GLOBAL TURMOIL HURTING INDIAN AGRO EXPORTS--FINANCIAL EXPRESS 23rd MARCH 2015
CLICK LINK BELOW
CLICK LINK BELOW
AGRO EXPORTS HIT BY FALLING CRUDE OIL PRICES AND CURRENCY MANIPULATIONS
AN INDIRECT TAXATION ON FARMERS.
MARKETS ARTIFICIALLY DE-STABLIZED BY BIG POWERS. ARE SUBSIDIES THE SOLUTION?
The double digit decline in agro export has commenced in 2014-15 after consistent five years rising trend since 2009-10. Export of Agro and allied items was $32 billion in 2013-14. It will taper down to about $29 billion-lesser by 10% in 2014-15. Difference of about $3 billion matters little to Commerce Ministry, when $50 billion is gifted to the Government by falling oil prices (India’s net oil imports being $100 billion). The contra fact is that when higher agro output is targeted with falling exports, it is an invisible and indirect taxation on Indian farmers due to demand compression. Trading community too is nervous with continuation of this trend.
Indian WPI is down to -0.39% in FY15 vs 5.39% last year. WPI of food articles has remained stable around 8% both in FY14 and FY15 while rupee has weakened by 10%. Thus export efficiency of India should have been pronounced even though marginally. But exactly opposite has transpired. International commerce stands destabilized by strategic confrontations of big powers, creating deflationary shift in commodity price.
World’s food demand cannot be compressed substantially. Sharp fall in commodity prices is due to anticipated demand contraction of bio-fuels like ethanol and bio-diesel, produced through agro items. With 50% cut in crude oil values, ethanol’s (blendable with gasoline) demand will shrink significantly. One third of US corn production is currently dedicated to ethanol. That will taper down. Excess of corn will make it extra cheap.
Likewise, sugarcane produces both sugar and ethanol. Ethanol from sugarcane will also be exposed to manufacturing cuts. More molasses will be diverted for greater sugar output than ethanol, triggering steep downward trend in sugar prices.
Surely corn and sugar values are bound to melt down further, if crude oil +shale gas complex continues in sub $60 bbl. range. Corn, wheat and soymeal are all also used for animal /poultry feed. If corn is down, it will induce resultant de-escalation in prices of connected items like wheat meant for feed, soybean. Cheaper corn will be diverted more towards poultry/ livestock, thereby diminishing demand of feed wheat and bottoming out wheat prices. The same holds true for soybean- cheaper soybean will imply lower soy oil and therefore lesser palm oil values.
Power play of big powers
Precipitous fall in petroleum prices to around $50/bbl are not a natural phenomenon of supply demand mismatch. Has demand evaporated by 50%? No. The supply of fossil oil is intentionally pressurised to surge by Saudis to destabilize certain regions. Even with extra shale gas from USA, prices could have ruled $80-90 bbl. The game of price rigging is orchestrated by USA and S. Arabia for fighting unconventional war to hit economies and commerce of Russia and some Middle East countries. Stronger dollar owing to lower oil values and sanctions have depreciated currencies of India’s competing countries like Russia, Ukraine and Brazil.
At the same time ECB has decided to depreciate Euro through QE to prop European economy, making European goods inexpensive. Currency manipulation and deep depreciation in major currencies have disabled India’s prospects of exports (see chart) because rupee remains fairly stable. It is in the geo-political-economic game of big powers taking away slice of export business. The positive side is that India’s CAD has improved but the world is sure to face the convulsion of high volatility so long as ISIS, Iran and Ukraine matters continue to dominate world space.
WTO is a toothless body when it comes to reining global hegemonies’ designs of USA and Europe. WTO cannot question them as to why crude oil and currencies are artificially manipulated. It cannot check China for perpetually keeping Yuan devalued nor can it rein Thailand from selling rice at half the cost of procurement. Even Pakistan has announced wheat export subsidy of $55pmt from Government stocks. It is time for Indian authorities to react to WTO for this discriminatory state of affairs. Indian export subsidies too should not be questioned so long as such an inequitable state of affairs prevails.
Indian Government belatedly announced $64 or Rs 4000/mt as subsidy on raw sugar exports. Another export subsidy from Maharashtra Government of Rs 1000 or $16/mt for raw sugar is also being rolled out. But doing business even with this (64+16)=$80/mt is still a challenge. Logically Indian government should also subsidize wheat, corn, soymeal export, because WTO cannot intervene in crude oil and currencies going southward irrationally.
Wheat export from India—costing around $275 fob— has no takers from private sector. According to Food Secretary, Government stockpiles will not be touched for export. The fact being India is in no position to export wheat unless subsidised by about $70/mt
All buyers are calling for French/US wheat at $200/mt fob ---with euro falling by 26% in last 52 weeks. Russian rouble is down by more than 138%. Russian wheat could be below $190/mt in next few months if temporarily imposed export tariff of $45/mt is abolished.
Export figures of “agro and allied items” of January 2015 listed by Commerce Ministry are alarming with minus realization. Assumption that lower realization is attributed to fall in commodity prices may only be “partially” correct, because quantitative export of wheat, sugar, corn, soymeal, cotton etc. are insignificant this year. Net conclusion-- India is grossly out priced.
Save the rot
Indian domestic demand of corn and soy is also amplifying which are also contributing to occasional disparity in international prices. Their yield and land area must go up. Simultaneously Indian establishment must not let hoarded wheat and rice rot in warehouses which are produced by expensive but subsidised fertilizer, scarce water, precious power, tractors and diesel, farm labour, amenable weather and above all utilization of valuable land, which is the heart of current controversy of Land Acquisition Act. If the value of the grains/agro items are not realised either through market prices or through corresponding subsidization to attain marginal parity in markets abroad, authorities are just mismanaging the entire economy.