Global oversupply might lead to a fall in cereals export

Exporters lose competitiveness due to high domestic price and rupee appreciation

India's cereal exports are set to decline this year on massive global oversupply and lower prevailing price in overseas market, prompting traders to hold stocks for future deliveries.

Total value of cereal exports was recorded at $6.56 billion during the April-November 2014 period, data by the commerce ministry showed. During the April-December 2014 period, however, total cereal exports were recorded at $7.28 billion this year against $7.68 billion in the corresponding period last year. However, during the remaining months in the current financial year, trade sources estimate a steep decline in cereal exports.

Overall agri commodities including rice, wheat, and pulses have witnessed a five per cent decline at $22.8 billion between April and December 2014, compared to $24 billion in the corresponding period in the previous year.

Steep decline in exports assumes significance especially in the wake of continuous rise in the minimum support price by the Centre, rising fertiliser and labour cost. Therefore, the cost of production remained elevated. Farmers raised the hope that continuous rise in export in the past years would keep cereal prices elevated, raising overall realisation of farmers.

"At the moment, we see some decline in cereal exports this year due to high inventory level in global markets and better crop in 2015. On an average, cereal prices have been lower by 35 per cent from the 2008-level. So, exports are bound to decline at least five per cent," said Ajay Sahai, director-general and chief executive officer, Federation of Indian Export Organisation.

According to Madan Sabnavis, chief economist, Care Ratings, there has been a steady decline in cereal exports owing to global oversupply. "Relatively stronger rupee against the other competing currencies will make us lose our advantage in global markets. Further, our own prices have continued to reign high and hence, overall cereal exports will be much lower at between $8 and 9 billion."

  The Food and Agricultural Organization (FAO) of the United Nations estimates world cereal production in 2014 at 2,534 million tonnes (mt) - 13.5 mt (0.5 per cent) above the 2013 output. The UN food body estimated total world cereal utilisation in 2014-15 at 2,467 mt - 2.2 per cent (53 mt) higher than in 2013-14. Thus, global cereal inventory by the close of seasons in 2015 are forecast at 623 mt - 46 mt (eight per cent) above the volume carried over from 2014.

"Over and above, global cereal output is estimated to remain even higher in 2015. So, Indian exporters are expected to get affected by lower prices and estimated bumper production and record global inventory in 2015," said Sahai.

Although cereal production in India is estimated to decline this season marginally at 238.64 mt according to the second advanced estimate by the agriculture ministry against 245.79 mt in the previous year, the output is much higher than required to meet Indian demand.