Nothing in trade policy for farmers, exporters

TEJINDER NARANG | Updated on April 25, 2013

Higher incomes to rice growers due to trading initiatives have not been appreciated.   -  The Hindu

The prejudice against private grain exporters is unfounded.

The foreign trade policy (FTP) of 2013-14 has nothing to offer to farmers, though they are a major electoral bank for all political parties. “Farm to foreign” is often mentioned by Narendra Modi in his speeches — and he means “foreign business” for the farming community.

True, the scope and purpose of FTP policy is export or import. But exporters or traders act as an integral extension of farmers in expanding demand and consumption horizons for better value realisation.

At the very least, the FTP could have said that the Government will not undertake ad-hoc intervention in banning, or restricting export of items, amounting to an “indirect taxation” on the farmers. This would have sent a positive signal to farmers.

Farm exports, including marine, dairy, and meat products have risen to $37 billion in 2012-13, against an import of $17 billion. The contribution of Indian agro exporters has been commendable. Surpluses are profitably shipped out, and fiscal, current and trade deficits are curtailed to that extent.

An annual FTP is a mere ritual. The DGFT (Directorate General of Foreign Trade) and Customs duty notifications are issued a dime a dozen to manage supply and demand pressures. These moves are worse than price volatility and other threats to trade. Exporters would prefer a stable production, supply and trading environment to higher incentives.

Incorrect reporting

Political compulsions deter Governments, the world over, from disclosing the truth on surpluses and shortages of agro items. Declaration of higher production “estimates” means lower per unit value for farmers, while reports of demand expansion imply higher prices for consumers.

The net tonnage of edible grains stocks with the Food Corporation of India (FCI) can never be known because there is no such system in place, while huge quantities are stored in unhygienic conditions. China is known for state-sponsored secrecy on agro trade.

The US Department of Agriculture’s (USDA) demand-supply report of April 10, 2013, surprisingly discovered some additional corn stocks in China, of which perhaps even the Chinese were not aware. In March 2013, the USDA located 10 million tonnes of excess unused corn in its own backyard (in US itself) that destabilised the markets for a while.

The Egyptian Government, in a financial mess, continues to declare a high local wheat crop to defer imports, owing to poor hard currency availability.

Exporters as marketers

Under these circumstances, private exporters, trading houses and future traders ascertain the “price reality” and take long or short positions in international markets.

This leads to collecting stocks and investing in the produce from farmers through brokers and wholesalers, upgrading quality and offering quantity in exportable lots. This results in enhanced domestic competitiveness and reduced financial loss to farmers.

There are a host of issues that farmers cannot handle — such as accessing larger markets abroad, tariff and non-tariff barriers, shipping risks, and claims, counterclaims, litigation and politics of the world trade. They are preoccupied with crop yields and the attendant factors — uncertainty of weather and rising costs of inputs such as fertilisers, energy and pesticides.

The trading community is exposed to perils of the world market, where price volatility rages and payments can be jeopardised if logistics commitments are not complied with. However, traders have specialised product and market knowledge, including tools of hedging, which farmers are ignorant of.

Market sustainability

These very exporters have pushed Indian parboiled rice to Nigeria and South Africa — with benefit to producers of Andhra Pradesh (AP), Chhattisgarh; despatched an evolved variety of basmati rice 1121 to Iran from Punjab, Haryana; soya meal to Japan, Iran, EU from Madhya Pradesh (MP); rapeseed meal to China from Rajasthan, Gujarat; guar gum meal to US from Rajasthan; cotton to China, Vietnam, Pakistan, Bangladesh from Gujarat, Maharashtra; wheat to the geographical arch from South Korea to Yemen, from Uttar Pradesh, MP, Punjab; coffee to EU and Russia from AP, Kerala, Karnataka; spices to the US, the UK, the EU from South India; corn to the Far East from AP, Bihar, Karnataka. Yet, these very trading bodies bear the wrath of authorities by way of frequent revisions of well-defined policies, either to please entrenched lobbies or play to the political gallery.

Government not proactive

The perception that private trade is only a profit-making machine amounts to ignorance of the basic law of business. Profit and loss are two sides of a coin. Government agencies, constrained by audit and vigilance compulsions, have been ineffective in non-canalised trade because they cannot afford to show losses.

The FTP makes no mention of a proactive role for Government agencies.

Open-ended procurement of grains by Central agencies to the extent of 45 per cent of marketable surplus and 98 per cent of market arrivals has crowded out private trade, leaving the Government stuck with 95 million tonnes cereals by June 2013 — of which 55 million tonnes can be dealt with only by effectively engaging the exporting community.

Today, storage space is critically needed by all stakeholders of farm production to save the precious grains, fruits, vegetables and raw products from rotting. If Central and State Governments continue to wield the stick through de-stocking orders, or vitiate the trade through income-tax raids, India will remain starved of creation of quality storage capacity.

As India gets intimately linked to the world markets, the service rendered by the trade-exporters to the farmers needs to be acknowledged.

(The author is a grains trade analyst.)

Published on April 25, 2013

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