STATES DISTORTING MAIZE MARKET--- FINANCIAL EXPRESS 6TH NOV 2014

STATES DISTORTING MAIZE MARKET

http://epaper.financialexpress.com/c/3775153

FINANCIAL EXPRESS 6TH NOV 2014

STATES DISTORTING MAIZE MARKET BY MSP BASED INTERVENTION AND INCURRING HUGE LOSSES.

Maize imports a possibility despite surplus local availability 

Tejinder Narang

At a time when Food Ministry  is attempting  lesser procurement of grains; liquidating excess stocks of FCI/Central pool; reviewing food policies at macro level to restructure FCI, some state governments( Karnataka, Andhra Pradesh, Maharashtra and Madhya Pradesh) are doing exactly the opposite. Though FCI has stayed from any MSP (minimum support price) based procurement in maize, these state governments have undertaken intervention operation at their own initiative. In addition to incurring huge loss by trading in maize, they are destabilising both exports and domestic market.

In 2013-14 (October13 to September14), above mentioned states purchased approximately 1.18 million tons of “food grade” maize at MSP of Rs 13100 pmt to support sagging market values of  Rs 10000-11000 pmt. MSP of maize is decided nominally and state governments are under no compulsion to intervene arbitrarily without assessing macroeconomic environment and market trends.  Their claim for this discretion is that this benefits farmers.  When maize values are plunging to bottom domestically and internationally with little hope of upward trend, socialism of price policies is an anachronism devoid of accountability.

During last 4 years Indian corn output has moved up from 18-19 million tons to about 23 million tons. This has enabled India’s export to Far-East and Africa of about 3-4 million tons per annum but in 2014-15, it may drop by 50%.  Indian maize currently quoted  at $200 “fob” pmt (Rs 12200) has no takers while MSP (Rs `13100/mt) based costing would be $250 “fob”. Under current scenario Argentina corn is priced at $210 delivered (cif) in Asia. Indian grain can be traded at $190 “cif” in Asia ($20 discount to Argentina) or $165 fob or about Rs 10000 pmt delivered at port.  If state governments continue to artificially push prices up, export demand will diminish and drag local prices further down.  That may affect sowing in Rabi crop of corn produced in Bihar.

Farmers are not poor

Let it be understood that Indian farmers are not as poor as deemed in 1966-67 when MSP policy prescription was initiated.  Farmers are growing 2-4 crops in a year including oilseeds/pulses/vegetables. Thus they are not dependent solely on one season’s earnings. Rice and wheat take about 120days each for maturity; pulses 60-75 days; sugarcane can grow for three consecutive years without fresh plantings.  Latest technologies of seeds, hybrid varieties, Bt cotton etc and inputs—water, power, irrigation, fertilizers, pesticides are provided at subsidized rates-- have enhanced yields per Hectare. Higher output at even lower prices is also remunerative.

Since 2002, India has become the world's largest manufacturer of tractors with 29% of world's output in 2013. It is also the world's largest tractor market (Global Tractors Market Analysis 17/02/2014 http://goo.gl/c8L7cE). Acquisition/ usage of tractors can be exploited by producers with reasonable income.   Farmers are also owners of the land—an asset class, with tax free earnings. India has graduated from poor country to Emerging economy. Poverty-mania for farmers is not valid any more.  Disparity in incomes in all sections of society exists any way.   

No.	Item	Rs./mt	Rs crore( for 1.18 mill tons)
1	MSP Corn (2013-14)	13100	1546
2	Purchase (incl. tax/bags/fin)	16000	1888
3	Sale Realization	11000	1298
4	Anticipated loss (2-3)		590

Visible losses

A back of the envelope calculation reveals that state governments spent about Rs 16/kg( including taxes, bags, financing) against MSP of Rs 13.10/kg while average price realization by disposal of part tonnage of 0.5 million tons is Rs 10-11/kg. Almost 0.6 million tons remain unsold as of 1st October whose quality may be doubtful and may be sold at lower prices. Total loss may range between Rs 550-600 crores or 30% of acquisition costs. Unconfirmed reports of Madhya Pradesh having sold entire 85000mt at Rs1/kg under some subsidy scheme to poor are also circulating amongst traders.  

There is a possibility of round tripping of the corn bought at Rs 10-11/kg and sold back to these very states at Rs 13.10/kg in this season (2014-15). These state governments procure “Food grade” maize but poor handling and storage transforms it to “feed grade” where realization is bound to drop dramatically.  It is well acknowledged that 50-60% of Indian maize is used for cattle feed (for livestock) with higher levels of foreign matter and allowance for fungus. All exports are also of feed variety. Buying as food grade and selling at feed grade prices is another contradiction in interventionist policy.

The very idea of attaining higher production is to minimize per unit cost of any commodity.  Benefits of elevated output are annulled, if blind intervention is applied at MSP.    Had government stayed away, the possibility of export could have improved and the industrial/ feed use grain consumption would have been at the market price.

Maize needs no MSP

 The very concept of continuation of MSP prescription in preference to the market based price discovery in current context of rising agri-output and trade getting integrated with world markets is debatable.  In any case, Maize/coarse grains with predominant feed application should any way be excluded out of MSP policy because this intensive starchy item which readily sucks moisture (and rapidly promotes fungus) cannot be handled by FCI/state agencies in appropriate quality format.

DGFT notification of 29^th September 2014 has “freely” allowed import of Maize. Landed (cif ) import price of Non -GMO corn from Russia/Ukraine in India will not exceed $200/mt or Rs 12200/mt against Rs 13100/mt ($215). Probability of international values dipping down in coming months is not ruled out. The pressure to import will escalate. There would be a dilemma to regulate imports by ad-hoc custom duty. The best alternative is to shun intervention and let local market discover its own prices on arm’s length basis.

MACRO-GOD AND MICRO-GOD

MACRO-GOD AND MICRO-GOD

Tejinder Narang

God is deemed to be self born and self sustaining. This remains a mystified mystery because in our understanding energy can be produced by energy only.  This concept of God can be somewhat captured by witnessing working of His creation. Look at the palentary cosmos and five elements of nature. They too appear to be self sustaining. They are provider of energy for all living beings, food, electricity, wood steel etc.. The power of these by- products  gives us life though we tend to unconsciously believe that we are living of our own free will. This understanding is absolutely errorenous.

For explaining God and its connectivity with creation, mystics find numerous ways and jargons. Mirdad says that there is “Macro-God”. His “creation” is termed Micro-God which is Time and Space encapsulation of the Macro. Kabir descripts Macro-Micro relationship as of  Ocean and the drop for Parmtama and Atma.

Scientist confirm that “God particle” as some sort of soul  is  diffused in formless gas, concentrated in liquid which when evolutes acquires form and fixity in mineral. In vegetables God acquires capacity to grow, multiply and feel. In animals additional properties of movement, memory and rudimentary thoughts are inherited. In man he inherits personality, ability to contemplate, express, to create and liberate. All that is said above has evolved in time and space as per the programme set by Macro-God.

Time means change. Space implies matter or which is made of matter to which the being deems as the Reality. Growth in spirituality needs getting out of the dome of Time and Space. Says Mirdad , “the ultimate growth is the outgrowing of space ; outstripping of time; getting freedom from bonds of Time and space—which is the only freedom worth the name for the soul.  

FIX THE MYANMAR RICE IMPORT TENDER-FINANCIAL EXPRESS 30TH OCTOBER 2014

FIX THE MYANMAR RICE IMPORT TENDER-FINANCIAL EXPRESS 30TH OCTOBER 2014


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http://epaper.financialexpress.com/c/3730433

RICE IMPORT TENDER COMMERCIALLY FLAWED.

Pre-estimation of costing is pre-requisite for integrity in evaluation

Tejinder Narang

Two tenders of import of non-basmati rice (25% broken variety) from Myanmar for 10000metric tons each for north-eastern states of Manipur and Mizoram opened on 9^th October 2014 by STC/MMTC (PSUs) on behalf of FCI, have flopped; only one bidder quoted for both PSUs respectively at Euro 588($753) pmt and Euro 680($871)pmt equivalent to Rs 47pkg to Rs 54pkg delivered at FCI depots in the interior of these two states. Myanmar 25% broken rice variety is traded internationally at $360 pmt fob or Rs 22pkg, while open mkt price at Guwahati and Kolkata are Rs 23 and Rs25 pkg respectively (see chart). MNCs or rice traders of Singapore, Thailand and Dubai who are adept in dealing with Myanmar abstained participation.

FCI has been supplying rice to these states at Rs32 pkg or $516 pmt through rail route which is now under renovation. Annual requirement for these two states is 500000 metric tons.  Non- availability of rail route for about two years compels such imports that may be around one million tons.

Bids opened on 9^th October 2014 suggest exorbitant expenses for Indian inland handling of about $400 to $500pmt (Rs25-32pkg) or 110% to 140% of purchase price. Perhaps airfreighting would be much cheaper. Even shipment of rice from Far-East to Nigeria (West Africa) has freight of $60-65/mt or about 13-14% with distance of 10000 nautical miles and 45-50 days sailing period. . That is why this single bid with wild margins stands rejected by the government.

Flawed tendering

Undoubtedly logistics-bad roads, poor trucking facilities, warehousing and local insurgency— in these states are nightmarish.   But non- responsiveness and over escalated bid can be directly attributed to terribly flawed terms of tenders. In bid documents, price quotation for dual prices could have been called for—one for delivery at the Indo-Myanmar border and second for offloading at the FCI depots.  This one condition would have led to significant participation in tender as many foreign suppliers may have preferred quoting for deliveries at the border. This could have also formally led to separate price discovery both for Myanmar side and Indian part.     

Normally delivery of imported cargo is taken by the importer at the custom frontiers (or at ports for sea shipments), but PSUs opted for supply at FCI’s depots in Mizoram and Manipur. It implied that in addition to rice procurement from Myanmar, entire cost/financing and operational risk/shortages in troubled regions also devolved upon foreign seller. 100% payment was linked to “Certificate of Weight and Quality issued by nominated Inspection Agency at designated FCI godown” in the interior.  No trader in his right senses will take this type of open exposure for North Eastern states.

Generally accepted norm of payment of 90% upon shipment and balance 10% on receipt at destination was shunned because PSUs/FCI may not have done any “formal” logistical price recce.   A competent agency/surveyor could have been hired for pre- estimation of handling expenses and transit shortages.     STC/MMTC/FCI just confined their role only for paper work of issuing, finalization of bids and effecting payments.  There is no comparative barometer or criteria for assessment of bids. 

Bid documents prescribed FCI’s specifications of rice, while there are some deviations in Ematta rice available from Myanmar. (Chart above). If Indian side insists on FCI specs, then either the performance may be expensive or manipulated and that too with limited participation. Government has to take view on relaxation on these technical parameters.

Implications of G to G deal

A report of 15^th October appearing in Myanmar (http://goo.gl/RfFHqS) states that Indian Embassy [in Yangon] announced tender for rice imports recently and received two very expensive offers.  The Embassy has now approached Myanmar Rice Federation (MRF) with some counter offer at half the price, around $400/mt, for delivery at the Indian border.

MRF is not a corporate body. They may recommend some of their members to participate in bidding. Past experience for the import of pulses from Myanmar suggests that traders /millers prefer advance payment. They are not comfortable dealing with LC related transactions. If any G to G deal is envisaged through Embassy, advance payment route may be dismissed forthwith. Any price volatility can create dispute and advance payment may be jeopardised.    

The way forward  

This import is now being retendered by STC/MMTC.  FCI/PSUs need to do homework by having a logical pre tender recce of all activities and costs for factual evaluation of prospective bidding. For ensuring transparency, equity and integrity of transaction, PSUs/FCI may issue a short-notice local tender asking bids from Indian traders for delivery of Indian rice procured from open market at designated depots in Manipur/Mizoram by using “any” mode of transport and “any route”.  

Price received against this domestic bidding can be yard stick for deciding whether rice is required to be imported or local arrangements may suffice or may be supplemented. If there is nil response from the local traders or they bid well above Myanmar offers, imports at elevated prices can be appropriately justified. Otherwise essentiality of import may be revisited.  In the event of import, PSUs will have to fine tune specification, payment terms, delivery at the border, agreements with truckers and handling agents and safeguards for pilferages.