Monday, July 27, 2015

INDIAN AGRI EXPORT OUTLOOK NOT BRIGHT--FINACIAL EXPRESS 27.07.2015

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OR
http://goo.gl/j8tIAC







 FALLING AGRO EXPORT FALLOUT OF POOR YIELDS AND CURRENCY TURMOIL.
Tejinder Narang
The rising trend in Agri and allied exports of last five years has reversed to the “negative zone” by 8.5% (from $33 billion to $30.1 billion) –though decline is somewhat checked by higher beef and meat exports which are up by about $500 million. It simultaneously reflects continuing policy paralysis in the Indian Agricultural policies rendered redundant with the march of time and technology.  Can we ignore this tapering trend and be content with comfortable CAD of 1.3% of GDP attributable to lower crude oil prices in FY15?  Can we insinuate this phenomenal fall in exports to the tumbling global prices by about 20-25%? No, not fully.   

Worldwide demand expansion of Agro commodities continues. Competing origins like Brazil, Argentina, France, Russia and Ukraine have been able to grab our traditional markets.  Currency depreciation of many rival countries, poor yield of Indian agro produce, inflexibility due to tight control by the government in agro sector are other factors for this dismal performance.   The abrupt fall in exports of major agro items to the extent of 50% is also captured in the chart below.

The continuing fall in crude oil prices due to Sunni-Shia conflict in Middle –East, inevitable entry of Iran and ample supply of USA’s shale oil output is likely to trigger price compression of ethanol and other bio-fuels which is bound to diminish consumption of corn and soya. That trend will activate further bottoming down of values of agro-commodities like wheat, sugar, oil meals and vegetable oils.
Greece’s bailout uncertainty will keep Euro weaker. Dollar/Euro 1:1 parity is already speculated. Russia/Ukraine conflict and falling crude values create more distress in their currencies. Brazil’s Real will fall further as it struggles to ensure export consistency of their humongous crops of Soya and Corn to service weakening power of China. These factors warrant that India will remain out priced in near future.

In short term descending values will prevail internationally unless there are major draughts or environmental issues. Even under relative volatile conditions, world will produces more agro commodities with improved technologies of sowing/harvesting/irrigation/ fertilizers and GM seeds. To meet the competition owing to global changes and turbulence, India has to introspect on its macro policy profile for bigger crops by attaining higher yield to lower per unit costs. The motto has to be “More crops per drop” of everything –not limited to water alone— but also including each unit of power, fertilizer and technological investment.



DEBATABLE CONCERNS
Some of debatable issues are—do we need to keep our agro paradigm focussed on over emphasis of wheat and rice production tied to dedicated procurement for 7%-8% farmers; should we keep importing about 14 million tons of edible oil with annual increment of one million tons per annum ; are we to sustain ourselves with rising demand of yearly pulses import currently at 5-6 million tons with increasing appetite in future ; are we to shed our aggression in oil meals export where decline is 52% in FY15 over FY 14; can we afford to keep our soy output unchanged at 10-11 million tons for last five years; will the maize/corn production remain static at 23-24 million tons while Brazil’s output has jumped to 80 million tons from 50 million tons in last five years; is the chaotic policy of pricing sugarcane irrespective of market realization of sugar is sustainable; do we realize that more yield/hectare will give more probability of attaining self-sufficiency domestically  and spurring our exports; will we continue to impose custom duties on items which are cheaper abroad to protect our domestic  inefficiencies and outdated policies. India has transmuted into high cost agro market compared to world’s standards. Even Pakistan and Bangladesh who hitherto sourced oil meals from India have shifted to South American origins despite logistical disadvantage.
               
ANOTHER GREEN REVOLUTION NEEDED
Green revolutions happened when India has either kept pace with world’s scientific developments or adapted them. The introduction of high-yielding varieties of Mexican wheat seeds suggested by Norman Borlaug, USA’s biologists, with fertilizer and irrigation was responsible for green revolution that spiralled average yields to about 3meteric ton/ha (though Punjab has 5 mt/ha) from less than one metric tons in mid 60s.  Otherwise India would have been a begging bowl for wheat internationally. Hybridisation of paddy by ICAR led by scientist VP Singh has enabled India to increase quality and quantity of Basmati rice. Hybrid maize has augmented its yield to 2.6 mt/ha, though it is still far below the world maximum yielding of 10 metric ton/ha for GM(genetically modified)  crops. Soy yield has remained static to one mt/ha while world average is 3mt/ha. Lower yields mean sub-optimal use of land, labour, inputs and other natural resources. Reduced output implies lower income or implied taxation on the farmers. It means lower GDP and fiscal stress in the economy.
There appears to be congenital apathy in India against GM crops which are now widely grown in USA and S. America. China is the most active importer/user of 74 million tons of GM soybeans.  The widely used argument in India is that GM crops will help MNCs. But its denial supports vested entrenched interests in the country in the agriculture, industrial and political circles. Why a fair cost/benefit analysis is held up for GM crops? Ambivalence on the evaluation/ introduction of GM crop has confounded all.
 If GM crop is harmful, let there be an official conclusion. All allopathic medicines have some side effects; even the change of seasons has side effects—but they do give relief too. Can we become an isolated island in agricultural practices? If some modifications are to be introduced for induction of GM crops let it be deliberated upon. On the one side we are one of the biggest consumers of imported GMO soy oil and cotton seed oil but denying its admission formally. Is it not the height of self-imposed hypocrisy? Are we not denying the viable opportunities and options to our farmers by imposing anti-GM policy and thrusting high priced produce to consumers?
As India’s growth rate escalates, we need more corn, soy, pulses, wheat, rice, edible oils, sugar. Unless we blend our policies rightly—we may soon turn out to be importers rather than large producers and exporters. There is a need for another green revolution of 2015-20 with all available resources at our command than to be driven by selective discretion even if it means some creative destruction.




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Thursday, July 23, 2015

INDIAN GOVT VERSUS AGRI BUSINESS---BUSINESS LINE 23.07.2015


INDIAN GOVT  VERSUS AGRI BUSINESS---BUSINESS LINE 23.07.2015







AGRI BUSINESS: GOVT VERSUS THE TRADE
Tejinder Narang 

Though the Government should restrict its role to policy formulation with periodic assessment of such policies, Indian authorities have dug deep in venturing with business of Agri trade. This is the legacy of outdated baggage of socialist’s regime (of 1960 to 1990) which should have been shed by now but Ministries still call the shots to target the business on day to day basis.
The trade which manages the market tries to outsmart the system to ensure that its profits are sustained or incur minimal losses by inflating prices in the bazar or paying farmers less. It also attempts to circumvent rules or duties by means that may not be legal. If traders fail to succeed, they default on the banks that fund them.
The public is be-fooled by the so called sanguine actions of the Government while nothing changes on the ground.  The paradigm “the government has no business to be in business” is denied as a rule than an exception. Nation suffers economically at the cost of political patronage.
OILSEEDS-PULSES
This week (20th July 2015) Agriculture Minister announced higher sowing (note the word sowing) of pulses (134% higher), oilseeds (234% higher) than last year with probability of much higher output in FY16. This pronouncement sends bearish signal in the trade especially when the crop is nowhere to be sighted while the sentiment of excess is created. The uncertainty of further progression of rains, pollination, maturity and harvesting still remains. It is for the trade to assess these activities than for the Government to announce advance judgement on productivity.
Discrete intention of the agriculture ministry may be to depress the recent inflationary pressures on pulses and oilseed which will be harvested in October /November 2015. Trade will ignore such statements. The current prices of pulses and oilseeds may therefore remain unchanged but future prices, commencing October 2015 for the farmers would take a beating. Thus farmers’ earnings will be badly affected.
WHEAT IMPORT
In June 2015, Food Minister announced that Government intends to impose 10% import duty on good quality wheat contracted at cheaper prices from Australia by the millers/trade in South India for customised milling of maida/suji/rava/bakery etc. Lower quality of MP crop necessitated this limited import of 0.5-1 mill tons. So far Ministry proposal remains non-notified, but should it happen, market price of wheat will surely flare up by 10%-15% or Rs 2/kg apprx. It will also create counter party disputes/litigation between Indian buyers and foreign sellers. To compensate for the penalties paid for the defaulted contracts by Indian millers, the losses will be passed on to the consumers. It also tarnishes India’s image as a responsible trader in the global village. WTO’s adverse observations cannot also be ruled out.
SUGAR
Pricing of sugarcane at SAP/FRP by the state/Centre, unrelated to the market forces of the end product-- sugar and by- products-- has created labyrinth of mess with mountain of surplus. Export subsidy is annully promised but not notified timely—thus untimed subsidy remains an authorization on paper. Market volatility caused by Brazil and Thai sugar can never be comprehended by officials and politicians. Annual financial reports of the millers reflect huge losses. Loans from the Banks are either defaulted or stressed or both. Arrears to farmers of Rs 21000 crores remain unpaid. None is accountable to the loss of resources of water, power, fuel, transportation etc. How the industry is surviving and banks/government are reconciling with this oddity should be subject of a paper in Harvard Business School.
PSUs IMPORTS
Another example—Agriculture Ministry made official assertion to import pulses through PSUs  that pushed up international prices by 50%-100% on year to year basis with speculative trend. There are already heavy commitments of the private traders to import pulses which would depress prices in coming months, forcing PSUs to sell at a huge loss beyond the level of anticipated subsidy. Officialdom has no clue of the trading strategies of other market players.
Either the Government should not be in the business and if it wants, then it must learn the “trading” of Agri-commodities by giving specialised training to the bureaucracy in assessing supply demand  globally and domestically, current trading practices, working of commodity exchanges, shipping and banking practices. The Government –even though may provide the data—yet should not be in a hurry in making wild statements.

Monday, July 13, 2015

DUTY ON WHEAT IMPORTS A RETROGRADE STEP--FINANCIAL EXPRESS 13.07.2015



http://epaper.financialexpress.com/c/5855211

OR

http://goo.gl/2mCFFX






DUTY ON WHEAT IMPORTS –A RETROGRADE STEP.
Tejinder Narang
The Food Ministry’s move to impose 10% import duty on good quality wheat for enabling sale of Government’s poor quality wheat procured this year is laughable to say the least and irrational any way. Apparently the view is that unless market buys lower quality wheat at the official price and policy, Government will block import of good wheat that is being currently imported at a lower price by the trade in southern India.
The greatest single ambiguity is that if Maggi noodles could be banned for non-compliance with specifications, how the sale of low quality wheat is being promoted by virtually denying acquisition of superior cereal from abroad (currently from Australia) at cheaper prices by the millers/ traders especially of southern India. The huge difference in the wholesale prices prevailing in South Zone and the rest of India justifies imports on commercial prudence.
Normally south Indian millers blend the superior good quality wheat with low quality grains as “filler” so that customised flour (atta) for maida/rava/suji /bread/bakery making could be produced. The superior variety has suffered severe shortfall this year due to unseasonal rains in Madhya Pradesh. If the Government decides to clamp down on production of such customised flour (atta), the low quality wheat that could be used as “filler” cannot also be easily consumed. Thus the Government itself disables the consumption of its wheat.


         
 By official admission about 30% of the 27 million tons or 8 million tons, bought this year(2015-16) by the Government is of poor quality. It remains unclear if most of grains procured “Under Relaxed Norms (URN)” is classified as “poor quality” or URN wheat is somewhat superior to the “poor quality”. Does “poor quality” means inedible for human consumption? Out of 4 million tons offered under OMSS till May 2015, only 5000 metric tons could be sold. Is the questionable quality the prime reason for tardy disposal?
A Times of India report of 29th January 2015, quoting FCI officials mentions that 90% of 27 million tons of wheat procured this year “under relaxed norms (URN)”—about 24 million tons-- equivalent to annual production of Australia carries higher percentages of shrivelled, broken grains and lacks lustre. Such wheat is suitable for chapatti (unleavened flat bread) making while suffers from shorter shelf life and needs to be consumed in less than a year.
To clear the confusion, the Government may come out with facts and figures of availability of (i) good quality,(ii) URN and (iii) inedible grains for human use. Any alternative course of action for their evacuation can be evaluated and planned thereafter.
The government has not notified any differential between the good and lower quality grains. There is no pick and choose option. It is a matter of common sense that a commodity with varying specs cannot be sold at the same price when the authorities themselves have determined a large tonnage as “of lower qualities”.
 Wheat of URN/lower parameters at OMSS price of Rs 1550/qtl plus freight and incidentals cost around 1900/qtl in the south of India versus imported grains at Rs 1850/qtl. Though these two qualities are not mutually comparable –still the value of better type of imported produce is cheaper. Since the WPI wheat inflation is down to about 3%, imposition of 10% implies that government is spurring inflation domestically, simply because holdings stuck with FCI/state governments are to be bailed out due to lack of ideas for their disposal.
Indian wheat consumption sans export is about 85 million tons per annum.  Import of half to one million tons in southern India is not likely to accelerate disposal process of FCI/Govt of about 20 million tons by adding 10% duty component. The government may also have to weigh the political consequences of distributing “poor quality” wheat under PDS. Is there any rationalization for penalising consumers because producers were protected?  And should the PDS consumers become guinea pigs for using sub-standard wheat, simply because it is subsidized.
For the open market sale, Government has to reduce the price for saleability in the market. That can be determined by open auction without any pre-fixation to OMSS of Rs 1550/qtl. The rate of disposal is directly dependent upon the minimum price acceptable in open market for the lower/poor quality grains.
Lustre loss wheat was classified of lower category in 2002-03 and was offered as “feed wheat” for which there is abundant demand in India and abroad. About 4 million tons was exported at discounted values of 20-25% from the normal values. The authorities should have the courage of declaring sub-optimal quality as feed wheat. For example, if OMSS of such wheat is discovered at say Rs 1100/qtl—the rate of disappearance will be phenomenal.
The problem in the bureaucratic set up is that no official agency is prepared to discount the price as the loss will have to be booked with reasonable justifications. But burdening 10% duty on wheat import may mean some action taken on paper even though it may defy the objective.
The government must come out transparently with the various qualities and quantities they have stocked; declare poor quality as feed wheat; apply calibrated discount to lower quality wheat and then sell locally. If still the consumption does not pick up, export 5-6 million tons as feed wheat at the world market price. Let the good grain be distributed under PDS to avoid political complications and shun levy of import duty.