 "Price signals, market supplies cloud farm production estimates")
India’s agriculture production estimate has come into question in the last few months as market arrivals and state purchases haven’t matched the projections, raising questions over them.
It started off with pulses last year, then was followed by wheat in 2015-16 and now has clouded the last production estimates for oilseeds and soybean.
Most traders would acknowledge that production of pulses crop at 16.47 million tonnes in 2015-16 was much less as compared to the initial projections, which made their import plans go awry and lead to sharp increase in rates.
By the time the Centre realised this, the international markets had already moved up and the traders had hoarded much of the already small crop, leading to sharp escalation in domestic rates.
In wheat too, as late as till last week, the Centre expected the 2015-16 crop to be around 93.50 million tonnes, around 7 million tonnes more than the previous year.
After two back-to-back droughts that impacted over 30 per cent of the country’s geographical area, it was unthinkable that wheat production would be better than the previous year. But, the government kept insisting on the production numbers despite market arrivals and Food Corporation of India (FCI) procurement showing a sharp decline.
While traders and industry players estimated the crop size to be around 84-85 million tonnes, or at best at around 90 million tonnes, the Centre refused to lower its estimates. FCI’s own procurement of wheat dipped to around 23 million tonnes, almost 5 million tonnes less than the target.
The bumper harvest was simply not reflecting in the market arrivals and also purchases.
In fact, as a senior official remarked, in parts of Madhya Pradesh, which off late has emerged as a major player in the domestic wheat markets, acres of fields in Bundelkhand region had dried up due to sudden rise in temperatures and sharp drop in groundwater levels, which the authorities didn’t anticipate.
Further, flour rates started rising sharply in the domestic market. In the last two-three months, wheat flour prices have started rising in most parts of the country as the supplies dried. The flour millers, who usually relied on government’s excess stocks from September onwards, simply returned empty handed as the Centre lowered its open market offerings as stocks dwindled.
In fact, according to estimates, the Centre’s own wheat stocks as on first of September was estimated to be around 24 million tonnes, of which around 17 million tonnes would be required for the public distribution system till March 2017,leaving it with a stock in hand of around 7 million tonnes, which is just enough to meet the buffer and strategic reserve requirement.
So unless it allowed traders and flour millers to import wheat, there could have been a grave shortage as its own stocks were simply not matching the production estimates.
Therefore, last week, it lowered the import duty to 10 per cent from the existing 25 per cent. The order will remain in force till end of February to enable flour mill owners to buy wheat from the international market to meet domestic demand. The order has been kept time-barred or else it would have discouraged farmers from planting if prices dropped very low.
Trade sources say that already around 1.5-2.0 million tonnes of wheat has been contracted before the duty was lowered and another 2-3 million tonnes would come after the duty is brought down, sufficient enough to meet their requirements till March. The market prices, according to their estimates, would go down by Rs 100-150 per quintal.
In edible oils, the import duty on crude palm oil and refined palm oil has been slashed by five percentage points to 7.5 per cent and 15 per cent, respectively. This has come barely days after the Centre announced that the country is all set to harvest a record Kharif crop this year.
Oilseeds production in expected to rise to a record 23.3 million tonnes as against 16.59 million tonnes last year.
In this, soybean production, which is one the biggest oilseeds grown during the Kharif season, is estimated to be at a record of around 14.22 million tonnes, around 66 per cent more than last year, while ground nut output is expected to be around 22 per cent more than last year.
So when the country is all poised to harvest a bumper oilseed crop in the next few weeks, lowering import duties on competing oils will also impact the seed prices, which could be detrimental to the interest of farmers.
Agreed, domestic and international edible oil prices have shown a rising trend in the last few months and with major festivals just round the corner, any flare up in prices of essential commodities would have impacted the government’s image, but farmers' interests too are paramount.
As industry players said, if the government had to lower duties it could have done so for crude palm oil so that the refining industry in the country would be saved, but by lowering the import duties in refined oils as well, it has opened the floodgates.
Already, RBD Palmolein imports in the first 10 months of the 2016-17 oil year (November-October) was estimated to be around 75 per cent more than the previous year, further lowering the duties would increase the imports.
The Centre should revert the duties, at least on refined Palm oils, as soon as prices stabilise in the domestic market or else it can harm the local refiners.
Here too the estimates have come into question, that if the domestic oilseed crop was so huge then why had the government resorted to lowering the duties and in the case of edible oils, last week's notification did not give any timeframe. Unless there is someone in the government who does not believe in these numbers.
