Price fall hits agri exports

Issues differ across commodities but a common theme of the trade is a lack of sustained govt support, besides a lack of timely response to feedback

The recent decline in price of agricultural commodities in both the domestic and international markets has disappointed Indian traders.

Prices of most agri commodities has seen a steady fall since December. Prices of maize and sugar have fallen 5.3 per cent and 5.7 per cent to close at Rs 1,227 and Rs 2,714 a quintal, respectively, in Delhi’s spot market. Sugar faces lack of policy support; bumper supply from Ameria hits India’s maize export potential.

“The recent downward price movement will be good for import-oriented commodities, such as edible oil where our dependency is 50-55 per cent. This will help to lower the cost of imports. However, in the case of exportables like guar or corn (maize) or even sugar, lower prices would mean lower returns in the international market. The fear is of crop migration; farmers should not migrate to other crops because prices are low this season,” said Madan Sabnavis, chief economist, CARE Ratings.

 

After a significant boost initially, prices of rice (both basmati and non-basmati) have fallen by three to four per cent in two months. M P Jindal, president of the All India Rice Exporters’ Association, attributed this to settlement of differences between America and Iran, one of India’s preferred basmati export destinations.

“The US, one of the world’s largest producers, might start supply to Iran, post negotiations. But, our basmati rice will continue to capture Iran’s share. We hope the rice price and exports rebound in March,” he said.

 

Shipment of basmati and non-basmati rice rose a marginal 0.75 per cent and 0.25 per cent to 2.7 million tonnes and 5.2 mt, respectively, in the first nine months of the current financial year.

The recent wheat price fall by a marginal 0.6 per cent to Rs 1,650 a quintal offered an opportunity to compete with global prices. But, frequent change in government policies and poor quality of wheat hit India’s export potential. The government sometimes allows wheat exports and after a few months, bans it. Competing countries like Pakistan, the US and Brazil do not have such frequent policy changes. Global buyers prefer long-term deals. Therefore, India does not get adequate orders. Also, India’s wheat is used preferably as cattle feed, due to poorer quality,” said Vimal Sethi, director of Pooja Trading Corporation, an Amritsar-based exporter.

More than price fall, the edible oil industry was hit severely because of an inverse duty structure which made import of refined oil cheaper than crude oil. In 2012, India had imported 1.6 mt of refined oil, with a 7.5 per cent duty difference. With a reduction in the duty differential to five per cent, the import of refined oil jumped to 2.4 mt in 2013.

“Despite a 2.5 per cent increase in import duty on refined oil to 10 per cent now, the price difference between imported crude and refined vegetable oil works out to $20 a tonne as against the refining cost of $40-50, making refining unviable in India. For survival of the industry, the government must raise the import duty on refined oil to 14.5 per cent,” said Vijay Data, president of the Solvent Extractors’ Association.

The sugar industry faces a surplus of four mt. The proposed government subsidy might help in better realisation from exports. According to Abinash Verma, director-general of the Indian Sugar Mills Association, “The industry has been waiting for assistance for two months. The window to produce and export raw sugar in this season will close in the next month. Therefore, the government should take prompt action.”