The Hindu Business Line : Has the Govt overstated oilseed production figures?

A perceived disconnect between high production on the one hand, and the availability and prices in the marketplace, on the other, is sending out confusing signals. The latter fail to reflect the official view of a massive surge in output.

In its second advance estimate released earlier this week, the Agriculture Ministry has placed kharif oilseeds at 166.9 lakh tonnes (lt). The first advance estimate, released by early October last year was 150.8 lt comprising mainly soyabean at 71 lt and groundnut at 59 lt.

The latest estimate is up by 16 lt with both soyabean and groundnut production pitched much higher than earlier estimates. Currently, soyabean output is placed at 76 lt (up 5 lt). Similarly, estimate for groundnut in the kharif season has been upped by about 8 lt.

Interestingly, trade estimate of Kharif oilseeds made in November at the Indore meet was 142 lt. Now, the difference between the Government and trade estimates is virtually unbridgeable at 25 lt. Whether trade estimate will be revised or not remains to be seen.

A steep hike in production figure announced by the Government has perplexed many in the industry and trade circles. Processors who continually purchase oilseeds and others tracking crop arrivals are not sure if the realities of the marketplace bear out the big output numbers.

For instance, soyabean prices have been ruling at high levels - upwards of Rs 12,500 at tonne since mid-October. Arrivals at the marketing yards have now slowed down although it is believed that at least a third of the crop is yet to be marketed. Farmers are said to be holding on to a part of the harvested produce hoping for even better prices.

It is possible to attribute high prices of soyabean in the domestic market to firm international prices and belief that the world market is unlikely to witness any downward movement in the coming months. Another explanation is the incidence of speculative inventory-building by some players in the market, hoping for a further rise in prices.

The story of groundnut is not much different. Despite a major rebound in production, the market has seen strong prices. Groundnut kernel and groundnut oil exports have helped supported prices and not allowed the rate to fall below Rs 15,000 a ton for in-shell.

While large increases in production of oilseeds and attractive crushing parities have ensured a significant expansion in production of indigenous oils, imports have been continuing too. From November 2003 to January 2004, over 9 lt of edible oils were imported, adding to the domestic availability.

Edible oil prices have however remained firm. Raw groundnut oil (ready) in the Mumbai wholesale market has been ruling at over Rs 500 per 10 kg trading lot for several weeks now.

Is a surge in domestic demand imparting firmness to prices? It may of course be argued that an excellent agricultural performance translates to higher rural incomes and higher consumption demand. But consumption growth through higher incomes would surely be tempered by high prices.

While the production estimate of two major oilseeds groundnut and soyabean appear somewhat exaggerated, it must be stated that the estimate for rapeseed/mustard at 58.8 lt is generally seen as reasonable. Until recently, guesstimates of output were in the region of 62-65 lt.

The apex body of the sector - Central Organisation for Oil Industry and Trade - recently estimated the 2003-04 oilseeds crop at 233 lt including the rabi component of 90.5 lt. The variation between the Government and trade estimates seems to be uncomfortably wide. Obviously, someone must own up responsibility for the correctness of crop data.

Discussions this correspondent had with a cross-section of the industry and trade showed many are sceptical about the revised crop output numbers released by the Agriculture Ministry. On his part, the Minister, Mr Rajnath Singh, is sanguine that oilseeds output this year could eventually be even higher than the second advance estimate and reach an all-time record of 255 lt.

Over the last few years, revision of crop estimates has become an intriguing exercise. The Agriculture Ministers and successive Governments want to show improved performance season after season. The easiest way to do this is to either overstate the current year's production or revise the output of the previous year down at the time of new crop estimation. Often, crop estimates of the previous year are conveniently scaled down so that current year's growth looks attractive.

One may have wait for a few months to get to know what the final estimate of the Government is for 2003-04 oilseeds production. The trade is bound to discount overstated Government estimates. Indeed, there has not been even a ripple in the market despite the Government releasing the high output estimate.

While the Government is in the election mode, a matured approach to the issue of crop estimation by the industry and trade bodies should bring some welcome relief.