GAINERS AND LOSERS --OF HIGHER IMPORT DUTIES ON AGRO-ITEMS
On 18th November 2017 government notified higher import duties on the whole range of edible and non –edible oils. That increase varies from 50% to 100% while some items have got duty hike of 75 %.( See chart). Such oils are imported from Indonesia, Malaysia, Argentina, Brazil and Ukraine. No doubt the intent behind higher levies is to provide protection to the domestic producers/farmers and processors. Between crude and refined categories difference/spread of 15% in duties is now assured-that would mean more import of crude oils—that will be processed locally. Elevated duties will lead to higher local prices, whose burden will be borne by consumers and government will not subsidise users—a well thought of move. But importers/traders having about 2 million tons of duty paid edible oil in the pipeline/stocks will get a one-time benefit.
There has been a consistent demand from the seed crushing units and oil meal exporters, represented by their respective associations to make viable their units with respect to imported oils whose demand has surged from 10 mill tons in 2012 to 15.5 mill tons last year, while Indian farmers are selling oilseeds below 15-20% of MSP (See chart). There is hardly any differential in October 2017 CIF prices of crude ($715/ton ) and refined palm oil($717) which are predominantly sourced from Indonesia and as such that is prompting more imports of refined oil. This adversely affects capacity utilization of Indian processing units.
Indian authorities have prudently reacted to this situation to outsmart the game played by international sellers to push their value added refined oil in our country while depriving share due to Indian oil seed industry. Logically this should also bring export parity with oil meal items from Argentina and Brazil and stimulate export of oil meals. What will be demand compression in import of oils from Indian side may be known by October 2018 but expected to be marginal only due to rising consumption of oils in the country.
On 10th November 2017, import tariff of 50% was imposed on yellow peas from the previous level of zero percent. Their CIF values recently have been $270-$300/ton. These Peas account for 40-50% of total import requirement of pulses. Yellow peas are largely sourced from Canada, USA, Russia, Ukraine, and France and have seen substantial substitution with consumer in preference to expensive Chana (Australia Chana is at $750cif/ton). With 50% duty higher yellow pea’s values will increase prices of Indian Chana, which are ruling below MSP, and thus farmers will be induced to sow more of Chana. Good for the Indian farmers. Yellow peas and Chana prices went up by Rs 5000/ton on the day 50% duty was announced on peas.
Higher Chana prices will also have similar effect on other pulses. Government also applied quantitative restrictions to imports of some the pulses to 2 lakh tons—in order to push up local prices and also to liquidate stocks of about 1.8 mill tons of pulses held by official agencies. Hope the lesson is learnt that procurement of pulses by public sector agencies is no solution to resolve issue of excess supplies in any particular year. Losses, as usual, for this disposal will have to be borne by the Government. Action to open export of pulses under OGL will not mitigate the problem of official agencies due to the quality of stored pulses having gone bad due to their shorter shelf life.
On 8th November 2017 import duty on wheat was doubled from 10% to 20% to restrict cheaper imports from Russia and Ukraine. MSP of wheat is also raised by 7%. Thus duty effect will be largely offset by higher MSP and to some extent by stronger rupee. Should there be weaker crop of wheat next year or abnormal price increases of wheat in the Southern part of the India, duty can always be rolled back—while MSP cannot be altered. Thus such an emergent eventuality can be corrected. All price hikes are to the account of consumer.
In July 2017, import duty on sugar was hiked to 50% from 40% --from previous level of 25%--determined in April 2015. At the same time import of half a million ton was authorised under TRQ—duty free.
A consistent pattern has emerged out of the aforesaid actions of Government—that signals a quick review of duties to control the problems to manage local prices for the benefit of Indian farmers and factories by shifting the onus of price rise to the consumers. At the same time if consumers suffer disproportionate load of such duties impositions, then policymakers are/can quick to role back or reduce the tariff as in the case of wheat for last two years where duty is corrected eight times. This portends well for short term aberrations. But in Agro-items, where weather is the dominant factor—these anomalies occur with higher frequency.
Annual whole sale price inflation of food article is 4.8% while it is negative in case of oil seeds (-2.5%), wheat (-2%) pulses (-31%) and (0.65%) for vegetable oils. With this type of data on record—there is hardly any risk of inflationary pressures on food side.
Demerits are that India looks to be an inefficient producer of agro-items. Unless significant duty protection is conferred on Indian farmers, they will not be competitive with the rest of the world. This is neagtive from the agro production policies. There are usual prescriptions of usage of high technology seeds, better farming practices, obtaining higher yields, good storage facilities, incentivizing farmers etc.—but no tangible results are forthcoming except in case of Basmati rice, cotton and sugarcane. Since we have ignored WTO so far and also being a very large importer, we may muscle through with such exorbitant duties—but in the long run there is no escape from attaining inherent competitiveness.
Apparently food ministry is doing day to day management while agriculture ministry also needs to be proactive.