India Should Export Some Wheat, Rice - June 14, 2008

Mumbai: India attracted a lot of flak, of late, from various quarters for contributing to the ongoing global food crisis. The country’s appetite for food has been blamed for the price spurt. Here is an opportunity for India to actually contribute to cooling of world cereal prices.

With production of about 76 million tonnes (mt) and procurement topping an unprecedented 22 mt, India is smugly placed as far as wheat is concerned. Including the opening stock, the Food Corporation of India may currently be holding more than 26 mt of wheat. With such a comfortable inventory, the prospect of import has all but vanished

IGC outlook

The global wheat scenario is one of optimism too. For the year 2008-09, latest estimates suggest wheat production going to a record high. The London-based International Grains Council (IGC) has projected the world production at a new high of 650 mt , from the previous year’s 604 mt.

The US Department of Agriculture earlier this week came up with a bumper crop estimate of 663 mt (611 mt). Australia, European Union, Canada, China, Russia, Ukraine and USA are all set to harvest larger crops.

World wheat consumption is set to grow robustly. IGC sees wheat use expanding by 20 mt to 632 mt. Driven by lower prices, food and feed use is expected to increase. Yet, clearly, world consumption is sure to trail production given the strong output growth. No wonder, the market has already taken cognisance of the ensuing developments and prices have begun to slide.

Weather uncertainties

Despite a large global surplus, wheat prices are most unlikely to crash or even decline to levels seen two years ago. Further, weather uncertainties, especially in origins such as Australia, can change the current rosy picture.

Additionally, the prospect of a large corn (maize) crop in the US is receding because of wet weather in the Midwest. High corn prices are sure to divert a part of consumption demand towards wheat, especially for feed purpose, and to a lesser extent for ethanol.

Although world prices are correcting down, they would still be at a high level. India should take advantage of the global price situation.

There is an opportunity to export at least 2-3 mt of wheat.

The Government has procured wheat at the support price of Rs 10,000 a tonne. After adding local and other levies, wheat at the warehouse costs about Rs 11,000 a tonne. In addition is the cost of carry, which is not less than Rs 2,500 a tonne a year.

With government holding in excess of 25 mt now, the opening stocks for the next season may be conservatively placed at 7-8 mt, the cost of which would be Rs 13,500 a tonne. There is an opportunity to cut at least partially the wasteful food subsidy incurred on storage of excessive quantities of wheat.

The rupee too is favourably placed for exports at over 42.50 to a dollar. So, an export price of anything over $300 a tonne free-on-board should make a lot of sense for the country.

Export of 2-3 mt wheat from India would aid in cutting the subsidy burden besides helping to cool international wheat prices. But timing is the key. Also, the decision to export would require tremendous political will and courage. At the same time, steps to ensure wheat production next year remains at the same level, if not higher, need to be initiated.

Similarly, the complete ban on export of non-basmati rice should be reviewed and lifted, albeit partially. It is rather ironical that the Government talks about record rice production of 94 mt and goes on to impose an export embargo. Export of up to two mt of non-basmati rice in a well-regulated manner would ease global supplies and cool rice prices.

Maize exports

Maize exports from the country are going on. Shipments have exceeded two mt. This has provided the growers with remunerative prices.

The kharif season is upon us; and the primary objective should be to maximise grains output, especially rice and maize. Large production in India and the possibility of exports out of the country would surely help contain global food prices, and counter negative publicity about India’s border control measures.

Export Ban Goes On Castor, Coconut Oils

Chennai: The Centre has lifted the ban on castor oil, coconut oil and oils made from minor forest produce following pressure from the industry and State Governments. The move comes two weeks after it had banned shipments of all edible oils from the country as part of its efforts to keep rising edible oil prices and inflation on leash.

A notification issued late on Tuesday night said restrictions on export of edible oils would not apply to non-edible grade castor oil, coconut oil shipped from Cochin port. The ban would also not apply to deemed export of edible oils as input raw material from the domestic tariff area to 100 per cent export-oriented units for production on non-edible goods and oils made from minor forest produce even if they were edible.

The minor forest produce whose oils are exempt from the export ban are kokum, neem, dhup, nigerseed, mango kernel, sal fat and shellac wax.

The notification, however, is silent on exports of sesame and groundnut oils.

The Solvent Extraction Association, in particular, had urged the Centre to lift the ban on export of all edible oils, saying shipments from the country were negligible.

Going by various data, exports of groundnut oil in particular had shown a rising tendency this year with about 30,000 tonnes being contracted for shipments.

However, if the other edible oils were to be put together, hardly 3,000 tonnes have been imported.

Sesame oil exports

According to official data, crude sesame oil exports declined to 821 tonnes during 2006-07 from 1,682 tonnes the previous year. Refined sesame oil shipments slipped to 818 tonnes (1,662 tonnes) and coconut oil to 48.9 tonnes from 60.9 tonnes. Mustard oil, crude and refined, however, witnessed a different trend rising to 597 tonnes (437 tonnes) and 103 tonnes (36 tonnes) respectively.

The Centre seems to have taken into account the fact that groundnut and sesame oils are being consumed widely in the country and signs of lifting the ban could lead to rise in their prices.

Sesame oil was quoted at Rs 870 per 10 kg on Wednesday. Its prices had peaked to Rs 1,040 on March 14 and it slid to Rs 970 on March 19, soon after the ban. Groundnut oil on Wednesday was quoted at Rs 690 per 10 kg, down from Rs 740 on March 3 and Rs 715 on March 19. Prices of sesame declined Rs 20 per 10 kg on Wednesday, while groundnut oil was unchanged.

The ban had led to some heartburn particularly among castor oil exporters. Though castor oil is not among the list of commodities considered edible, the Customs authorities had detained shipments citing the March 17 order of the Government. Nearly 10,000 tonnes of castor oil was held up, leading to the industry seeking clarification from the Centre on the status of castor oil. The industry, on its part, had pointed out to various provisions which did not include castor oil among the list of edible oils.

On Wednesday, castor oil dropped Rs 6 to Rs 572 for 10 kg in Mumbai.

Meanwhile, the Central Organisation for Oil Industry and Trade (COOIT) in a statement said the Centre’s decision to allow import of cooking oils at zero duty could prove to be counter-productive.

Stating that already there were indications of edible oil prices softening, COOIT said while soyabean plantings in the US were set to rise, Brazil and Argentina would harvest record soyabean crop. Indian oilseeds crop was also expected to be better in view of higher prices last year but zero Customs duty could result in higher imports by the country.

This, in turn, would affect returns to the farmers and in turn, future production of oilseeds.

Pointing out to the situation in pulses where despite zero import duty the prices were rising, COOIT said the Centre, instead, could fixed a price band for edible oils. “These are realistic and reasonable prices for the consumers and at the same, will enable farmers to get remunerative price for oilseeds which means a win-win situation for all,” the organisation said.

Drop in prices

Meanwhile, the fall in edible oil prices continued on Wednesday with soyabean refined oil prices dropping by Rs 30 per 10 kg to Rs 560. In the futures counter, soyabean oil hit the lower circuit and ended 3.7 per cent lower at Rs 544 for May futures.

RBD palmolein prices declined by Rs 20 to Rs 535 for 10 kg, while rice bran oil declined by Rs 5 to Rs 430. Rapeseed/mustard oil prices, however, remained unchanged at Rs 645.