SWEETEN THE DEAL FOR WHEAT EXPORTS--FINANCIAL EXPRESS 26.09.2014
APPLY RAW SUGAR EXPORT SUBSIDY FORMULA FOR WHEAT TOO.
An interim solution with WTO now a necessity.
Tejinder Narang
World prices of
all agro-commodities including sugar and wheat are dropping sharply. Indian exports of these two items are utterly
unviable while massive funds of Indian banks and the Government are blocked in
their inventories. Government is
considering continuation raw sugar subsidy for exports while no stimulus is
being thought of for wheat export (from FCI) where Rs 50000 crores is required
by Food Ministry for clearing pending food subsidy bills. As corn prices are
tumbling too, which have direct relationship with wheat and sugar/ethanol
prices, medium term recovery is improbable. Had India complied with WTO’s Bali
agreement and applied peace clause up to 2017, such subvention could have been
settled easily. An interim solution with WTO on sugar and wheat subsidy also
needs to be explored.
Sugar
The supply side
of sugar from Brazil, Thailand and India is surging. International consultancies
are pegging raw sugar between 13cents/lb (about $300/mt) to 17c/lb (about
$400/mt) in 2014-15—a wildly fluctuating range of $100/mt. (In October 2012,
raw sugar was 22c/lb ($506/mt). At 25.5 million ton (mts) of Indian anticipated
output plus 8 mill tons of carry-in vs 24 mts usage, there is a surplus of 9.5
mts. High local cost of sugar production ($450-460/mt)
are deterrent to emerging export opportunities. Essentiality of extension of
Raw sugar subsidy of Rs 3300/mt or $54/mt notified in February 2014 with some
readjustments in 2014-15 to neutralize impact of irrational SAP(State Advisory
Prices) is justified. Readjustment could be in the form of calibrating it with
international price.
Notwithstanding
that subsidy is WTO non-compliant, the aptness of decision will be defended on
the grounds that it helps demand expansion via exports and also because reduction
in large inventories of mills will enable clearance of cane arrears of farmers.
Indian raw sugar
export climbed to about 1.1 million tons (mts) in 2013-14 from low of 0.19mts
tons in previous year- an increase of 480% after accounting for subsidy
supported component of 0.7 mts . Prominent buyers are located in Iran,
Bangladesh, Sudan, UAE, Sri-Lanka and other countries of Middle East and
Africa. In 2014-15, exports of raws are
estimated at one million tons. The
debatable issue is why white sugar is ignored for subsidization and this too
can be considered on equal footing so that total export (raw+white) of 3-4
million tons can be attained. It may have some impact on domestic inflation—but
this has to be matched with priority of clearing cane arrears till such time
SAP is rationalized.
Wheat
export
Now replace raw sugar by wheat; higher SAP
of cane by MSP of wheat; private mills by FCI; large sugar inventory by wheat
stocks of FCI; farmer’s arrears with Government funds. Price wise world wheat has also plummeted by $
80/mt since last year--- down by 27%. The concerns between sugar and wheat are
similar.
In absolute
terms, Indian wheat from open market costs around $285fob while grain of
equivalent quality from black Sea is $230-235 fob/mt. Russia and Ukraine,
because of their military conflict and western sanctions, have depreciating
currencies which are also ensuring de-escalation in prices. French crop is trading at historic lows at
$210-215 with somewhat impaired quality.
Indian wheat
export averaged around 6 mts per annum in last two years, both from FCI and
private trade. Price realization varied between $275 to $310 fob/mt, devoid of
any marketing subsidy. Now, local market
prices are no longer supportive even for private sector to match international
competition while FCI is slush with stocks.
After exporting 1.7 mts in April-June 2014, overseas contracting has
disappeared due to widening disparity. Even
neighbouring Bangladesh prefers buying from far off Ukraine or Russia. Estimated projection for 2014-15 is
“maximum” about 2 million—a drop of 66% from previous year.
Is it
not incumbent upon Government to reduce its debits/arrears by liquidating FCI’s
overstocked wheat (35.5 mts as of 1st September 2014). Though
Government has earmarked 10 mts wheat sale under OMSS( open market sales
scheme), actual disposal may not exceed 5-6 million tons—the same as attained
last year.
The moot point is--Will wheat export again
be throttled “n-th” time by FCI inability to compete in the international
market? Will India remain a wild –card entry with “off and on” billboard in
global wheat trade? Do we not need to show some flexibility for being present
in the market?
MSP and SAP are
both administrative prices having random convergence or divergence with
international values. In raw sugar
export this divergence is being taken care of for the benefit of private mills,
their bankers and farmers because loss-prone concerns are raised with
Government by mills’ associations/federations.
For wheat, Government’s own funds are involved. Government/FCI has to introspect and
strategize export parity (now about $235) like the way done for raw sugar to
operate in market driven volatility.
It will be odd
to apply price calibration for raw sugar export and ignore wheat by selective
exclusion. If 10 mts wheat is marked for disposal—Food Ministry can assign 4
million tons for subsidized exports. Absorbing
inland transport costs/ ignoring local taxation and carrying expenses are the
way out for subsidization. If it means reduction in OMSS wheat price—let that
be so –for that will temper food inflation. If world market improves—as can be
seen from future PSUs tenders-- such subvention can be eliminated or adjusted.
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