Caution, the hallmark in foodgrain exports

Kunal Bose / Apr 10, 2012,
Business Standard
New Delhi cannot be faulted for exercising utmost caution while permitting export of foodgrain and a sensitive commodity like sugar. The same discretion is exercised while extending the ban on exports of pulses, in which demand is perennially ahead of supply. The government does not mind any criticism for the time it will take to arrive at an export decision. For its priority is to ensure food for a population of 1.2 billion. Ideally, at any point it would like to have wheat and rice in FCI and state-owned godowns well in excess of 'minimum buffer norms' and comfortable stock of sugar in factory warehouses. All this is more in the nature of an insurance against setback in farm production in a difficult monsoon year.

The Economic Survey 2011-12 admits that “Indian agriculture is still dependent on the monsoon. The dependency of Indian famer on the monsoon has to be reduced largely by increasing irrigation facilities.” It is not a day too early that finance minister Pranab Mukherjee gave a call to recognise water as a resource. If this is not done now, “the day is not far,” as he says, “when water stress will start threatening our agricultural production.”

The country's supply side vulnerability in farm items became acutely evident in 2009-10, when a drought brought foodgrains production down by 16.3 million tonnes (mt) to 218.1 mt. The consequences were disastrous for food prices. Similarly, we had a particularly bad sugar season (October to September) in 2008-09, with production at 14.54 mt, requiring us to import 2.4 mt. Sugar output improved to 18.91 mt in 2009-10, but since the season opened with lean stocks, imports jumped to 4.08 mt.

With the weather ideal in the two following seasons, including the current one, we now have bumper sugar production back to back.

Mounting stocks put pressure on local prices and consigned the industry to the red. This makes it difficult for sugar factories to clear cane bills in time. To ease pressure, the government has allowed export. But in a singular demonstration of caution, New Delhi, refusing to be moved by industry impatience, is allowing exports in tranches. From the early part of this season, it came to be widely believed that Indian sugar production would climb to around 26 mt from 24.4 mt in 2010-11. Naturally, the industry started telling the government of an export opportunity of up to four mt. So far, three mt of exports have been sanctioned, in three equal tranches. But, why are exports so far behind the sanctioned volume this season?

The policy as of now is the exportable quantity is distributed among all producing mills on the basis of the previous three years’ production. The immediate past president of Indian Sugar Mills Association Narendra Murkumbi, said the dispensation “benefited all sugar mills." Not that every factory is participating in exports. The ones away from the shores will sell their quota at a premium to the few exporting units.

The merit of the policy lies in distributing the benefits arising from exports equitably among all industry constituents. But reports are now surfacing of moves to replace the present practice promoting equity, specially when the industry is faring badly as evident from nearly Rs 10,000 crore of unpaid cane bills, by quota distribution on a first come first serve basis. Will not the industry stand divided if such reports prove to be correct?

While the government is to take a decision on any further export allotment for sugar, the country never had it so good to allow export sales of wheat. Production of the cereal this season (July to June), aided by a pest-free long winter, is set to cross a record 90 mt. This is happening on the back of last year’s bumper harvest of 86.87 mt. Bountiful wheat supply will lead the government to revise upwards 2011-12 foodgrain production in the third advance estimate.

The context is ideal for exports. Unfortunately, by the time the four-year old export ban was withdrawn in September 2011, high world wheat prices had passed by. At this point, Indian wheat is globally uncompetitive and export prospects could improve only if global prices make a strong recovery. The US Department of Agriculture (USDA) says Indian wheat prices staying uncompetitive will restrict our exports to 700,000 tonnes in the current marketing year. In case there is “parity” in Indian and world prices in the next season, exports could more than double to 1.5 mt in 2012-13, according to USDA.

The export scene could get even better in case our traders make bold to start exporting wheat to Iran on the basis of new payment mechanism.

Hemmed in by sanctions and poor crop, Iran has indicated import requirements of three mt to Indian officials. Meantime, Turkey has started looking beyond traditional wheat suppliers to import grain from India to be able to make larger quantities of pasta for exports. As wheat prices in our case remain an export deterrent, the immediate challenge is to store grains safely for future use in wholesome condition. In this context, particularly welcome is private entrepreneur’s guarantee scheme under which nearly 15 mt of storage capacity is being created.