LOWERING LEVY HELPS RICE EXPORTS--FINANCIAL EXPRESS 26TH AUGUST 2014

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http://epaper.financialexpress.com/c/3375749

ORYZA REPORT AUTHORED BY ME.

http://www.oryza.com/op-ed/indias-new-levy-rice-policy-increase-market-liquidity-non-basmati-rice-10-million-tons

 

WITH “LEVY RICE” REDUCED TO 25%-- GOVT SAVES Rs 24000 CRORES PER ANNUM

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ABOUT 10 MILLION TONS OF EXTRA MARKET AVAILABLITY WILL SOFTEN RICE PRICES; INCENTIVIZE EXPORTS.

Food Ministry has recently directed major paddy growing states of non –basmati rice to limit “levy” to maximum of 25% from earlier notified percentage of 30%-75%. In nut-shell, quantum of rice procured on Government account will be restricted.  This indeed is a very progressive step for surplus availability of rice in the market and consistent with WTO obligations of lowering public stock holdings and reduction in food subsidies. Though Government may be taking hard position at WTO, it appears to work for WTO compliance.

This levy reduction order will make open market rice cheaper; food inflation will be moderated; quality improvisation will take place; exports prices will be lower and non- basmati rice export will be incentivized.  Pressure on FCI and state governments for creating storage space will lessen.

In Kharif marketing season (KMS) commencing 1^st October 2014 and till 21.07.2014, FCI procured 31 million tons of rice (fig 1)  in two different modes; 11 million tons is sourced from Panjab/ Haryana as custom milled rice (CMR); balance 20 million tons is purchased as “levy rice” from other states.   Under CMR, paddy is procured by FCI/state government agencies from farmers at MSP and thereafter processed into rice by FCI making payment of tolling charges to millers. Under levy rice system, farmers sell paddy to millers at MSP, and then millers sell a fixed percentage (now directed at 25%) as levy to states as per predetermined prices of rice.

FIG 1

Less procurement of 10 million tons

This existing system (CMR+ 30%-75%levy) has led to over procurement, overstocking, wastage/deterioration, excessive involvement of central funds, higher subsidies.  Reduction in levy to 25% will correct the systemic deficiencies.   Fig 2 ,  shows “excess” availability of about 10 million tons in the market when 25% levy orders are enforced.   One can surmise that Food Ministry is now targeting at a procurement of about 21-22 million tons in 2014-15, from 31 million tons in 2013-14. At acquisition cost Rs 24000/metric ton (FCI website)—procurement of 31 million tons amounts to whopping of Rs 74400 crores. The corresponding savings by reduced procurement of 10million tons will be Rs. 24000 crores.

FIG 2

Concerns of small millers

Since Chhattisgarh, AP, Orissa and Telengana are the most affected regions, small rice millers in these states may protest against such directions because they are denied assured purchases by the states. Small units will now have to undertake marketing directly for whatever quality they process or sell through exporters or undertake export directly. Millers with outdated processing technology may have to modernise for meeting market expectations/specifications.  As the intention is to eventually abolish the levy system, Centre may have to get over the resistance exerted by these stakeholders.

 Another argument that farmers will be denied MSP if they deal with private millers, carries little merit. India produces about 160 mill tons of paddy (eq to 106mill tons of rice), while only 47 million tons of paddy (eq. to 31 milled rice) is handled by FCI/government agencies. The fact being (160-47) =113 million tons of paddy is bargained directly by farmers. Thus debate on this issue is not maintainable.  Should in any year there is widespread procurement of paddy below MSP, Centre can authorise an ad-hoc intervention to stabilise the price to MSP as is done in the case of maize.

Exports eased

India’s 40% of non-basmati rice (about 2.5 million tons) is shipped out of Andhra Pradesh’s (AP) port of Kakinada. AP requires evidence of servicing  levy (currently 75%) of “release certificates” (RC) from their Civil Supplies Corporation before authorising export shipments.  In June-July2014, exporters of Non-Basmati rice could not obtain such “Release Certificate” as AP government was not willing to accept compliance of levy obligations done by millers in the newly created state of Telengana. This resulted into loss/ loss of profit owing to purchasing expensive rice from Chhattisgarh and payment of demurrage on the vessels. Buyers either deferred future business or diverted to Thailand. By mitigation of levy to 25%, such instances may be rare.

Threat of Thailand or Vietnam lowering their quotes of non- basmati rice and affecting Indian exports too gets minimized. Indian rice prices may soon be seen in bearish mode because the sentiment of extra supplies in the near future will prevail in the market.

FIG 3—COMPILATION DATA OF FIG 2

PERCENTAGE OF LEVY RICE TO BE DELIVERED IN STATES/UTs UNDER LEVY ORDERS DURING KMS 2011-12.

Sl. No.	Name of the State/UTs	Category	Quantum of Levy
1.	2.	3.	4.
1.	ANDHRA PRADESH	MILLERS/DEALERS	75%
2.	ASSAM	MILLERS	50%
3.	BIHAR	MILLERS/DEALERS	50%.
4.	CHHATISGARH	MILLERS/DEALERS	50%
5.	DELHI	MILLERS/DEALERS	75%
6.	GUJARAT	MILLERS	50%
7.	HARYANA	MILLERS/DEALERS	75%
8.	HIMACHAL PRADESH	MILLERS/DEALERS	50%
9.	JAMMU & KASHMIR	MILLERS/DEALERS	50%
10.	JHARKHAND	MILLERS/DEALERS	50%
11.	KARNATAKA	MILLERS/DEALERS	33.33%
12.	MADHYA PRADESH	MILLERS/DEALERS	30%
13.	MAHARASHTRA	MILLERS/DEALERS	30%
14.	NAGALAND	MILLERS/DEALERS	50%
15.	ORISSA	MILLERS	75%
16	PUNJAB	MILLERS/DEALERS	75%
17.	RAJASTHAN	MILLERS/DEALERS	50%
18.	TAMIL NADU	MILLERS/DEALERS	30%
19.	UTTAR PRADESH	MILLERS/DEALERS	60%
20.	UTTARAKHAND	MILLERS/DEALERS	75%
21.	WEST BENGAL	MILLERS/Wholesalers	50%
22.	CHANDIGARH	MILLERS/DEALERSMMM	75%
23	PUDUCHERRY	MILLERS/DEALERS	50%

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 PERCENTAGE OF LEVY RICE TO BE DELIVERED IN STATES/UTs UNDER LEVY ORDERS DURING KMS 2012-13.

Sl. No.	Name of the State/UTs	Category	Quantum of Levy
1.	2.	3.	4.
1.	ANDHRA PRADESH	MILLERS/DEALERS	75%
2.	ASSAM	MILLERS	50%
3.	BIHAR	MILLERS/DEALERS	50%.
4.	CHHATISGARH	MILLERS/DEALERS	50%
5.	DELHI	MILLERS/DEALERS	75%
6.	GUJARAT	MILLERS	50%
7.	HARYANA	MILLERS/DEALERS	75%
8.	HIMACHAL PRADESH	MILLERS/DEALERS	50%
9.	JAMMU & KASHMIR	MILLERS/DEALERS	50%
10.	JHARKHAND	MILLERS/DEALERS	50%
11.	KARNATAKA	MILLERS/DEALERS	33.33%
12.	MADHYA PRADESH	MILLERS/DEALERS	30%
13.	MAHARASHTRA	MILLERS/DEALERS	30%
14.	NAGALAND	MILLERS/DEALERS	50%
15.	ORISSA	MILLERS	75%
16	PUNJAB	MILLERS/DEALERS	75%
17.	RAJASTHAN	MILLERS/DEALERS	50%
18.	TAMIL NADU	MILLERS/DEALERS	30%
19.	UTTAR PRADESH	MILLERS/DEALERS	60%
20.	UTTARAKHAND	MILLERS/DEALERS	75%
21.	WEST BENGAL	MILLERS/Wholesalers	50%
22.	CHANDIGARH	MILLERS/DEALERSMMM	75%
23	PUDUCHERRY	MILLERS/DEALERS	50%

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