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NO TAKERS OF HOARDED
INDIAN WHEAT AT HIGH EXPORT PRICES.
The issue is “hoarding of dead stocks vs realization of
market related worth of about Rs. 10000 crores.”
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Tejinder Narang
After exporting about 14 million tons (mts) wheat from
2012 till May 2014, India stands isolated in the world market despite excess
hoarded stock in central pool of about 17 mts as of 1st October 2014
after accounting for buffer/security norm of 14 mts.
Internationally tradable price of Indian wheat is $235
pmt fob now while Government/FCI would estimate it at $265-$270 based on
current MSP and logistics. An Indian private trader will quote $285 fob from
open market. This, in short, represents the impossibility of going forward.
Wheat futures prices tracked by CBOT (Chicago Board of
Trade) fell by 22% in last one year (see chart), which cannot be attributed
solely to supply-demand divergence or drop in crude oil values. The primary reason for this sharp reduction
can be nailed down to Russian –Ukraine (Black Sea nations) conflict of November
2013 and subsequent sanctions/countersanctions.
These two countries export about 35mts wheat annually
against 28-30mts exported by USA. Ukraine
alone exports 20 mts of corn. Thus Black sea countries are determining factor
in price discovery of grains which has direct bearing in quotes at CBOT.
Logically, bilateral and multilateral geo-political tensions should have
curtailed these nations’ capabilities to export, while opposite has transpired.
Post conflict financial fetters applied by US and EU
led to 30% and 55% depreciation in Russian and Ukrainian currencies
respectively. The entire agro complex is thus rattled by lower prices of wheat
and corn which have pulled down soybean, sugar, edible oil, ethanol values. Russia/Ukraine
also offer blended version of milling and feed grade wheat which can be as low
as $210-$220 fob.
Unless there is a considerable appreciation
in the currencies or grain supplies in this region are choked due to harvest
losses, draught or war, revival of prices to the level of 2012-13 (around $350
fob) is not foreseen. On
the contrary higher world output will keep the downward pressure in wheat
prices. Pakistan has imposed 20% import
duty on 5TH November 2014 to stem wheat imports by its private
traders fearing further fall in future values to protect its domestic supply. Import
of one million tons is expected from Black Sea by Pakistan in 2014-15.
The Government is very quick in mopping up stocks but
dithers in liquidating huge inventory. The moot point is whether India wants to
remain a silent spectator of market movements or makes an effort to capture a
part of commodity cake by proactive action.
For the last 25years, various Indian Governments pursued a policy of an
inert observer. Seldom is an initiative taken to match the market unless market
rises to our expectations. Keeping dead stocks means nil accountability of
officialdom. Pricing of stocks on marked
to market basis means answerability. Why not take a professional opinion on
pros and cons of “hoarding of dead stocks vs realization of 85-90% or market
related payment”?
If the Government is in the business of
grains then the Government must mean business to minimize losses of sunken
public funds and prevent rot. Does WTO matters? Yes it does. Set aside temporal
ego and abide by the peace clause of WTO Bali conference which insulates India
till 2017 and settle the matter in the larger national interest. All will have
win—win agreement.
The Prime Minister has urged Secretaries of the Ministries
to come up with novel ideas of good and deliverable governance. Food Secretary
twittered on 3th November 2014 year wise stocks with FCI as of 1st
October 2014 from which it can be inferred that FCI has around 6-7 million tons
of wheat of 2013-14 crop. This
tonnage will become three years old by April 2015, just four months away. It is
incurring carrying cost and exposed to poor storage. It is preferable to sell
new crop to Indian consumers while old one can be disposed of abroad. “Swacch
Bharat” concept is not merely limited to cleaning the premises but also to
de-clutter space where the possibility of rot and debris exists.
For the old crop evaluation, exclude taxes. Taxes are
not exportable. That is the international norm. Recall at London Heathrow
airport, VAT is refunded. Discount the carry cost of another two years, if it
remains unsold. Old crop can be pared
suitably by 10%. Match the world price under WTO peace clause and earn $1.6 to
$1.7 billion (Rs10000 cr) by activating exports. If similar subsidy is being
considered for the private sugar mills, why not for publicly funded grains!!
Indian Government twice lost valuable opportunities,
first in last quarter of 2012-13 when it dithered in offloading wheat slightly
below $300 fob and then again in the last quarter of 2013-14 to sell at about
$270.00 fob and now lack of action can lead to another precipitative fall to
about $ 200.00 pmt FOB. Isn’t it better
to realize $235.00 – 240.00 as of now then to keep on perpetuating losses by hoarding? Any temporary
spikes in the prices should be taken advantage of provided authorities are
ready with right policy frame work.
SEE CHARTS BELOW.----
RUBLE DOLLAR CHART
UKRAINE HARVANIA DOLLAR CHART
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