Opinion

Just export some of that grain mountain

TEJINDER NARANG | Updated on March 12, 2018

The rural scheme has made exports uncompetitive.

When global prices are falling, it makes sense to export below MSP, rather than let the grain rot.

Export of four major agro items — rice, wheat, corn and soyameal or rapemeal — is expected to take a beating this year. It is estimated at 16 million tonnes (mt) in 2013-14, down 33 per cent from 24 mt in 2012-13. Export realisation may decline by 28 per cent to $7.85 billion (Rs 43000 crore) from $10.7 billion (Rs 58000 crore). Export of all these items is freely allowed, while FCI’s wheat is also shipped through three canalised agencies.

There are many reasons for this fall: Falling prices of Vietnamese rice, an anticipated upsurge in grain and oilseeds production in the Black Sea region and South America, and the unwillingness of the Government to align Food Corporation of India’s wheat with international prices. Indian soyameal prices are skewed upwards at a massive premium — $200 per tonne over Argentina — due to the “irrational exuberance” of Iranian demand. Farmers are holding back beans on account of hyper-speculation in the Indian exchanges, shutting out all “non-Iranian” exports.

Gold is not the only commodity hit by the price plunge. Intensified competition among various exporting origins will mean lower value realisation and lesser profitability for Indian exports.

WAGE-PRICE SPIRAL

Indian export competitiveness will be put to test, especially in a situation where MSP is always hiked. According to a recent research paper by the Commission of Agriculture Costs And Prices (CACP), farmers hold Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) responsible for a ‘push’ in farm wages by 17.5 per cent per annum on a nominal basis and 6.8 per cent in real terms. MGNREGA is responsible for overall scarcity/high labour cost during 2007-12, though it is another matter that Rs 2 lakh crore ($110 billion) has been doled out as wages for unseen “construction”.

CACP is compelled to recommend compensatory additional MSP each year, otherwise marginal farmers with one or two acre holdings may lose interest in cultivation. Higher wages and MSP lead to lower export competitiveness.

EXPORT SCENARIO

As for those who question why food should be exported, the simple answer is that it will meet the cost of 11 mt tonnes of edible oil import and 4 mt of pulses import, amounting to $13 billion or Rs 71,000 crore. This will ease CAD pressures, strengthen the rupee and minimise inflation.

Rice: The estimate of rice exports for the current year is 6 mt (three million tonnes each for basmati and non-basmati), a fall from last year’s achievement of 10 mt, which made it the largest exporter from the open market. Indian 5 per cent white rice, at $ 430-440 f.o.b, is unviable for African demand of 4 million tonnes, as Vietnam offers at $385 f.o.b. Thailand with its overflowing Government inventory of 17 mt can burst any time and that may further restrict India’s parboiled rice shipments. Pakistan, Myanmar and Cambodia are other cheaper competitors.

Wheat: FCI’s customised export price of $300 f.o.b is unworkable through central public sector undertakings (CPSUs). FCI’s policy to sell 2011-12 crop, ex-Punjab/Haryana, at Rs 14,840/tonne is $30 above the world’s value. Ukraine is offering 0.5 mt wheat at $250 f.o.b for old crop (May-June shipment), thwarting Indian possibilities.

After shipping 5 mt in 2012-13 (3 mt by CPSUs and 2 mt by privates), exports are crawling. The lull in CPSU’s tender business is visible. Not more than 3 mt shipments are foreseen this year, unless Government sets the FCI price at “default mode”, with Black sea values being quoted at around $250-$260 for the new crop of July 2013. If this is done soon, export of 8-10 mmt can be achieved.

Corn: Maize export of 4 mt in 2012-13 may be down to 3 mt as world prices continue to decline with larger harvests in US, Brazil, Argentina, Ukraine. Indian quotes of Bihar crop are at $255-$260 fob Kakinada. The advantage of $10/tonne between the Indian and South American crop will vanish soon and Indian traders will seek procurement below MSP from Bihar, Andhra, Karnataka. This may be difficult because FCI or some state agency may step in with procurement at MSP, bringing exports to halt, and one mt saddled with the Government.

Soyameal: Soyameal (SBM) prices are Iran-centric. Iran purchased 0.9 mt vs. 0.25 mt last year (up by 285 per cent) under rupee payment through UCO Bank. Though Argentina SBM is at $470 fob, India sold at $630 fob to Iran and now “quotes” are at $670. Money has been made and lost with payments delayed, deducted and defaulted by Iranian buyers. Bean prices at NCDEX have spiked from Rs 31,000 to Rs 41,000/tonne between December 2012 and April 2013, while MSP is Rs 22,400/tonne. About 2.5 mt of beans are estimated to be held back by farmers speculating that prices will touch Rs.50,000/tonne in July-August 2013 –a repeat of the previous year.

Since US sanctions are not applicable to food categories, Iran has now shifted to sourcing from South America. This may suddenly drag Indian prices down, while traditional markets-- Vietnam, Thailand, Indonesia and Japan -- would have covered their requirements from Argentina and Brazil. Overall, meal exports would suffer with reduced shipments to non-Iranian destinations.

MNREGA cannot be shifted from “construction” wages to “farm” wages this year — as wisely recommended by CACP. The Food Security Bill is uncertain. Monsoons are forecast to be normal in 2013-14 but CACP will again suggest a hike in MSP of paddy by about 5-10 per cent to offset the MNREGA effect. An estimated 40-45 per cent of rice production will be cornered by FCI—though its inventories are overflowing. Lack of competitiveness will limit rice exports, due to reduced surpluses in the market.

There can be no dithering on any decision to release FCI wheat for exports, calibrated to Black Sea values, to curb carrying costs of $50/tonne per annum. State procurement of corn may be avoided as unhygienic storage rapidly impairs its edibility through fungus (aflatoxins). Exporting below maize’s MSP will still be preferable.

Hyper speculations in exchanges may be checked to bring order to control bean prices.

(The author is a grains trade analyst.)

Published on May 02, 2013

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