Sunday, 20 January 2019

The dynamics of India’s rice export boom


India has been the world’s top rice exporter since the beginning of this decade. But this boom has benefited only merchant capitalists, not consumers and producers
India emerged the world’s largest rice exporter in 2011-12, displacing Thailand from its leadership position. Two factors played a role in this. The first was the government’s decision in February 2011 to lift a four-year ban on exports of non-basmati varieties of rice, paving the way for a rise in exports of those varieties.
The second was a decision of the then Thai government under Prime Minister Yingluck Shinawatra, taken in the same year, to favour farmers by strengthening a Rice Pledging Scheme under which it promised to procure unlimited stocks at an enhanced price that reflected a 50 per cent increase over 2010. The consequent increase in domestic prices obviously reduced the incentive to sell in export markets rather than to the government or in the local market. India was a major beneficiary, recording a sharp increase in exports of non-basmati varieties. As opposed to exports of around 1,00,000 tonnes of The dynamics of India’s rice export boom - - The Hindu BusinessLine those varieties in 2010-11, exports soared to 4 million tonnes in 2011-12. Exports of basmati rice in those two years stood at 2.3 and 3.2 million tonnes respectively (Chart 1).
Non-basmati surge
Given the circumstances, the Indian rise to dominance in global rice markets is explained without much difficulty. What is striking, however, is the continuous increase in exports of non-basmati varieties since then, to 8.2 million tonnes in 2014-15, and after a fall to 6.4 million tonnes in the subsequent year, a rise again to 8.6 million tonnes in 2017-18. The result has been that despite the significant price difference between basmati and non-basmati rice varieties, the difference in foreign exchange earned from exports of these varieties has narrowed considerably (Chart 2).
The increase in non-basmati exports occurred despite the fact that the enhanced pledging scheme in Thailand was suspended in early 2014, that production in India did not rise much till 2016-17, having fluctuated between 104 and 107 million tonnes between 2011-12 and 2015-16, before rising to 110 and 113 million tonnes in the next two years, and that Vietnam has been a third important player in world markets. India’s share in world exports in recent years (2014-18) has stayed at 25-26 per cent, Thailand’s has fluctuated between 22 and 25 per cent, and Vietnam’s between 13 and 16 per cent. As a result, the exports to production ratio for rice in India rose from 2.4 per cent in 2009-10 to 6.8 per cent in 2011-12 and 9.6 per cent in 2012-13, after which it has fluctuated between 9.9 and 11.3 per cent. In normal circumstances, this should have resulted in a degree of price buoyancy in domestic markets, and discouraged exports. But the incentive to export seems to have remained high and persistent.
What this suggests is that over a relatively long period domestic demand for rice has remained below domestic availability, even after taking rising export ratios into account. This is surprising, because procurement introduces an ‘exogenous’ player in the form of the government into the market. Government procurement fluctuated between 32 and 35 million tonnes between 2011-12 and 2015-16, before rising to 38 million tonnes in the following two years when production was also rising.
The minimum support price (MSP) (adjusted for the paddy to rice conversion) at which rice was procured by the government, presumably setting a floor to market prices, rose over time but remained consistently below the export price for Grade A rice from India until mid-2015 (Chart 3). The recent sharper rise in MSP has more or less brought it to par. So rather than the procurement price, it may be the quantum of procurement that has been kept at levels that have not affected the incentive to export rice.
This limited effect of procurement on the incentive to export is reflected in the relationship between the export price and wholesale prices in three metro cities, for example. As Chart 4 shows, wholesale prices have more or less matched the export price in Delhi and Mumbai, though the wholesale price in Chennai is afflicted by unusual volatility that needs a separate explanation. Going by this trend, it appears that after non-basmati exports were liberalised, the international price has set the range of domestic prices, resulting in an implicit calibration of domestic prices with border prices.
Subdued domestic demand
Once again this suggests that domestic demand for rice has remained below domestic availability, despite the rising share of exports to domestic production. This subdued demand hits farmers, who find cultivation increasingly unviable despite rising rice exports.
Moreover, the benefit of a “disciplining” international price does not seem to have accrued to consumers. Retail prices in all metropolitan cities have remained well above the export price (Chart 5), showing high and rising distribution margins. So the liberalisation of the rice trade seems to have benefited only one section, the merchant capitalists, and not the actual producers or consumers.
The oil import bill is just one of the factors responsible for the rising trade de cit. Non-oil imports cannot be overlooked
India’s external account has once again emerged as a source of concern, as the current account deficit widened to reach 2.4 per cent of GDP over April-June 2018. This increase was driven entirely by the trade deficit, which grew rapidly in 2017-18. Since 2014, as Chart 1 shows, exports have been mostly stagnant (after a period of healthy increases before then) but total imports came down and then increased sharply in 2017-18. This was reflected in the total merchandise trade deficit, which declined for several years from the large deficit observed in 2013-14, and only rose sharply once again in 2017-18.
More recently, over the period April-November 2018, the trade deficit is once again said to have widened to ₹892 billion, an increase of 30 per cent over the same period in the previous year.
This timing suggests that global oil prices have been the significant driver of the total trade deficit. After all, India is a substantial net importer of oil. Periods of rising global oil prices have therefore been associated with higher total imports and when global oil prices fall or stay low, the import bill comes down correspondingly. So it seems only natural to assume that the external deficit is really driven by factors outside domestic policy control, particularly the vagaries of the global oil market. Indeed, there is no doubt that the Modi regime benefited hugely from the global decline in oil prices that was so marked in the first four years of its tenure, which reduced the pressure on the balance of trade, contributed to lower rates of domestic inflation, and provided windfall gains to the public coffers as the government did not pass on most of the oil price decline to consumers but instead raised tax rates.
However, matters with respect to the impact of oil prices on the balance of trade are not quite so simple. To start with, India is both an exporter and an importer of petroleum products, and the growing involvement of domestic oil refinery and distribution corporations (particularly the private ones) has made external trade in oil and oil products quite complicated.
Quite often, increased oil exports reflect the choices domestic oil companies make to produce for the domestic market or to export, which in turn are related to the local prices and duties, therefore driven by domestic policy. Chart 2, which shows only the oil trade balance, indicates that the oil deficit can increase even in periods of relatively low global oil prices (as in 2016-17) precisely because of such choices made by Indian oil corporations, especially the private players like Reliance.
What complicates matters further is the fact that non-oil imports have typically been high and rising rapidly. Chart 3 shows that even in the mid-2000s, non-oil trade was largely in balance and then began to show only relatively small deficits from 2006 onwards. After 2008 such deficits grew rapidly, as imports kept growing much faster than exports.
Rapid expansion
The non-oil merchandise trade de cit peaked in 2012-13, ironically a time when global oil prices were also not that low. They came down the following year, but then rose once more, as non-oil imports kept expanding rapidly. It is worth noting that this increase was driven by increasing import volumes, as prices for many of India’s imports also remained low. This is an important point, because it points to the fact that the potential of imports to displace domestic production has been much greater than is indicated only by the value of imports.
Indeed, increased imports of a variety of final goods, both primary and manufactured, have added to the woes of many small-scale producers in agriculture and industry as they have kept domestic prices of their output low, sometimes even below costs. This has also meant that even in the period of rise in oil prices in 2017-18, the non-oil trade deficit was even larger than the oil trade deficit. Chart 4 points to an interesting tendency: since 2004, the share of the oil deficit in the total balance of trade deficit has been coming down continuously, barring the outlier year of 2013-14 when world oil prices spiked sharply. This has also meant that even in the period of rise in oil prices in 2017-18, the non-oil trade deficit was even larger than the oil trade deficit. Chart 4 points to an interesting tendency: since 2004, the share of the oil deficit in the total balance of trade deficit has been coming down continuously, barring the outlier year of 2013-14 when world oil prices spiked sharply.
Indeed, from being 20 per cent more than the actual trade deficit (because the non-oil balance was in surplus then) it has fallen to explaining less than half — only 44 per cent of the deficit in 2017-18. So high global oil prices are only one of the many reasons why India should be concerned about the rising external trade deficit. The more significant culprits lie elsewhere, and they cannot be simplistically blamed on global forces beyond the government’s control.

Monday, 26 November 2018

Centre announces 5 per cent subsidy to boost rice exports


Non-basmati shipments to get subsidy from Nov 26 to March 25
As a 13 per cent increase in minimum support price (MSP) for paddy slows down India’s rice exports in the current financial year, the Centre has announced incentive to boost the shipments of the cereal. The non-basmati rice exports will get a 5 per cent subsidy under the Merchandise Exports from India Scheme (MEIS) from November 26 till March 25, 2019, a Commerce Ministry note said. The Centre’s latest move to subsidise the non-basmati rice shipments for the first time since exports were opened up in 2011 assumes significance as the country is headed for a record harvest of rice, pegged at 99.24 million tonnes by the Agriculture Ministry in its first advance estimates.Also, the rice stocks in the Central pool as on November 1 stood at 16.25 mt, over 60 per cent higher than the buffer norms.
The harvest of paddy has already commenced in several States and the state agencies led by Food Corporation of India have already started the procurement of the cereal. “The 5 per cent incentive under MEIS will definitely enhance our competitiveness in the world market,” said BV Krishna Rao, President of the Rice Exporters Association, a trade body of non-basmati rice millers and exporters. The subsidy coupled with a weak currency would help us offset the impact of the MSP on exports and cover the shortfall in shipments, Rao said. The Centre had increased the MSP for paddy by ₹200 per quintal at ₹1,750 per quintal for common variety and ₹1,770 for Grade A.
Slowing exports
Indian’s non-basmati rice exports have slowed down during the past couple of months and exporters said the hike in MSP had hit their competitiveness in the world market thereby impacting the exports. In the first half of the current financial year, the shipments were down at 3.72 mt (4.28 mt in corresponding last year) valued at $1.59 billion ($1.74 billion). The opening up of non-basmati exports in 2011 has helped India emerge the largest rice exporter for past several years. Major markets for the non-basmati rice are the African and Asian countries. India, which ships out over 12 mt of rice, now accounts for over a fourth of the annual global rice trade estimated at around 47 mt by the Food and Agricultural Organisation. India competes with Vietnam, Thailand and Pakistan in the world rice market.
India’s total rice production during 2017-18 stood at 112.91 mt and the government is targeting 113 mt this year. The FAO in its recent biannual Food Outlook has forecast that global rice production is set to increase by 1.3 per cent to a new high of 513 mt this year and India would be spearheading the growth in production.

Saturday, 27 October 2018

Basmati paddy price surges 25% on expectation of output decline


Rising demand also behind rise in price KOLKATA, OCTOBER 25
Basmati paddy prices have firmed up by 25-30 per cent on the back of speculation of a drop in production and firm demand both in domestic and export markets. The price of the premium Pusa 1121 variety of basmati paddy is presently ruling at around Rs. 3,700 a quintal, as against Rs. 2,800 a quintal during the same period last year, recording a rise of nearly 32 percent. The price of Pusa 1509 is also up by 29 per cent at Rs. 3,100 a quintal. Harvesting of basmati paddy, primarily cultivated in Punjab and Haryana, starts in October and continues till December.

"As per satellite data the area under basmati paddy cultivation is down by 2-3 per cent this year and the carry-forward stock from last year is also low. This, coupled with a firm demand for exports, has helped push up prices," Vijay Sethia, President, All India Rice Exporters’ Association (AIREA), told BusinessLine. While the area under paddy cultivation is slightly lower this year, the yield is better because there has been a shift to Pusa 1509, a high-yielding variety that produces close to 24-28 quintal an acre, as compared to Pusa 1121, which yields 18-22 quintal an acre. The country produces close to 9 lakh tonnes of basmati paddy each year, from which nearly six lakh tonnes of rice is produced. According to Suraj Agarwal, CEO, Tirupati Agri Trade, unseasonal and heavy rains in the months of August and September have affected the standing crop marginally, which may have an impact on production.

However, the rise in prices is more on account of a strong demand from overseas markets. Typically there is a dip in price when the new crop begins to arrive in2 the market; however, prices have increased in the last 15-20 days, sources said. Pusa 1509 has moved up by nearly 19 per cent from Rs. 2,600 a quintal and Pusa 1121 by close to 9 per cent from Rs. 3,400 a quintal just about 20 days ago. “Production is almost similar to last year; the price rise is more due to speculation of a possible dip in production,” said Gurnam Arora, Joint Managing Director, Kohinoor Foods. Rice prices firm up Firming up of paddy prices over the last two procurement seasons coupled with a strong demand from overseas markets, particularly Iran, has helped boost average realisation of basmati rice. The price of basmati rice has increased by nearly 12 per cent to Rs. 73,000 a tonne this year, as compared to Rs. 65,000 a tonne last year. In the period from April to August of the current fiscal, India exported close to 1.85 million tonnes of basmati rice valued at Rs. 13,629 crore. The country exported over four million tonnes of basmati rice valued at around Rs. 26,870 crore in FY’18. Iran and Saudi Arabia together account for nearly 50 per cent of imports.

“In the first four months of the current fiscal year, Iran has already imported close to 70 per cent of its previous fiscal’s total basmati rice imports from India,” said Deepak Jotwani, assistant Vice-President, ICRA. AIREA along with APEDA and the Punjab government, has also been taking several initiatives to boost exports to the US and Europe by educating farmers against pesticide use. It is to be noted that several export consignments of basmati were rejected by the US and the EU because of high pesticide residue last year. Saudi Arabia has also been following the European Union by tightening pesticide residue parameters.

Monday, 3 September 2018

Foodgrain

Riding on a near normal monsoon, output of most food crops is projected to hit record levels in 2017-18 to give an all-time high foodgrain harvest of 284.83 million tonnes, 3.5 per cent higher than that of the previous year, according to the 4th advance estimates released on Tuesday.
Rice production is expected to touch a peak of 112.91 mt, 3 per cent more than last year’s, while wheat will just fall shy of the 100-mt mark, the data released by the Agriculture Ministry showed.
Pulses production, on the other hand, is seen crossing 25 mt, despite a substantial fall expected in tur production. The record increase expected in urad and gram will compensate for the tur shortfall.
Despite an anticipated 17 per cent drop in soybean output to 10.98 mt, total oilseeds production is projected to be similar to that of the previous year, at 31.31 mt, thanks to an impressive recovery expected in groundnut output at 9.18 mt, nearly 23 per cent higher than the 7.46 mt in 2016-17.

The production of coarse cereals too is expected to climb to a new high of 46.99 mt, up 3.22 mt from 2016-17, despite bajra yields being projected to slide 5 per cent.
A record 20 per cent increase in sugarcane production in 2017-18 to 376.9 mt has already precipitated a severe crisis in the sugar sector, requiring the government to intervene so that the sugarcane farmers, whose dues from sugar mills have mounted, get some reprieve. Cotton output, too, is projected to go up by more than 2 million bales (of 170 kg each) to 34.89 million bales, according to the official data.
The estimated maize output will be 28.72 mt, which is nearly 3 mt more than the final production in 2016-17.

Monday, 16 July 2018

Increase in paddy support price: Rice exporters concerned over competitiveness in global market


A 13 per cent increase in MSP of paddy has sent jitters among the non-basmati rice exporters, who fear that the price rise will make the Indian cereal unviable in the global market and threaten India’s position as the largest exporter of rice, they said. "While we welcome the increase in MSP for farmers, the government should also look at sustaining the growth in rice exports," said BV Krishna Rao, President of the Rice Exporters Association.

Govt incentives
The government could look at incentivesthrough schemes such as Merchandise Exports from India Scheme or interest subvention, he added. The rice exporters are planning to take up the issue with the Commerce Ministry soon.

Non-basmati shipments
Non-basmati rice shipments have emerged as a major component of the Indian farm produce exports in recent years helping the country to emerge as the largest exporter of the cereal. Non-basmati rice exports stood at 8.6 million tonnes (mt) valued at $3 billion last year. In the current, financial year, the shipments have maintained the growth trend with a weakening rupee aiding the exports. As per the latest data from Apeda, non-basmati rice shipments have grown 40 per cent in the first two months of current, financial year at 1.43 mt valued at $603 million ( Rs. 4,013 crore) over the corresponding last year. The non-basmati rice accounts for around a fifth of the Apeda’s export basket in value terms.

Export markets
Of India’s total rice production of 108 mt, the domestic consumption including the buffer stocks is estimated at around 97-98 mt, while the rest is exported mainly to countries in Africa, Bangladesh and SriLanka. Any slow-down in shipments will lead to accumulation of stocks and may influence the prices, the exporters said.

Monday, 9 April 2018

We were in the dark about Jordan’s new residue norms, claims rice exporters body


The All India Rice Exporters Association (AIREA) on Thursday said it has taken up the issue of Jordan rejecting rice containers of an Indian exporter early this week with agricultural and Processed Food Products Export Development Authority (Apeda) and Jordan Chamber of Commerce. Jordan’s Agriculture Ministry has denied permission for offloading 12 containers carrying 270 tonnes of basmati rice from a North Indian exporter at its Aqaba port as Jordanian government laboratories found the pesticide residue in rice samples examined were higher than the maximum residue level (MRL). “The samples were found to have residue level (of fungicide tricyclazole) higher than it is now permitted. However, what is strange was that Jordan did not notify its decision to revise MRL and as a result, this information was not publicly available,” said AIREA Executive Director Rajen Sundaresan.

EU norms
“All of a sudden, Jordan has decided to adopt the European Union (EU) norms for tricyclazole residue, which stands at 0.01 parts per million (ppm). We had little knowledge about this,” he said, adding that the association has already written to Apeda and Jordan Chamber of Commerce. From January 1 this year, the EU decided to not allow the import of basmati rice whose tricyclazole levels exceed more than 0.01 ppm to its member countries, affecting most basmati exporters from India. Prior to the implementation of new norms, the MRL in Indian basmati was 1 ppm. The tolerance levels for tricyclazole in the US and Japan, interestingly, are much higher, at 3 ppm and 10 ppm respectively. Indian rice exporters have been lobbying with the Central government for getting the new norms relaxed by the EU for two years.

Options left
Sundaresan, who refused to name the exporter whose consignment has been blocked, said the options available to them include bringing the consignment back to India, or destroying it or re-routing the shipment to the countries where such MRL is permitted.
“The tricyclazole levels permitted in India is 3 ppm. When the consignment left India it was within the permissible limits. But Jordan has suddenly decided to follow the EU regime. We have written to them to find out since when it has come into effect,” the AIREA official said.

Friday, 19 August 2016

Time to rethink India’s rice policy

Of late, with growing income and awareness about nutritious food, there has been a noticeable decrease in the consumption of rice (a highcarb food) in Indian households. This change in consumption pattern, however, is not reflected in India’s agriculture policy which continues to revolve around rice and wheat. Moreover, current policies related to production, procurement, storage and distribution of rice are creating a number of internal and external problems.

The Centre is promoting rice production through a combination of support prices, assured procurement and subsidies on key inputs like irrigation, chemical fertilisers and electricity — the major proportion of input subsidies is consumed by rice. Thus, paddy’s MSP has risen from Rs. 580 per quintal in 200607 to Rs. 1,470 per quintal of 201617 at a CAGR of 10 percent. Then, there are Statespecific bonuses over and above the MSPs.
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