TACKLING THAILAND RICE DISCOUNT--FINANCIAL EXPRESS 5TH MAY 2014

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http://epaper.financialexpress.com/c/2799763

WTO SHOULD STOP 63% SUBSIDISED RICE EXPORTS BY THAILAND

TEJINDER NARANG

 India’s compliance with WTO obligations for export of wheat and raw sugar is being questioned by USA, Canada, Australia, Brazil and some other nations. Indian Government may be responding appropriately to WTO in this respect. At the same time India should approach WTO to stop Thailand’s massive subsidization of paddy that will adversely impact Indian non- basmati rice export in near future.

Thailand’s auction of its excess paddy eq to 14 million of milled rice through distress sale every week by booking unquantifiable losses (ranging $4billion to $12 billion) to its treasury are leading to market distortion and are in breach to its WTO norms. This must come to an end forthwith.

 Rice exports

India shipped out   25 million (Basmati and Non- Basmati) rice in last three years (2011-14) from open market. No exports from official /FCI stocks have taken place. Export subsidization is nil. India has a clean record of WTO compliance for rice.

If  Thais continue to manipulate under pricing,India may not be able to sustain 10 million tons of rice export in 2014-15, achieved a year before as world’s largest exporter of rice.  Other rice exporting nations like Vietnam Pakistan, Myanmar, Cambodia, USA, Uruguay, Paraguay, Brazil etc. too will be hurt by Thailand’s arbitrariness.   

India‘s 5% broken white rice is now at $425 vs $400 /mt of Thai on fob basis. Thai value was about $550 a year ago with hardly any takers in world market.  Thai farmers could not be paid for the high priced paddy. To service farmers’ arrears  Thai Government  is now desperately selling paddy at a discount of about 63% or $300/mt. This 63% is the difference in the value of paddy-- procured at $470/mt from farmers under administered price regime of last three years but now auctioned at around $170/mt, vs open market value of $190-200/mt.  Payment of high paddy prices to farmers was meant for political convenience of Thai Government but now it is hitting trading of other countries.

Wheat exports

Concerns are raised on India’s conformity to WTO norms on its wheat exports of about 13 million tons in triennium 2011-14. Such concerns are misplaced.

 The current policy permits wheat shipments from FCI holdings as well from privately held stocks.  FCI  exports are made through three Public Sector Undertaking (PSUs) –STC/MMTC/PEC-- against internationally priced tenders in US dollars provided  such bidding  covers cost of acquisition/MSP, inland transport/handling expenses as in the case of open  market prices applicable for domestic disposal. Exports in 2013-14 are at an average price of $285 (Rs 17385) and in 2012-13 at $305 fob (Rs 16775), while MSP in the respective years has been Rs 13500 and Rs 12850/mt.( Rupee/dollar conversion  applied is 61 for 2013-14 and 55 for 2012-13).   Excess realization above MSP adequately covers logistical expenses.

Private exporters, in last three years, have shipped out at value less than PSU’s international tender.  Domestic sale realization by FCI in 2013-14 is averaged at Rs 16020/mt ($262) vs 17385($ 285). Prima facie, there is no subsidization in wheat export as well.

Raw Sugar exports

Marketing assistance of Rs 3300/mt on raw sugar export notified in February 2014 is deemed non-compliant with WTO’s norms. Government of India has responded that such small volume shipments of Indian raws will not affect/depress world sugar prices. WTO is unlikely to be satisfied with Indian response as their query is about compatibility with WTO obligations rather than any dampening exports of other origins.

There is a growing realization within policy makers that we could have done without it as local prices have firmed up and are now remunerative.   Media reports indicate that new Government may review this subsidy in the light of positive developments in the domestic market and also because raw sugar production will virtually come to seasonal end by May 2014. India may thus positvely  respond to  signals sent by WTO.

The lessons to be learnt are-- that India has to be WTO compliant if it wants WTO to address  menace of multilateral manipulation in marketing mechanism; exports are important for demand expansion and for better price realization to farmers; international price distortions can be very expensive to all nations.

Thus, the issue of 63% Thai subsidy syndrome needs to be addressed with all firmness  by new government.

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Thailand's rice sales, El Nino may end era of cheap prices

see Reuters article 20.05.2014 

http://af.reuters.com/article/commoditiesNews/idAFL3N0O51JG20140520