Financial Daily from THE HINDU group of publications
Wednesday, Sep 22, 2004
Agri-Biz & Commodities
Industry & Economy - Exports & Imports
Lobbies at work to get customs duty on maize import cut
Mumbai , Sept. 21
SOMETHING strangely common between two apparently unrelated events in two different parts of the country last week provides an interesting insight into the minds of those in agri-commodity business.
A report on the proceedings at the Indo-US Economic Summit in Mumbai (see Business Line, September 17) quoted US officials as saying India should open up its markets so that bilateral trade between the two countries would be in a state of balance.
In the current fiscal, India's trade surplus with the US is likely to top $10 billion, with India's imports from the US languishing at about $4 billion.
Amongst the list of "must-do" measures, the US officials have demanded deregulation of agribusiness, suggesting that trade balance could be achieved if India removed all restrictions on imports. For India, currently, as there are no quantitative restrictions on imports, the only instrument to regulate imports is the tariff.
On the same day, in far-away Hyderabad, the poultry feed manufacturers in their annual meeting discussed the need to lobby the Government for a reduction in the "high rate of customs duty" on import of poultry feed ingredients such as maize (corn).
Reference was also made to high prices of feed ingredients such as maize and soyabean and limited availability of coarse grains such as sorghum or broken rice.
The interesting point to note is the common refrain or theme in the two events - that India must allow greater market access for US corn. Both US trade officials and Indian consumers were on the same theme on the same day but in two different places.
Lobbies at work: Attempts to get the customs duty on imported corn reduced have been going on for a long time, but without success. Maize imports are under open general license subject to Customs duty of 65 per cent. However, a tariff rate quota of 5 lakh tonnes per annum has been provided at a concessional duty of 15 per cent.
That the US in its capacity as the world's largest producer and exporter of corn is eying the burgeoning Indian market is no surprise. It is only natural that the US will exert sustained pressure or use every available forum to persuade India to open its borders to US corn.
However, there are serious concerns on two counts in allowing unrestricted market access - one is the level of farm subsidy in the US and the other, threat of inflow of genetically-modified (GM) corn into India.
GM corn: At present, import of GM products is strictly regulated and subject to permission from the Government. On the other hand, a significant part of corn produced in the US is GM; and the country does not follow labelling system. Also, the cost of identity preservation is prohibitive.
The question is whether any official agency in the US would certify the status (GM or non-GM) of corn intended for export. It is India's prerogative whether or not to allow GM-corn imports. Worse, India admittedly does not have sufficient testing capability to ascertain genetic modification.
Subsidy: High level of support to production of a number of agricultural crops and export of farm goods including corn provided by the US Government is widely believed to distort world markets and depress prices. The issue of farm support has been the main topic of discussion in various meetings of World Trade Organisation, but with little progress to show.
Large-scale import of low priced, highly subsidised, genetically modified corn into India can potentially play havoc with our fragile foodgrains economy. Current domestic market conditions - in terms of production and prices - do not warrant any drastic change in the tariff structure.
Indeed, India may be entitled to impose an "anti-subsidy" duty on US corn imports, should a need arise.
Look at the Indian side. India had imported maize in 2000 and 2001 due to shortages and high local prices. Imports were allowed under actual user condition for consumption in the livestock industry as animal feed. It is however common knowledge that a sizeable part of import was diverted for human consumption.
Business Line had then raised the issue of GM corn inflows and diversion of imports for food purposes. Obviously, discipline in the feed industry and import trade is suspect.
The other point relates to indigenous production and prices of maize.
Domestic maize production has been rising in recent years thanks to efforts by various agencies, including the Technology Mission. Maize cultivation, like that of other coarse cereal crops, continues to face several challenges.
Contrary to the stand of the feed makers, one of the major grievances of maize growers is low price realisation. The market tends to crash at the time of harvest. It is unclear why poultry feed manufacturers do not purchase their requirement when price tend to dip and build inventory for the rest of the year.
Clearly, it is no part of Government's responsibility to provide raw material to the poultry feed manufacturers. The industry is not justified in demanding the easy option of imports. Feed makers can attempt to produce their own raw material by establishing backward linkages.
Maize provides an excellent opportunity for contract farming. It only requires a little bit of commitment and patience on the part of the industry before it can start producing maize tailor-made to its requirement, in quality and quantity.
The policymakers should not succumb to lobby pressure - neither from the US nor from domestic poultry feed makers. The present tariff rates provide adequate protection to growers here. As the demand for maize is rising rapidly for food, feed and industrial consumption, efforts to further strengthen the domestic maize economy, including infusion of investment, are necessary.
State Governments have to take non-trade initiatives such as delivering advice on agronomy, input supplies and building rural infrastructure.
The industry must work with the Government in public-private partnership; and not become mouthpiece of overseas export interests.
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