STATES DISTORTING MAIZE MARKET--- FINANCIAL EXPRESS 6TH NOV 2014

STATES DISTORTING MAIZE MARKET

http://epaper.financialexpress.com/c/3775153

FINANCIAL EXPRESS 6TH NOV 2014

STATES DISTORTING MAIZE MARKET BY MSP BASED INTERVENTION AND INCURRING HUGE LOSSES.

Maize imports a possibility despite surplus local availability 

Tejinder Narang

At a time when Food Ministry  is attempting  lesser procurement of grains; liquidating excess stocks of FCI/Central pool; reviewing food policies at macro level to restructure FCI, some state governments( Karnataka, Andhra Pradesh, Maharashtra and Madhya Pradesh) are doing exactly the opposite. Though FCI has stayed from any MSP (minimum support price) based procurement in maize, these state governments have undertaken intervention operation at their own initiative. In addition to incurring huge loss by trading in maize, they are destabilising both exports and domestic market.

In 2013-14 (October13 to September14), above mentioned states purchased approximately 1.18 million tons of “food grade” maize at MSP of Rs 13100 pmt to support sagging market values of  Rs 10000-11000 pmt. MSP of maize is decided nominally and state governments are under no compulsion to intervene arbitrarily without assessing macroeconomic environment and market trends.  Their claim for this discretion is that this benefits farmers.  When maize values are plunging to bottom domestically and internationally with little hope of upward trend, socialism of price policies is an anachronism devoid of accountability.

During last 4 years Indian corn output has moved up from 18-19 million tons to about 23 million tons. This has enabled India’s export to Far-East and Africa of about 3-4 million tons per annum but in 2014-15, it may drop by 50%.  Indian maize currently quoted  at $200 “fob” pmt (Rs 12200) has no takers while MSP (Rs `13100/mt) based costing would be $250 “fob”. Under current scenario Argentina corn is priced at $210 delivered (cif) in Asia. Indian grain can be traded at $190 “cif” in Asia ($20 discount to Argentina) or $165 fob or about Rs 10000 pmt delivered at port.  If state governments continue to artificially push prices up, export demand will diminish and drag local prices further down.  That may affect sowing in Rabi crop of corn produced in Bihar.

Farmers are not poor

Let it be understood that Indian farmers are not as poor as deemed in 1966-67 when MSP policy prescription was initiated.  Farmers are growing 2-4 crops in a year including oilseeds/pulses/vegetables. Thus they are not dependent solely on one season’s earnings. Rice and wheat take about 120days each for maturity; pulses 60-75 days; sugarcane can grow for three consecutive years without fresh plantings.  Latest technologies of seeds, hybrid varieties, Bt cotton etc and inputs—water, power, irrigation, fertilizers, pesticides are provided at subsidized rates-- have enhanced yields per Hectare. Higher output at even lower prices is also remunerative.

Since 2002, India has become the world's largest manufacturer of tractors with 29% of world's output in 2013. It is also the world's largest tractor market (Global Tractors Market Analysis 17/02/2014 http://goo.gl/c8L7cE). Acquisition/ usage of tractors can be exploited by producers with reasonable income.   Farmers are also owners of the land—an asset class, with tax free earnings. India has graduated from poor country to Emerging economy. Poverty-mania for farmers is not valid any more.  Disparity in incomes in all sections of society exists any way.   

No.	Item	Rs./mt	Rs crore( for 1.18 mill tons)
1	MSP Corn (2013-14)	13100	1546
2	Purchase (incl. tax/bags/fin)	16000	1888
3	Sale Realization	11000	1298
4	Anticipated loss (2-3)		590

Visible losses

A back of the envelope calculation reveals that state governments spent about Rs 16/kg( including taxes, bags, financing) against MSP of Rs 13.10/kg while average price realization by disposal of part tonnage of 0.5 million tons is Rs 10-11/kg. Almost 0.6 million tons remain unsold as of 1st October whose quality may be doubtful and may be sold at lower prices. Total loss may range between Rs 550-600 crores or 30% of acquisition costs. Unconfirmed reports of Madhya Pradesh having sold entire 85000mt at Rs1/kg under some subsidy scheme to poor are also circulating amongst traders.  

There is a possibility of round tripping of the corn bought at Rs 10-11/kg and sold back to these very states at Rs 13.10/kg in this season (2014-15). These state governments procure “Food grade” maize but poor handling and storage transforms it to “feed grade” where realization is bound to drop dramatically.  It is well acknowledged that 50-60% of Indian maize is used for cattle feed (for livestock) with higher levels of foreign matter and allowance for fungus. All exports are also of feed variety. Buying as food grade and selling at feed grade prices is another contradiction in interventionist policy.

The very idea of attaining higher production is to minimize per unit cost of any commodity.  Benefits of elevated output are annulled, if blind intervention is applied at MSP.    Had government stayed away, the possibility of export could have improved and the industrial/ feed use grain consumption would have been at the market price.

Maize needs no MSP

 The very concept of continuation of MSP prescription in preference to the market based price discovery in current context of rising agri-output and trade getting integrated with world markets is debatable.  In any case, Maize/coarse grains with predominant feed application should any way be excluded out of MSP policy because this intensive starchy item which readily sucks moisture (and rapidly promotes fungus) cannot be handled by FCI/state agencies in appropriate quality format.

DGFT notification of 29^th September 2014 has “freely” allowed import of Maize. Landed (cif ) import price of Non -GMO corn from Russia/Ukraine in India will not exceed $200/mt or Rs 12200/mt against Rs 13100/mt ($215). Probability of international values dipping down in coming months is not ruled out. The pressure to import will escalate. There would be a dilemma to regulate imports by ad-hoc custom duty. The best alternative is to shun intervention and let local market discover its own prices on arm’s length basis.