Tuesday, July 25, 2017


Will India remain a long term wheat importer? Is nation’s wheat security is exposed to risk? Will Government intervene to curb or stop import? Should government continue to increase MSP of wheat despite cheaper grains available abroad? Will India turn exporter again?
 Answers to these questions, based upon the data available are that-- yes India will remain a long term importer of wheat; wheat security is not compromised as government is allowing private trade to import to fill the gap created by supply demand mismatch and it itself is building official stocks from local procurement; import can be reduced or stopped by increasing custom duty from existing level of 10%—which is the sole prerogative of Government --and any such intervention will create upward swing in local wheat values. MSP should be raised to augment higher production without neglecting importance of higher yields while attending to vulnerabilities of cheaper imports. Difficult to say if India will be yet another exporter of wheat in near future!!
From an exporter of 6.8 million tons (mt) of wheat in 2012-13, exports trailed to paltry $0.4 million in 2016-17, while imports escalated to 6.3 mt in same year, and are likely to be around 3.5- 4 mts in 2017-18 (see Chart 1).  Global estimates of 2017-18 are - wheat output at 735mt; opening stock 240mts and annual trade 170mts; consumption also at 735 mt. Thus India’s demand is miniscule compared to surpluses available worldwide.
Imports are natural outcome of international prices being lower than local costs after adding sea freight and handling expenses. There could be diverse reasons for steep fall in wheat values abroad-- since 2014--but primarily due to higher output in Black Sea countries (comprising Russia, Ukraine and Kazakhstan) and exceptionally good Australian crop last year. Trend reflecting fall in values of US SRW wheat since 2014 is as per the chart below—from $300 fob /t to $220 fob/t –down by 27%  as of now—but touched bottom of $170 fob/t in Sep2016 or 43% decline. (See chart 2)  
However, Indian MSP climbed from Rs 1400/qtl in 2014 to Rs1625/qtl or 16% higher while import prices fell to  Rs 1275-1430/qtl against India’s wholesale market price in North Zone of about Rs1550 to Rs 1800/qtl. Since bulk of imports land in southern Indian ports for millers there-- whole sale traded values in south are Rs 2300/qtl -- while imported wheat with 10% duty is around 1800/qtl. OMSS price of Rs1790/qtl plus freight also incentivizes imports in preference to local deliveries from FCI. It makes perfect sense to blend cheap imported wheat from Black sea.
If Government hikes MSP in coming Rabi season, which it is likely to do, then cheaper imports will continue next year as well, unless custom duty is also raised to 25% or so.  Prices abroad will remain weak as Russia+Ukraine may continue to put downside pressure with their crops being 70+28=98 mts with aggressive pricing and weaker currencies.
Though Indian government has claimed wheat production of 93 mts and 97mts in 2016-17 and 2017-18 respectively, market assessment is of 84mt and 92 mt.  Indian wheat procurement was 23mts last year and 30mts this year –short of target by 7mts and 3mts in last two years. Firmer local prices, lower releases (4mt against demand of 8mt) by FCI in market through OMSS, official stocks touching near buffer norms on 1st April 2017 and rising imports are all indicative of tightness in availability of this grain which substantiates assessment of market.
 As per IGC London Indian domestic consumption in 2017-18 is projected at 98mt.  We are thus producing less than what we consume.  Ideas of cutting down wheat production in Panjab (which gives highest yield in the country of about 4.7t/ha vs 2.5-3 t/ha in rest of the country) and substituting with other crops will definitely jeopardize wheat security of the country.    
This year Uttar Pradesh (UP) procured 3 mt grains for the central pool, though in the past UP contribution has been marginal. This may have shored up official stocks—but it crowded out market players who normally source their needs from UP.  This also prompts imports because of limited availability nationally. Immediately after end of wheat procurement season in June 2017, local prices touched Rs1743/qtl against MSP of Rs1625/qtl. UP Farmers thus suffered notional loss of Rs 118/qtl.
Already 6 cargos of cheap—low protein- Ukrainian wheat—about 200000mt –are sailing for southern Indian ports contracted at $216-220 cif/t (Rs14300/t) for arrival in Aug-Sep 2017. Existing stocks of wheat at the ports is getting liquidated. Black Sea harvest season is July/August and prices might soften soon.  There would be a new round of purchases. Indian local prices start moving up between Nov-March. Indian buyers are bound to take fresh positions. Australian output is forecast to 25mt-- lower by 10mt-- from previous year. Thus Australia is priced out for Indian market at $275-280cif.
The only fear that trade carries is that of uncertainty of import duty and abrupt changes in Phytosanitary conditions. Considering that good wheat is facing scarcity locally with rising consumption pattern; MSP/OMSS/market prices are much higher than landed imported cargos; and also that India needs to build its official stocks—government has to tread path of any intervention cautiously so as to keep a balance between interests of farmers and consumers.

Monday, July 17, 2017


RICE (Basmati+Non-Basmati) export of 75 million tons (mts) in a decade of 2007-17 with forex earnings of Rs 276000 crores—which as per current $/rupee parity equals $42.5 billion, is one of the most notable features of India’s trade thrust. This would be even more in dollar terms if lower rupee- dollar is factored for previous years. Thailand stands at number one with export of 90 mts rice in the same period while India at number two (see charts) and Vietnam with 62 mts at number three.
India would have surpassed Thai’s highest figure--but for three year ban (from 2008 to 2011), imposed by the then Government on export of Non-Basmati rice.  India suffered “export loss” of atleast 16-17 mts of rice during prohibited period while there was no scarcity of cereal in that triennium. India has never imported rice on government account for last 25years or so and thus has a record of self-sufficiency. All rice exports are from private stocks—thus keeping food security fully insured through FCI and its agencies.
If last five years data is analyzed, then India shipped out @10.9 mts each year-- 54.5 mts vs 47.5mts of Thailand-- because no ad-hoc tweaking in export policy is done by GOI. That is how it should be. Exports require unrestricted access to markets and any ban or change in policies entails handing over clients abroad to competition. Thailand, due to its Government’s irrational paddy pricing policy of 2011, outpriced itself from African/ Asian markets. Its rice quality suffers due to processing from old damaged paddy.
 In 2017-18 too, India is likely to maintain annual shipments of 11-12 mts of rice in a world trade of 42 mts. This sustained success should be highlighted in all international fora to build India’s brand image as a quality and quantity exporter of rice.
Government’s program to “Bring the Green Revolution to Eastern India (BGREI)” through improved technologies launched in 2010 has realized significant productivity gains in Bihar, Chhattisgarh, Jharkhand, eastern Uttar Pradesh, West Bengal, and Odisha.
 India’s annual production is about 110mts of milled rice; opening stocks of 19mts; total availability is 129mt vs local consumption of 100mts+exports of 11mts, thereby leaving surplus of 18mts as of now.
India lacks presence in South East Asian market of Indonesia, Philippines and China where Thailand/ Vietnam dominate because of logistics and historic continuity. China too is turned regular importer of 4mts annually where our presence is negligible.
Total annual production of Basmati is about 10 mts. Saudi Arabia, Iran, Iraq UAE, Kuwait remain prominent markets of 3-4 mts of Basmati rice annually. Basmati Pusa 1121and 1509  varieties released respectively in 2003 and 2013 by IARI in  parboiled form has proved to be a boon for the farmers/millers and buyers in Iran/ Saudi Arabia as it is 40% cheaper than traditional Basmati with grain length of 20mm after cooking. It is currently trading at $1150 fob vs $900fob last year. Thai fragrant rice competition is subdued with Pusa 1121. Sortexed capacities involving optical and electronic sorting machines have been upgraded by rice millers for uniformity in color/ quality. Prominent rice exporters are also targeting USA and EU—though they keep raising issues of Minimum Residue Levels of fungicide which adversely affects volume and velocity of exports.
Nigeria and Francophone countries of West Africa (Benin Liberia, Mali, Guinea, Senegal, and Ivory Coast) South Africa, UAE are some of the major destinations of Indian Non-Basmati rice of 6-7mts per annum. Trade with African nations is preferably done through intermediaries in France/Switzerland/UAE to ensure payment. In addition to 25% broken white rice, India is prime player in 5% parboiled and 100% broken white silky Sortexed rice. Multiple varieties of rice like—Pant 4, IR64, IR36, IR8, 1001, Sona Masoori--offer choices for right pricing.
Nigerian/Benin market is of 2 mts per annum where Thai and Indian parboiled rice sell at par in equal ratio; Entire Liberian market of 0.5mts needs Indian parboiled variety only; Ivory Coast has annual demand of 1.3 mts with 50% market share of Indian parboiled/ white rice. Senegal demands 1.2 mts annually 100% broken white silky Sortexed rice where Indian share is 60%--rest goes to Thai and Uruguay.   
This year Bangladesh needs to import 1.5mts of Non-Basmati rice-that could go up to 2mts. Import duty is reduced by Government of Bangladesh (GOB), to 10% from 28%--thus confirming desperation of demand. (GOB) has issued five tenders of 50000mt each where 0.1mts Indian 5%parboiled rice is contracted at $430 and $445 C&F while local wholesale price in Bangladesh is taka 45/kg or about $560/mt. GOB also bought 0.2 mts of Vietnamese parboiled rice at $470/mt C&F.
Indian private traders are daily making truck dispatches from West Bengal/ Bihar to Bangladesh and have dried up market surpluses in these two states. Additional demand will be catered from Jharkhand/ Chhattisgarh by land route or from Kakinada via sea.  Price of 5% parboiled rice which was $400 C&F Chittagong in May 2017 is higher by 10% now. Indian values are under tremendous pressure due to demand pull from Bangladesh that will make rice expensive for African markets as well.
India’s farm produce is private; mills are private; traders are self-employed who arrange financing privately; market risk of profit and loss is private; buyers/importers too are largely private. Rice inflation is under control. The lesson is that the less the government the better the trade. Momentum of rice export can be maintained if Government avoids tinkering with current policy profile. Rice is the only agro-commodity that has weathered test of time in national and international markets.    

Monday, July 10, 2017


Indian sugar business has four prime stakeholders—farmers, sugar mills, consumers and the government.  Despite deregulation of sugar industry in 2013 Government commands the most dominant force of intervention amongst other three stakeholders. The only policy of sugar is to have “policy of change” triggered by market volatility and pressures exerted by other constituents. The fear of hurting sugarcane farmers remains politically alive.
On pan India basis India has an “installed crushing capacity” of 33 million tons(mts) from  716  mills in private/public and co-operative sector as on 31.01.2016 while actual output this year is 20.3mts. There are only six surplus sugar states in India –namely Haryana, UP, Uttrakhand, Maharashtra, Tamilnadu, and Karnataka—out of total 27 states. Massive movement of the commodity has to take place through length and breadth of the country.
 Sugar Mills nurse a grievance that farmers get preferential treatment from government for cane pricing. Mills claim that they are also exposed to market risk on account of price volatility. The answer is -- All businesses have inherent market risks—of profit and loss. However oddity of this business is whether sugar is sold at Rs40/kg or Rs30/kg—sugarcane price must be increased annually.  
Internationally India is the most “expensive” producer of cane at Rs 3/kg Vs Thailand and Brazil at Rs 2/kg—higher by about 33%. At the same time Government has given umbrella protection to mills with 40% import duty. Refineries are also permitted duty free raw sugar import with export commitment. Surprisingly numbers of sugar factories are growing and sugarcane production is also well sustained except when weather related issues arise. Thus the current business model appears to be viable.
Mills complaint that annual increase of FRP (Fair Remunerative Price) of sugarcane by the government is more than the MSP of wheat/ paddy.MSP of wheat/paddy is hiked by 47% in eight years; sugarcane price is raised by 97% in nine years.  Sugar farmers are thus beneficiary of better return of 50-60% than grain growers..
 Comparison of MSP of grain crops with FRP is incoherent because wheat/ paddy are 5-6 months crops-- sown each year one in rabi and kharif seasons, while sugarcane is harvested after 12-18 months and is sown once in three years. FRP is fixed basis recovery of 9.5% sucrose but with special varieties of cane, sucrose recovery is now improved to 11.5% or more. Additionally revenue accrued from disposal of molasses, bagasse, power generation etc. also provides cost compensation to mills against FRP/SAP. However fixation of SAP (State Advisory Price) arbitrarily by states like-- UP, Uttrakhand, Panjab, Haryana and Tamilnadu-- higher than FRP is devoid of any rationale except vote bank politics.
Sugar industry rightly maintains that FRP is not linked to local market prices.  A study of the FRP vs average mills price reveals that from 2009-10 to 2012-13, cost of production was below the market price—thus profitable. During 2013-14 to 2014-15, mills suffered losses due to poor realization from the market. But after 2015-16 onwards, mills have operated profitably due to scarcity of cane in Maharashtra/Karnataka that depressed Indian sugar output to 20.3 mts against demand of 24 mts. Payment of 75% of sugar revenues to farmers and balance 25% to mills is deemed an acceptable mechanism (Rangarajan committee formula) which requires full transparency in accounting systems and procedures. Some states (Maharashtra and Karnataka) have agreed for 75/25 formula—but it needs a central legislation.
Higher cost of sugarcane may in some cases compel mills to understate recoveries and for making short or delayed payments to farmers without interest whatsoever . There are still outstanding payments of more than Rs 12000 crores to farmers though industry has seen substantial profits in last two years. Farmers remain at the mercy of millers and cannot agitate because farmers have to sell cane grown in the reserved area to select mills.
 Another positive feature-- Government is responsive to pressures of the sugar industry on imports and exports. Import duty is adjusted or waived to fill the supply gap. Duty is hiked if there is surplus to prevent cheaper imports. When the supply exceeds demand –that is excess availability --Government is not averse to subsidizing exports to assist millers and farmers irrespective of WTO obligations.
In sugar season 2008-09/09-10, 6.5 mts of duty free imports were authorised. In April 2017 duty free import of 0.5 mts raw sugar is permitted. That helped refineries to mitigate shortages.  Now a proposal to increase duty from 40% to 60%--the bound rate—is under consideration due to sharp descent in sugar prices overseas to 13c/lb ($300/mt) from 22c/lb ($505/mt), thus threatening cheaper imports with 40% duty, which may pare local prices. This will assist stability in local prices. This decision may be anti-consumer but certainly pro farmer and pro industry though 4 mt of opening balance on 1st October2017 is a very below  three month norm of annual consumption of 24 mt.   
When sugar production + opening balance escalated in sugar seasons pf 12-13/13-14/14-15/15-16 government “incentivised” sugar export by offering subsidy of Rs 3300 to Rs 4000/mt, pushing exports of 5mt in these four years.  Another example of industry getting ample support from Government!!
Conclusion-- Indian Government has been very dynamic in pursuing policies consistent with the requirements of the sugar market to avoid shocks to the millers and farmers. Industry is also expected to respond in equal measure and with promptness to clear arrears of farmers.

Thursday, July 6, 2017



5TH JULY 2017

There is a rise of 30% in value of imports of three essential agro items, namely wheat, pulses, vegetable/edible oils, -- indicative of substantive demand pull in the country (See charts below).
Data analysis of India’s seven select but vital agro related items of exports reveals that there is a sharp slump—40% in their overall value-- during last four years. Commodities are wheat, rice, sugar, cotton, soymeal, guar gum and beef+fish .
Exports falter when goods are not competitive, lack of local production and/ or poor demand overseas. Edible items are of daily use. Thus with rising population, probability of lower demand abroad is not logical. Two successive draughts in 2014-15-16 may justify drop in production but lack of adoption of new technologies and efficient farm practices is the root cause.
Pulse’s import jumped from $2.3 billion in 2013-14 to $4 billion--an increase of 74%. Out of 5.4 million tons (mts) of pulses shipped to India 50% or about 2.7 mts are peas/yellow peas from Canada/USA. Kharif acreage of pulses is down by 33% which give ideas of lower output, compelling higher imports of Tur, Urad Moong. News of possible decline in production will make imports costlier.
Government has been fronting state agencies for import through bulk tendering. PSUs tenders escalate world prices, thereby pushing up values for private import as well. When state agencies dispose pulses in domestic market at subsidized prices—that is at a loss-- this again disturbs the parity of private imports because they cannot discount their costs. This may discourage trade to import thereby creating more scarcity in the country.
From exporter of wheat of about 14 million tons (Approx. $4billion in 2012-13 to 2014-15), India has turned structural importer of $ 1.5 billion of grain in last three years. Spike in wheat import in 2016-17 over previous year is 840% by value.
 In 2014-15 and 2015-16 market estimates of production each year varied 84-87 million tons (mts) (though Government claimed 93-95 mts). FCI stocks depleted to 8 mts (buffer norm 7.5mts) on 1st April2017 and imports ballooned to about 4 mts in 2016-17 thus validating market’s view.
Wheat procurement pf 30mts this year vs targets of 33 mts implies that OMSS supply to flour millers will be restricted. This necessitates private imports of 5-6 mts in 2017-18.Already importers are looking for cargos from September 2017 onwards from Australia and Black sea at landed values of $240 and $205 respectively which will be cheaper than domestic wheat after 10% duty paid.
 Government has rightly stayed away from importing wheat directly for FCI and let privates fill the gap. This prudence has kept world wheat prices range bound and non-inflationary, because trade imports in economical lots with spread of time, instead of bulk tendering by Public sector Undertakings (PSUs) which results in inflated import values.
Vegetable oils
Import of palm/soy/sunflower oils has remained steady-- value wise between $8-9 billion per annum. There are strong pressures from oil seed crushing industry to raise import tariff to create a disparity by having high landed cost of overseas product so that locally produced oil could be cheaper. Government has done well in levying moderate duties on oil to protect consumers –60% of which are based in rural areas including farmers and not to promote inefficient production and processing.
Unless high yielding oilseed varieties are available in the country –the value and volume of vegetable oils import is bound to ascend.
In 2014-15 basmati/ non-basmati rice exports were $7.8 billion that has slipped to $5.8 billion in 2016-17—though India remains world’s largest exporter of rice of 10mts. Poor demand in Africa, especially in Nigeria of non-basmati rice, and slow down of basmati shipments to Iran and Saudi Arabia could be possible reasons. Iran shipments declined from 1.44 million tons in 2013-14 to 0.7 million tons in 2016-17—down by 50%.
Outlook of Non-Basmati rice for 2017-18 appears positive as strong demand for Nigeria via neighboring Benin is supportive; Bangladesh requires more than one million tons of rice desperately and trade is focused on this demand. Indian non-Basmati rice prices are lower than competition from Thailand, Vietnam, Pakistan.
The success of Rice export business is attributed to minimal interference by Government, diversity of paddy varieties, superior capability for par-boiled rice, logistical advantage for Africa, botched up past policies of Thai government in paddy pricing and poor performance of Pakistan. Indian rice export is negligible to South East Asia and China.   
Cotton exports tapered down from $3.8 billion to $1.4 billion during 2013-14 and 2016-17---lower by 63%. Exports to China and Pakistan suffered, while Bangladesh remained a consistent market. India’s share of exports to China has dropped from almost 80 percent in 2011 to 10 percent in 2015. Indian trade is diversifying to newer markets of Indonesia, Taiwan, Turkey and Thailand to gain the momentum.
Soymeal /Guar gum /Beef and Fish
Drastic fall (86%) in Soymeal exports from $2.8 billion to $0.38 billion ; likewise 75% lower guargum exports and 48%decline in Beef and Fish  in 2016-17 from their peak performance of $10 billion in 2014-15. Beef exports are not likely to pick up because of current confusion. GST complexities is another factor that is bound to affect the trade.    
 We are becoming a high cost economy in agro related items. If we continue to dither in our export earnings by lack of quality/procedures/ poor yields/price parities, resultant suffering will be transmitted via trade to the farmers and another undesirable cycle of joblessness and loan waivers will commence.