GLOBAL TURMOIL HURTING INDIAN AGRO EXPORTS--FINANCIAL EXPRESS 23rd MARCH 2015
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AGRO EXPORTS HIT BY FALLING CRUDE OIL PRICES AND CURRENCY MANIPULATIONS
AN INDIRECT TAXATION ON FARMERS.
MARKETS ARTIFICIALLY DE-STABLIZED BY BIG POWERS. ARE SUBSIDIES THE SOLUTION?
Tejinder Narang
The double digit decline in agro
export has commenced in 2014-15 after consistent five years rising trend since
2009-10. Export of Agro and
allied items was $32 billion in 2013-14. It will taper down to about $29
billion-lesser by 10% in 2014-15. Difference
of about $3 billion matters little to Commerce
Ministry, when $50 billion is gifted to the Government by falling oil prices
(India’s net oil imports being $100 billion). The contra fact is that when higher agro output is targeted with falling exports,
it is an invisible and indirect taxation on Indian farmers due to demand
compression. Trading community too is nervous with
continuation of this trend.
Indian WPI is down to -0.39% in FY15 vs 5.39%
last year. WPI of food articles has remained stable around 8% both in FY14 and
FY15 while rupee has weakened by 10%. Thus export efficiency of India should have
been pronounced even though marginally. But exactly opposite has transpired. International commerce stands destabilized by
strategic confrontations of big powers, creating deflationary shift in
commodity price.
World’s food demand cannot be compressed
substantially. Sharp fall in commodity
prices is due to anticipated demand contraction of bio-fuels like ethanol and
bio-diesel, produced through agro items. With 50% cut in crude oil values,
ethanol’s (blendable with gasoline) demand will shrink significantly. One third
of US corn production is currently dedicated to ethanol. That will taper down.
Excess of corn will make it extra cheap.
Likewise, sugarcane produces both sugar and
ethanol. Ethanol from sugarcane will also be exposed to manufacturing cuts.
More molasses will be diverted for greater sugar output than ethanol,
triggering steep downward trend in sugar prices.
Surely corn and sugar values are
bound to melt down further, if crude oil +shale gas complex continues in sub
$60 bbl. range. Corn, wheat and soymeal are all also used for
animal /poultry feed. If corn is down, it will induce resultant de-escalation
in prices of connected items like wheat meant for feed, soybean. Cheaper corn will be diverted more towards
poultry/ livestock, thereby diminishing demand of feed wheat and bottoming out
wheat prices. The same holds true for
soybean- cheaper soybean will imply lower soy oil and therefore lesser palm oil
values.
Power play of big powers
Precipitous fall in petroleum prices to around $50/bbl are not a
natural phenomenon of supply demand mismatch. Has demand evaporated by 50%? No.
The supply of fossil oil is intentionally pressurised to surge by Saudis to
destabilize certain regions. Even with extra shale gas from USA, prices could
have ruled $80-90 bbl. The game of price rigging is orchestrated by USA and S.
Arabia for fighting unconventional war
to hit economies and commerce of Russia and some Middle East countries. Stronger dollar
owing to lower oil values and sanctions have depreciated currencies of India’s competing
countries like Russia, Ukraine and Brazil.
At the same time ECB has decided to depreciate Euro through QE to prop
European economy, making European goods inexpensive. Currency
manipulation and deep depreciation in major currencies have disabled India’s
prospects of exports (see chart) because rupee remains
fairly stable. It is in the geo-political-economic game of big powers taking
away slice of export business. The positive side is that India’s CAD has
improved but the world is sure to face the convulsion of high volatility so
long as ISIS, Iran and Ukraine matters continue to dominate world space.
WTO is a toothless body when it comes to reining global hegemonies’
designs of USA and Europe. WTO cannot question them as to why crude oil and
currencies are artificially manipulated. It cannot check China for perpetually
keeping Yuan devalued nor can it rein Thailand from selling rice at half the
cost of procurement. Even Pakistan has announced wheat export subsidy of $55pmt
from Government stocks. It is time for Indian authorities to react to
WTO for this discriminatory state of affairs. Indian export subsidies too
should not be questioned so long as such an inequitable state of affairs
prevails.
Competition
Indian Government belatedly
announced $64 or Rs 4000/mt as subsidy on raw sugar exports. Another export
subsidy from Maharashtra Government of Rs 1000 or $16/mt for raw sugar is also
being rolled out. But doing business
even with this (64+16)=$80/mt is still a challenge. Logically Indian government should also
subsidize wheat, corn, soymeal export, because WTO cannot intervene in crude
oil and currencies going southward irrationally.
Wheat export from India—costing
around $275 fob— has no takers from private sector. According to Food Secretary, Government stockpiles
will not be touched for export. The fact being India is in no position to export
wheat unless subsidised by about $70/mt
All buyers are calling for French/US
wheat at $200/mt fob ---with euro falling by 26% in last 52 weeks. Russian
rouble is down by more than 138%. Russian wheat could be below $190/mt in next
few months if temporarily imposed export tariff of $45/mt is abolished.
Trend
Export figures of “agro and
allied items” of January 2015 listed by Commerce Ministry are alarming with
minus realization. Assumption that lower realization is attributed to fall in
commodity prices may only be “partially” correct, because quantitative export
of wheat, sugar, corn, soymeal, cotton etc. are insignificant this year. Net
conclusion-- India is grossly out priced.
Save the rot
Indian domestic demand of corn
and soy is also amplifying which are also contributing to occasional disparity
in international prices. Their yield and land area must go up. Simultaneously Indian establishment must not
let hoarded wheat and rice rot in warehouses which are produced by expensive
but subsidised fertilizer, scarce water, precious power, tractors and diesel,
farm labour, amenable weather and above all utilization of valuable land, which
is the heart of current controversy of Land Acquisition Act. If the value of the grains/agro items are not
realised either through market prices or through corresponding subsidization to
attain marginal parity in markets abroad, authorities are just mismanaging the
entire economy.
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