of imagination. Financial Express editorial has rightly commented—“how can irrigation distort trade?” Or for that matter how agro –research/soil water conservation manipulate trade?
If intention is to allege or enlarge Indian subsidies in bizarre manner then USDA could have also included “establishment cost” of IMD (India’s Metrological Departments) for weather reporting or warnings, ministries of Food, Agriculture, Commerce, Finance, Customs, all state governments’ departments of Food and Civil Supplies Corporations. There is no end to such wild collation of data to justify a preconceived hypothesis.
Reasonable calculations of support can include funding for FCI, fertilizer, power and state bonuses. This amounts to $(85-47)=$38 billion for or Rs.2,20,000 crores-- about 13% of Agro GDP of $284 billion and certainly not 29% projected by USDA. (See amended table). Gulati-Huda study on Indian agricultural subsidies around 10% is vindicated.
USDA inaccurately comments that wheat exports by the government are “at prices below acquisition and transport costs”. Government (FCI) initiated action on wheat from 2012 onwards only. Both Government and privates are competing for contracting. In 2012-13 shipments were about 6.5 mts—of which 3.5 mtsare from open market and balance from FCI. Average fob realisation in 2012-13 is $310/mt fob.
“Acquisition” cost of FCI includes local taxes while grains are purchased on MSP (Minimum Support Price). Extant government policy is that taxes are not exportable. Local taxes are reimbursed to private exporters also. FCI cannot burden exports with local taxes too. Taking 2012-13 MSP/mt of Rs 12850 + shortest route as per railway freight calculator ( http://goo.gl/o0rdcm) from Indore-Madhya Pradesh to Kandla port (Gandhidham station) of Rs 990/mt + port handling Rs 500/mt, total cost is Rs 14340/mt. At $/Rs= Rs 54.40 in 2012-13, export price is $264/mt fob, while FCI realised about $310/mt fob. USDA has again erred. Private trade too could make wheat shipments at almost matching prices discovered through FCI/PSUs tenders when overseas market scaled at peak and not, when values have bottomed out, as is the case now.
Export of cotton, soymeal, guargum, corn, buffalo meat and “other products” like tea, coffee, spices are totally market driven and pushed by private initiatives. Currently, there is a sharp decline in wheat, corn, soymeal, cotton, sugar export. Had there been any effective Government support, situation may have been different.
Brazil’s exports about 20 mts corn, 29mts sugar, 38mts soybean; 15 mts of soymeal while India’s export is 4mts corn, 1.5-2 mts sugar, nil for soybean; 4mts soymeal. India’s lead in percentage growth projected by USDA gives a distorted picture when compared in absolute terms.
This report definitely needs substantive correction in picking up relevant data, its tabulation and conclusions.