The following article appeared on 15.04.2014 in Financial Express
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DESTCOCK FCI RICE TO LOWER INFLATION AND SAFEGUARDING EXPORTS
Tejinder Narang
India’s position as world’s largest rice exporter of about 10 million tons (mts) per annum is now threatened. Imminent decline in non- basmati rice export is foreseen in 2014-15 due to steep fall in Thai prices and rupee getting stronger. This is despite world demand remaining unchanged at 39-40 mts. The challenge for the new Government—BJP/NDA or any new administration-- is to rein domestic rice inflation running at 14% annualised basis and maintain tempo of exports.
Currently, export of rice is permitted from private stocks only, while FCI’s inventory remains untouched. A humongous rice holding of FCI need a review. Indian export competitiveness is rapidly eroding and surpluses from competing origins are growing. Time is ripe for Food/Commerce ministries to formulate proposal for the new Government for destocking FCI.
FCI is very transparent in the disclosure of its holdings; about 20 mts of milled rice lies in its warehouses as on 1.04.2014. Another 15 mts of paddy is available with State Government Agencies (SGA) in un-milled condition which is equivalent to 10 mts of milled cereal (taking paddy rice conversion ratio of 67% under Custom Milled Rice (CMR) agreement with rice millers). On 1.04.2014, Government carries 30mts vs buffer norms of 14 mts.
Thus procurement is far in excess; proper storage space remains unavailable. The catch is -- millers may have actually traded 10 mts of rice, including broken grains and bran in open market. They will deliver rice to FCI when required after purchasing from market. Paddy shown with SGA/millers is a “paper stock”.
The conclusion being that rice worth Rs 24000 crore (acquisition cost) or about $4billion is streamed in the market, leading to unjust enrichment of millers while FCI has recently raised loan of Rs. 20000 crores form 62 banks to ease its liquidity crunch. CAG report of 07.05 2013 laid in the Parliament states( para 2.2 .3) “There are many agencies involved in storing food grains of the Central Pool which adversely affects accountability and transparency in the management of food grains.”
Food security is in abeyance. Production of rice from the eastern states has shot up. BJP manifesto speaks of unbundling/ reforming of the FCI and revision of the existing PDS model. That would be long term restructuring. In the short term essentiality of stock depletion and retaining India’s supremacy on export front cannot be underestimated. Thai Government cannot sustain unviable procurement programs and is burdened about 12 mts of surplus cereal. After exhausting all avenues of marketing/selling this rice above market prices, Thais have resigned to let the market decide the disposal. Thai 5% broken variety is down by $150 pmt in less than a year— at about $390 fob pmt while Indian quote is around $410. Stronger rupee will further raise our values.
Thailand is in a hurry to liquidate its surfeit for settlement of farmers’ arrears. More downside on the Thai horizon is anticipated. India will be priced out in international market. FAO’s April 2014 report projects 2014-15 Thai export at 8.8mts –up by 2 mts and India around 9.5 mts. Soon Vietnam may also take haircut on its prices and that will further compress India’s share. The positive factors that we have are---some more demand of non- basmati from Bangladesh and sustained requirements of Basmati from Iran and Middle East.
FCI cannot undertake rice export directly or through PSUs as in the case of wheat. Rice export commences with customised printing of PP bags, up-gradation of cargo from 25% to 15% or %5 brokens, improving milling quality, blending, sortexing etc. Such jobs/processes are carried out by millers and traders. FCI/PSUs will get stuck at the very first step of calling/finalising tenders for PP bags.
Immediate remedy is that Food ministry/FCI may initiate disposal of excess stocks –8-10m million tons of raw or parboiled rice-- on “as is where is basis” by weekly auctioning to millers / traders. This will deflate local prices, make exports competitive, earn revenues for FCI, millers will square up CMR transactions when FCI demands its due.
Exports will be undertaken from private stocks as usual and will remain WTO compliant. Preferences may be accorded to rice held at FCIs warehouses in states of AP, MP, Bihar, West Bengal Gujrat, Maharashtra, Karnataka, and Tamil Nadu because of proximity of port towns.
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