(ARTICLE THE FINANCIAL EXPRESS 25.02.2014)
LEARN FROM THAILAND'S MISTAKES
CLICK LINK BELOW
http://epaper.
THAI - RICE LESSONS FOR INDIAN SUGARCANE PRICING
Tejinder Narang
Thailand produces about 20-21 million
tons of milled rice and India processes 23-24 million tons of sugar annually.
The largest single denominator between the two commodities is that while Thai
Government fixes paddy price unrelated to rice’s marketability, States
Governments in India determine assumed cost of sugarcane irrelevant to the
tradable value of sugar. Such policies
of electoral populism have backfired in both countries. Net effect is that Thai
Government is accumulating stockpiles of paddy and facing farmers’ wrath for
non-payment of arrears of paddy while Indian sugar millers are exposed to
payment of outstanding amount to sugarcane growers with inventory of sugar that
can be disposed of at loss only in domestic /export markets.
Thailand
In 2011, Thai Government headed by
the Prime Minister Yinglik Shinawatra
decided to pay farmers about $500/mt for paddy (un-milled rice), 66% above
market value of around $335/mt as a well thought of strategy of political
compassion. She imagined that world prices of rice will climb up in tandem with
her wishes and that Thais will rule like raja in global rice trade. But exactly the opposite transpired.
Prohibition on Indian rice exports was lifted in Sep, 2011 and rice prices
tanked, including that of Vietnam. Thus, Thailand became the
highest price payer of paddy anywhere in the world.
Paddy from neighbouring countries
like Vietnam, Cambodia, and Myanmar also landed in Thai warehouses through
unholy nexus of farmers and middlemen to earn a fortune. From the world’s
largest exporter, Thailand became virtual importer of rice. Local millers also
sold their stockpiles of paddy to Government through farmers. Farmers
laughed their way to the bank.
Price parity of Thai rice exports was
derailed. Traditional export business
came to a halt. Some traders switched sourcing to third countries to salvage
their on-going agreements. Paddy processors dependent on exports of 8 million
tons of rice have argued with Government to terminate the scheme but with
little success.
The current rice export price is
significantly lower than the acquisition cost. These shipments are made from
blend of pilfered paddy and cheaper poor quality illicit entries through
borders, while most of official holdings remain intact on paper. What a
mess? Trade distortion has made WTO worried too.
In last two years, paddy equivalent
to milled rice of 15 million tons (with bare cost of $7.5 billion) is lying
rotting. Efforts to export high priced
rice via G to G MOUs have hardly materialized. Government funds stand
blocked. Selling at lower values to exporters implies underwriting losses
and facing investigations. Banks are
refusing to lend to “caretaker” Government and farmers remain unpaid this year.
This scheme of financial/ economic
unsustainability has expired end February 2014. Farmers have tasted blood.
Should the Government fail to extend the scheme, local prices are bound to crash.
That will lead to global fall in rice prices—affecting India, Vietnam, Pakistan
and others.
Unreasonable support or subsidies
once dispensed cannot be easily withdrawn. Farmers are furious for loss of
their promised earnings and are threatening suicides. This is the vengeance
of misplaced political compassion and Indian authorities must draw logical
conclusions even for Food Security Act.
India
Replace paddy
with sugar cane; swap huge inventory of paddy/milled rice with excess sugar of
9-10 million tons; substitute political masters from Thai PM to Indian Chief
Ministers (CMs) and the scene shifts from Thailand to India. Earnings of sugar
cane farmers—as per CACP- are currently 55% over the comprehensive cost. Sugar
cane production remains over incentivised. Such an irrational sugarcane pricing
is decided by CMs of various states, while market realization is much below the
cost of sugar production. Indian sugar mills are trending to sickness. Even
overseas market is less than supportive.
CMs treat
farmers as electoral islands without realizing mills capacity to service the
price to the farmers. Central Government is evasive in rectifying this
distortion. A partial quick fix solution is recently found to debit the Sugar
Development Fund for arrears and export subsidy.
Apparently
banks are not convinced of any viable financial improvements of mills by ad-hoc
measures. They are reluctant to lend as is the case with Thai banks for paddy.
Soon the Central/state governments will shift to “caretaker mode” for coming
elections. Ministers, CMs or secretaries will become inert for next six months.
Export subsidy is also in breach of WTO’s compliance. Short term
interventionist mechanism of somehow finding funds to keep industry in survival
mode by oxygenating it when gasping is no remedy.
Reducing
cane prices will also have withdrawal syndrome and growers can also threaten retribution
as seen in Thailand. Political will is needed to provide input-output
equilibrium for all stakeholders. One can hope that coming regime delivers the
right medication before chronic infection of price irrationality becomes
cancerous, mills close down while farmers let the sugarcane rot and India
becomes a net importer of sugar by political and policy-negligence.
No comments:
Post a Comment