ARE POPULIST THAI AND INDIAN AGRO POLICIES BEYOND
AUDIT?
TEJINDER NARANG
There are amazing similarities in
the grain procurement and disposal policies of Thailand and India. Both nations
are caught in awkward predicaments of their own making.
THAILAND
In October 2011, Thai 5% broken
rice was trading at $600 fob and Vietnam at $575 fob. Thai Government, in the garb
of “flood relief”, introduced welfare program for the farmers under which
“state will stock different varieties of paddy” (mortgaging of paddy by farmers
to the Government) at an average value of $450 (against $330 earlier) till
October 2012. That translated into conversion of rice ex-mill at $700 or $
850-900 fob which till date has remained a “paper value” than a “trad-able price”.
Thais also presumed that by hoarding high priced paddy they can internationally
throttle and choke supply side. With private rice trade crowded out, it would
inflate world’s rice values and Thai Government will bear the mantle of world
largest trader of high priced Rice, while buyers had other cheaper options.
Governments are inept traders and neither should they act as salesmen. Their
regressive isolated policy prescription failed.
With its paradox of plenty, India
(in Sep2011) lifted four year old export embargo from private stocks of
non-Basmati rice (non-fragrant variety) with abundant availability at $ 410-430
fob (at 1$=Rs 48), while MSP (min. support price) of Indian paddy was about
$225/mt. World prices plummeted by
$190/mt and barring Thai-- all other origins-- India, Vietnam, Thailand, Myanmar,
Cambodia including South American regions ( (Brazil, Uruguay, Peru and Paraguay
etc.) found the softest entry into markets controlled by Thailand. Vietnam
abandoned all price linkages with Thailand. International rice trade of Thailand
nosedived.
India initially and informally
limited 2 mill tons exports till March 2012 and any further extension was to be
reviewed later. Rice importers from Asia and Africa, fearing potential
prohibition “any time” on India’s low cost rice, exceeded coverage of their
immediate demand; Vietnam and Pakistan lowered their bids to match India’s
price aggression; Thai exporters covered part shipments from these cheaper
origins including Cambodia while Thai
Government continued to amass inventory of paddy estimated currently around 17
mill tons eq to $11 billion. Even Vietnamese and Cambodian paddy is now
filtering in Thailand—going either for exports or sucked by mortgage program
for better profitability.
Indian rice export have risen
from 3 to 6 mill tons and are continuing; while Thai shipments are forecast
down from 11 to 7 mill tons. Authorities in Thailand kept a close watch on
India’s draught developments with intent to push prices to $1000/mt fob if
India were to ban rice exports. Since Monsoons have considerably improved with no
significant impact on output or prices spiking, Thais are feeling the pressure
of liquidating their stocks even at a loss. They recently tendered 750,000 mt
of rice/paddy for disposal and bids submitted are reportedly at a loss of $200
million approx. Estimated deficit on 17 million inventory may be around $4.6
billion at current market prices.
INDIA
At the same time last year, India
aggressively pursued concept of National Food Security Bill (NFSB) to ensure 25
kg grains to poorest households that would cost ($7.3 billion) Rs.25000 crores
per annum more on ascending scale (marked to higher MSP and inflation) in each coming
year . FCI procurement is set to rise form average of 50-55 mill tons to 75-80 mill tons. There is a muted but intense economic
opposition within all sections of Government against NFSB due to almost 50%
leakages in the distribution mechanism. To be precise last mile delivery to
intended recipients cannot be monitored and ensured in India.
Resale of low priced (virtually
free grains at Rs 1/2/3 pkg for maize/wheat/rice resp.) in the grey market is
well acknowledged. Ruling elite
preferences for “Vote Bank” may be an incorrigible dilemma for the “Central
Bank” and Finance Ministry, if NFSB is formally legislated. Surprisingly
opposition parties are not opposing the Bill for fear of being labelled anti-poor. The introduction of the Bill in Parliament
in December2011 was meant to send signal of compassionate largesse of Congress
party before elections in Uttar Pradesh of Feb/Mar 2012, where Congress faced
humiliating defeat. Perpetuations of
grossly subsidized doles of cereals and pulses provided by all political
parties in South India have never given them any advantage nor has poverty been
wiped out.
Without NFSB having been
legislated but in its anticipation, FCI as of 1st July 2012 hoarded 82 mill tons of wheat and rice eq. to $30
billion (Rs.1,85,000 crores) though
officially covered storage space is 52 mill tons, while 26 mill. tons are in
CAP storages. 82 mill tons is four times the mandate for food security. NFSB has constipated warehouses with stale
grains that are awaiting immediate evacuation from Central pool by export
or any other means.
CONCLUSION
Both Thailand and India have
erroneously assumed that populist policies work by isolating fundamentals of
human behavior and elementary economics. India is now anxious to export wheat at a loss
to make space for Kharif crop and unburden financial liabilities; it intends to
distribute grains in domestic market even at a greater loss. Thais cannot
export rice unless they retreat from position of possessiveness of elevated paddy
prices. Exports are hit because both
Governments need to subsidize and have to justify losses to auditors who are
now thrashing policy making and political governance with greater force. For
example-- What was the basis of Thais discovering price of $450/mt for paddy
and to disable private trade? What are
the criteria for overstocking by India much more than the required food
security reserves? How Governments continue to release funds to their
ministries by book adjustments without any accountability?
Both Thailand and India are wrong
in pursuit of their so called “pious policies” of grains. The dichotomy is that
now tenders are being called by India and Thailand for the “purpose of
transparency of loss” with sugarcoated term of “price discovery”. The question
is where the transparency was when these odd policies were conceived with
opacity and impunity. Moreover these are all physical losses and not presumptive ones.
