Flip-flops on agri-exports leave shippers stranded

SANTANU SANYAL, THE HINDU BUSINESS LINE
June 17, 2012:
With iron ore exports being in a shambles and coal imports holding out not-too-promising prospects in the wake of the declining value of the rupee vis-à-vis the dollar, a section of dry bulker owners was wondering if it should be prudent to concentrate more on transport of agricultural commodities out of India, the country being one of the largest producers of both food and non-food farm products. But the flip-flop in government policies in the past has been a matter of concern to them. After all, shipping needs certainties.

A few months ago, the Union Government had announced a ban on cotton exports, evoking sharp reactions from farmers and others who opposed it tooth and nail. The protest snowballed into a big agitation, so much so that the party in power feared loss of electoral allegiance, prompting the government to lift the ban within 120 hours or so.

FINGERS CROSSED

The shipping industry was worried over the ban which, it was feared, would entail loss of business as exports to China would become uncertain. China is the largest buyer of the Indian fibre. The shipping lines were all the more worried, because in case the ban persisted forcing China to develop alternative supply sources, Indian cotton would experience a shift from boom to bust, the prices would start fluctuating, and with it the demand for shipping space. All this would frustrate any attempt to create a stable shipping capacity, at least for the medium term. With the lifting of the ban, China continued to purchase Indian cotton, bringing relief to shipping lines. But the lines, being not so sure about stability of the government policy, are keeping their fingers crossed.

In July last year, the Government announced lifting of a four-year ban on wheat exports, but only after it noticed that the wheat from other countries, particularly Russia, Australia and Canada, had already made considerable inroads into what had been India’s traditional wheat markets. The Government protected the domestic supply, but lost export markets and the shipping lines lost a large chunk of business.

GLOBAL SUGAR GLUT

Let us now turn to sugar. Faced with a bumper production, an estimated 26 million tonnes in the current year against the projected demand of 22 million tonnes, the Government removed quantitative restriction on sugar exports suggesting that any amount in excess of three million tonnes, as agreed earlier, could be exported. Yet the shipping lines are not jubilant. True, the weakening of the rupee vis-à-vis the dollar has rendered Indian sugar cheap in the world market, but this apparent easing of prices need not necessarily lead to a quantum jump in exports. For several reasons.

First, there is a glut in sugar worldwide, the excess production being estimated at more than nine million tones as compared with the earlier projection of eight million tonnes or so. Which means pushing sugar in the world market in such a situation may not be easy. Next, more important, the Government has indicated that the easing is for now and the restriction could be reinstated if the domestic supplies are threatened. There is an indication that the restriction could be re-imposed once the export reaches a certain level. The decision followed a series of flip-flops and delays, keeping the market on the edge. The Government took a similar line on wheat and rice exports late last year, removing restrictions but tacitly indicating a limit if the situation so warranted. The shipping industry would like to see India as a reliable supplier of agri-commodities in the world market. This calls for stability in government policies and predictability — a tall expectation given the kind of governance prevailing at present at the national level.

A section of ship owners is of the view that the current uncertainties with regard to exports of wheat, sugar and cotton could be eliminated, if not wholly, at least partially, if India, with a weak rupee, enters into bilateral trade agreements with countries in West Asia, Africa and the SAARC. Such agreements will guarantee assured shipments and therefore business for shipping companies. Earlier, there were such agreements with several countries.

But then it is also true that the shipment of agri-commodities is not just about availability of shipping space or freight. There are many other critical factors such as mode of transport, port facilities, connectivity, service contracts, contract negotiation, health hazards, safety issues, labour, congestion, the global scenario … the list is long. For example, in India the high cost of procurement and transport to ports would often render the free-on-board price of our agri-exports uncompetitive in the world market.