Drought no reason to ban food export

Below-normal rainfall in India this year is not an isolated phenomenon. The drought in the US has been unprecedented. Parts of the former Soviet Union, specifically, Russia, Ukraine and Kazakhstan, are hit by a severe dry spell. About 100 million tonnes (mt) of corn, wheat and soyabean have been virtually written off.

El-Nino is projected to cause dry weather in Australia/Argentina in the coming months. Except rice, prices of agro commodities overseas have risen abnormally, even as their softening was anticipated due to harvest pressure in July-August.

India still carries excess grain and sugar, while the shortfall in pulses and edible oils is pronounced. What, then, is the emerging scenario? States hit by poor precipitation are Punjab, Haryana, western Uttar Pradesh, Rajasthan, Gujarat, Maharashtra and Karnataka. Andhra Pradesh is 95 per cent irrigated; the North-West States of Punjab and Haryana have 99 per cent irrigation and Uttar Pradesh has 75 per cent local water resources as “predominant ecologies”.

RICE OUTLOOK

In the case of rice, stocks of non-basmati in the central pool will be around 33 mt, against buffer norms of 7.2 mt on October 1, 2012. With 16 per cent higher MSP for paddy encouraging more sowing, kharif (summer) paddy output may touch 87-88 mt of milled rice by October-November 2012. Rain has been normal in Andhra Pradesh, Chhattisgarh, Orissa, and eastern Uttar Pradesh.

The monsoon shortfall in Punjab, Haryana and western Uttar Pradesh can be compensated through enhanced tubewell irrigation. Additional paddy output amounting to about 14 mt of rice primarily would come from the rabi (winter) crop of Andhra Pradesh, which is expected to be normal. India can, therefore, produce 100 mt of rice, against 104 mt last year. A total availability of 133 mt of rice (including 33 mt carry-in), against consumption of 95 mt (including six to seven mt of basmati and non-basmati exports) should not be a cause for concern.

Despite occasional stressful periods in the last 20 years, India has never imported rice, but, in fact, has been a consistent exporter from 1990-2008. With resumption of exports in September 2011, 5 mt of non-basmati rice from private stocks have been exported, including 3 mt of par boiled rice that has limited demand in the country. Government inventories remain untouched. Exports are inflation-neutral, because of extensive subsidisation in the local market at Rs 6/kg for APL and Rs 4/kg for BPL families.

WHEAT PROSPECTS

Wheat is a rabi (winter) crop and cannot be downgraded now. Pooled stocks, most of it unscientifically inventoried, are estimated at 46 mt, against buffer norms of 14 mt, as on October 1, 2012. Deferred rain, if any, will improve the prospect of wheat output.

Soil moisture improves in winter, and occasional winter rain supports increased yields. Since 2005-06, wheat production has seen a dramatic upswing, from 68 mt to 93 mt in 2012-13. When higher MSP for wheat is notified for 2013-14, output below 93 mt (as in 2012-13) would be ruled out. Apart from Punjab, Haryana and Uttar Pradesh other States — Madhya Pradesh, Bihar, Rajasthan, Gujarat and Uttar Pradesh — will intensify cropping, due to bonuses given to producers by State Governments.

India’s availability is 113 mt of wheat (93 mt production plus 20 mt stocks as of April 1, 2012) against consumption of 88 mt (including possible exports of 6 mt).

The time is ripe to realise optimal values. Wheat stocks as of April 1, 2013 will be 25 mt. International prices have spiked by $120/tonne in the last one month with upside buoyancy. Exports can be undertaken from the central pool at around $300/tonne fob, with a net realisation of $275 (after deducting port handling charges of $25/tonne) or even more, while the OMSS (open Market Sale Price) price is Rs 11,700/tonne ($208).

Though Indian PSUs are rapidly issuing multiple tenders, the process is slow and cumbersome. The private sector needs to be involved for exports from the central pool. Simultaneously, more Central wheat stocks may be injected in the open market to depress inflationary pressures, once PDS demand is satiated.

SUGAR SITUATION

Sugar output in 2011-12 is estimated at 26 mt, with a carry-in stock of 6 mt. With consumption of 23 mt plus export of 3 mt by September, this would equal end stocks of 6 mt on October 1, 2012. Even after scaling down 2012-13 output to 24 mt due to poor rain, India will still have 30 mt — enough to meet consumption needs.

The root cause of “sugar inflation” is SAP (State Advisory Price). The Union Government is helpless here. In the event of any abnormal “sugar inflation”, the policymakers can enlarge market releases to depress price, rather than restrict exports. The government would be helping Brazil, Thailand and Pakistan to profit at the cost of its own industry if export barriers are imposed.

PULSES, OILSEEDS IMPORT

Corn production in Karnataka will be affected, but Andhra Pradesh’s output stays unaltered. Any shortfall in kharif (summer) corn may be replenished by the rabi (winter) crop of Bihar. Overall output may be 21 mt against last year’s 22 mt, with 0.5 million carry-in.

Consumption by feed and food/seed/industry will be 19 mt, leaving 2.5 mt for exports. Any increase in domestic feed prices can be compensated by releasing feed wheat from the FCI central pool. Meanwhile, world corn prices are likely to rule firm, unless there is a dip in ethanol output in the US. Value realisation from Indian exports will, hence, be generous.

In the case of oilseeds and edible oil, imports of 9-10 million tonnes (against 8 million last year) are imminent, and at steep prices, due to world’s soyabean values having doubled over last year. This might cost $10 billion in 2012-13, against $7 billion last year. Ever-increasing MSP of paddy and wheat with guaranteed procurement by the States deters more sowing of pulses and oilseeds. Poor precipitation in Rajasthan, Maharashtra, Gujarat and Karnataka in summer has aggravated the problem.

Some comfort can, however, be derived from higher dollar realisation of 6 million tonnes of soy/ rape meal exports ($2.5-3billion) by India. Hence, it makes sense to take advantage of rising values of rice, wheat, corn, sugar, oil meals for exports where India enjoys more than adequate availability. These higher values can be used to meet the shortfall in pulses and edible oils through imports. Export restrictions or bans are no solution when surpluses are rotting.

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