Monday, June 1, 2015



Tejinder Narang
A 365 days scan of Indian agro- trade reveals a blend of positives and negatives in 2014-15. There is a legacy built by momentum of the past and proactive actions taken this year which augur well for economic reforms. There are also static traditional policies which continue to complicate supply demand mismatch and threaten export realization. With steep fall in crude oil prices, biofuels’ demand stand compressed. This led to retreat in world’s agro-commodities values which have severely dented India’s export competitiveness in wheat, sugar, corn, oil meals. Lower exports also diminish demand pressure. That may keep inflation down but provides poor realization to producers.  
Ironically, India in FY 16 will turn out to be net importer of superior quality wheat estimated at one million tons from consistent exporter since 2011. (Half million tons already contracted at landed prices cheaper than local cost). Imports from Australia, Russia, Ukraine and France are foreseen.  
Wheat and Rice
Shedding political populism, Government wisely hiked MSP of wheat and paddy by a trickle of 4% and shunned extra bonuses gifted earlier both by the Centre and States.   Credit must be given to Food Ministry for reducing grain stocks by managing  procurement and offtake of wheat and rice in central pool from  peak of  60  million tons( mts) in FY13 to 38 mts in FY14 and then to 34 mts in FY15. This implies lower commitment of public funds for surplus stocks, more market availability and sharp drop in inflation to the advantage of macro economy. There are two bullet points which led to such reduction —first, abolition of levy rice policy and second, evacuation of 4 mts of  FCI’s wheat through exports in last two years.  
Eliminating levy rice policy has ensured substantial availability of non-basmati rice in market at lower prices, thereby enabling exports competitiveness. India registered world’s largest rice exports in FY15 at 12 mts while Thailand is tracking at 11 mts in world trade of 42 mts. 
Wheat stockpiles could have been further pushed below by another 2-3 mts had Government not dithered in marginal adjustments in contracting at $290-$299 per metric ton fob and later on at $260-$270 fob range, due to depreciation of rupee from 55 to 61 in last two years.  Niche opportunities were missed by sheer inflexibility in decision making.   
There is no possibility of low quality/lustre loss wheat exports from India in 2015-16 as world prices may dip below $185-$195 per metric ton fob unless authorities demonstrate pragmatism to match international values of shorter shelf life wheat abundantly procured this year. Another paradoxical complexity that Government now encounters is whether low quality wheat will be distributed under TPDS or alternatives will be explored for its disposal, and at what value.
Over supply of sugar (27-28 mts) vs demand (23 mts), bulging carry in stocks of 10 mts and lower prices (-9% from a year ago) are staring with predicaments of scary farmers’ arrears of about Rs 21000 crores, cash losses of 550 millers resulting into rickety financials of the industry, banks burdened with risky liabilities/litigations and exports down to 0.5 mts versus expectation of 2.5-3 mts. Fixing artificial cane pricing by States has been politicised for wooing vote bank.  Neither Centre nor States are willing and keen to set macro-policy right by linking cane cost to marketable value of sugar.
Farmers, even if they remain partly unpaid, continue to produce excess cane because they still make money. Thus more and more sugarcane is going to come out from farms in future with adhocism of annual hikes in SAP. Granting WTO non- compatible export subsidy for raw sugar which Brazil intends to contest, pushing for non- workable proposition for creation of buffer of three mts by the Government from public funds, hike in import duty or chasing mills for payments to farmers are ostrich like solutions. The necessity is to catch the bull of State Advisory Price (SAP) by horns and tame it once for all.   SAP has to be significantly reduced under current market dynamics of sugar in India and abroad. It can be raised up if market conditions so permit. Policy perspective should be prioritized rather than hollow polemics.
India imports about 12-13 mts of edible oil per annum –palm oil constitutes 80% while the balance 20% is soy, sunflower and canola oils etc.  The world prices of edible oils (from Indonesia, Malaysia, Brazil, Argentina, USA) are declining in tandem with fall in values of all agro commodities worldwide.  The wholesale prices are also reflecting the same trend. But domestic industry demands higher import duty to nullify lower cost of imported oil against higher cost of production of oil crushed locally. The culprit is higher seed prices either due to low production attributable to poor yield, lesser area, weather etc. or speculation in future exchanges or hoarding by the farmers etc. Likewise oil meals export is down by 55%.
Why the consumer should pay higher prices of edible oil when world markets are bearish and why Government should become an accomplice with industry for inflation because of drift in oilseeds policy. World’s prices will continue to plunge down with higher yields/ production of GM crops. If our cropping trend remains inconsistent with world’s genetic engineering and bio-technology excellence, sickness in industry is assured. Logically, oilseed production prescription needs to be reviewed for high yielding verities- non GM hybrid types or GM- than to tinker with superficial issues for short term reliefs.
Pulses’ inflation of 15.38 % is the only “black sheep” in the array of commodities while milk, fruits and vegetables are reflecting marginal deflationary disposition which might witness trend reversal from May 2015 due to reports of inclement weather in coming months.   Import Intensity of pulses will be significantly move up (see article “Avoid panic in pulses” FE 25th May 2015 ). 70% of pulses grown are Rabi (winter) crops where gross area of cultivation competes with wheat each year—another Rabi crop. Wheat predominance in sowing area due to dedicated government support-- MSP and procurement-- overshadows preference for growing pulses. Pulses remain the secondary option in sowing.  Four to five million tons of import of pulses by private sector is foreseen with substantive price escalation from Canada, Australia, USA, Myanmar, and some African nations.
Government has to address the issue of disposal of low quality wheat with caution, have the courage to get out of the nightmare of SAP for sugar, take a view on high yielding varieties of oilseeds to augment supply side (of oilseeds) and should not mess up import of pulses by State’s/PSU’s intervention or subsidy.

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