FINANCIAL EXPRESS 3RD OCTOBER 2016
WHEAT DUTY REDUCTION WILL
HELP TRADE.
FCI/GOVT TOO MAY STEP IN TO
IMPORT 3-4 MILL TONS TO MEET SHORTFALL.
==============================================================================
TEJINDER NARANG
The cut in wheat import duty on
23rd September2016 from 25% to 10% is a tacit but an indirect admission that wheat output of FY2015-16 is
indeed much lower than Governments own estimates of 93-94 million tons (mts) as
flour millers are buying grain at Rs18-21/kg
versus MSP of Rs 15.50/kg.
Market-players estimated Indian
production of FY15-16 around 82-84 mts. That is why private trade and South
Indian flour millers contracted around 1mts of wheat which was mostly sourced
from Australia, Russia, Ukraine and France; out of which about 0.7 mill tons
was warehoused in custom bonded areas as there was a talk of imminent reduction
in the duty. Price of contracted Black sea / French wheat is around $190-200
CIF (apprx. Rs13/kg without duty), while Australian superior quality APW grain
is at $235-245 CIF (apprx. 16/kg without duty).
It is high time that Government
accepts that Indian production is not within range of 93-94 mts due to --
a)
Lower area coverage in FY 15-16,(29 million
hectare against 31 million hectare in previous year);
b)
Two successive droughts;
c)
Fall in yield/productivity (slightly below 3
ton/ha);
d)
Lower procurement of FCI/state agencies of 23
mts from target of 29mts (Official reasoning of low procurement -- private trade
procured more from the market-- which is disproven because of strong OMSS demand
, import intensity and rise in wheat prices in market)
e)
Reluctance of FCI to fully service OMSS (Open
Market Sale Scheme) -- annual demand of 7-7.5 mts.
The rationale behind duty
reduction to 10 %( at a time when next wheat crop is to be sowed in the Rabi
season), to soften the local prices and to let privates import as much wheat
possible so that Government/FCI does not have to resort to import on its
account. But that is wishful thinking.
India’s annual “food”
consumption (excluding seeds, feed and wastage) given by NCAER in 2012-13 was
82 million tons and “even if” we take 1% increase in usage, it is projected at
85 mill tons on non-compounded basis.
The accompanying Chart 1 details
“Indian Wheat Budget” with comparison of deemed official estimates and
rationale of market perception for grain available for human
consumption. A back of envelope calculation is that country may have to
resort to import of about 4.8 or 5 mill tons if trade sentiments are accounted
for.
CHART 1
|
s. no.
|
item
|
Official estimate (mill tons)
2015-16
|
Market estimate (mill tons)
2015-16
|
|
1
|
Total production
|
94
|
84
|
|
2
|
Less --12.5% for seed/feed/
wastage
|
82.25
|
73.5
|
|
3
|
Central pool stocks on 1.04.
2016
|
14.5
|
14.5
|
|
4
|
Total available for food use
(2+3)
|
96.75
|
88
|
|
5
|
*Consumption for "food
use" minimum
|
82
|
85.3
|
|
6
|
National stocks on 1.04. 2017
(4-5)
|
14.75
|
2.7
|
|
7
|
Minimum buffer/ reserves on
1.04.2017
|
7.5
|
7.5
|
|
8
|
Import projection (7-6)
|
(-7.25) or Nil
|
4.8 or 5
|
|
*NCAER estimates 2012-13 were
82 mill tons. 1% increased taken p.a
|
This 5mts import will
have to be understood as 2 mts by the trade and 3 mts by the FCI/Government.
Private trade does not have the financial muscle and logistics to handle more
than 2mts and therefore Government needs to consider filling the gap.
Chart 2( configured from FCI website)
below gives out an analysis of the FCI having to import 3 million tons.
|
No.
|
Month
|
FCI stock mill.tons
|
Monthly consumption mill.tons
|
|
1
|
1st June 16
|
32.6.
|
|
|
2
|
1st July 16
|
30.1
|
2.5
|
|
3
|
1st
Aug 16
|
26.8
|
3.3
|
|
4
|
1st Sept16
|
24.2
|
2.6
|
|
5
|
Total 3 month consumption
(2+3+4)
|
|
8.4
|
|
6
|
Average monthly
consumption (5/3)
|
|
2.8
|
|
7
|
Balance 7 months
(Sep16-Mar17) Requirement (6*7)
|
|
19.6
|
|
8
|
Buffer required
on 1.04.2017
|
|
7.5
|
|
9
|
Total
requirement (7+8)
|
|
27.1
|
|
10
|
Available on 1st
Sep 2016
|
|
24.2
|
|
11
|
Shortfall(9-10)
|
|
2.9 or approximately 3 mill tons
|
This scenario of 3 mts import by
FCI/Govt. is projected on the assumption that
·
Physical and paper stocks for “food usage” match
perfectly and furthermore there is no impairment in quality.
·
Average monthly demand of 2.8 mts as indicated
in col.6 of Chart2 will exceed this limit after October 2016.
·
CAP –Covered and Plinth storages-- (Open air
storages-with earth below and sky above) has 2.7 mts and thus exposed to damage and severe mitigation in
quality for food usage)
Also recall SBI Chairman stating mid-April
2016 that food stocks of Rs 12000crores with Panjab Government have disappeared
and that Reserve Bank of India (RBI) has ordered all banks with exposure to the
Punjab government's food borrowing programme to provide for potential losses
after discovering that food grain (wheat, paddy, rice) supposed to have been
bought with bank funds has vanished from go-downs. The opacity on missing
grains persists.
FCI’s attempt to block or prune OMSS facility
to prevent depletion of Central pool stocks will be an imprudent move because
import is viable for port based flour millers, while in the hinterland OMSS is
the necessity and farmers have no stocks to sell.
Another assumption –good monsoon
has enriched soil moisture and therefore FY16-17 Rabi(winter) wheat will be
bountiful, may not be fully true. In FY 14-15 a large wheat crop was hit by
heavy rain just prior to harvest time compelling downgrading quality. Between
the sowing and the harvest there are many crucial events that can hit the crop
adversely.
There is little time to dither on
decision to import. Nation’s wheat stocks are bottoming out swiftly, will scrap
the ground before April 2017 and there is a dire need to initiate contingency
measures including 3-4 million tons of wheat import by the Government. At
$200/mt CIF current price, about $800 million needs to be budgeted for this
import. Procedurally if the government
decides “today” to import, the first ship will touch Indian shores in
mid-December 2106.
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