Though duty free imports of black and white chickpeas are allowed to avoid shortages developing at any point, the government keeps an eye to ensure that under the weight of imports, locally produced pulses prices do not sink below minimum support prices. The national objective is to step up pulses production from the same land generally available to the crop by raising productivity through improved farm practices. To engage farmers proactively in a crop, returns for their efforts and investments have got to be adequately rewarding. In the case of pulses, the government is playing the role of arbiter between the demand of traders to maximize imports and local farmers’ legitimate expectation of remunerative prices.
In the meantime, New Delhi has constituted a ministerial group headed by home minister Rajnath Singh to decide the financial compensation to be given to farmers whose crops got damaged by unseasonal rains. Agriculture minister Radha Mohan Singh admits that “the current assistance given to farmers in distress under the government’s disaster relief fund is inadequate. This needs to be raised.” Farmers should not only be compensated for the crop loss but they should also be helped to get ready to grow the next crop. New Delhi claims all Indian states have adequate money under State Disaster Response Fund to bail out farmers when disasters like March heavy rains occur. Moreover, the federal government has announced its readiness to make available additional funds to states if need be. Whatever the reason, the government headed by Narendra Modi has a distinctly pro-industry and anti-farmer image. The crop loss provides the government with an opportunity to correct the perception by suitably raising the compensation amount and also disbursing it quickly.
“India’s buffer stock of wheat and rice during most part of a year is well above the norm the government itself has set. This no doubt is the result of fairly rich harvests in recent years and the government’s massive food procurement programme. Food security at all times and compulsion to make available 61.4mt of food grains under various welfare schemes at highly subsidized rates underpin the need to maintain minimum inventories, but which need to be scientifically worked out,” says Dhanuka.
“When food grain inventories exceed the benchmark, more than one problem arises. First, in the absence of adequate and proper storage facilities, wheat and rice are exposed to nature leading to an unacceptable level of wastage. Second, with overflowing grain stocks resulting largely from lack of commercial judgement, the Exchequer already under stress comes under compulsion to finance more than the needed inventories. Third, it is not that such large wastage as seen in India and loss of quality are not avoidable,” argues Dhanuka. He questions whether it would make sense for the country to actively engage in export in times of bumper harvest to avoid the cost of surplus food grains maintenance but hedge simultaneously for buyback if shortages in future warrant?
Dhanuka’s argument makes commercial sense. But the government needs strong political will to ask its own trading houses like STC and MMTC and carefully chosen similar private enterprises to engage prudently in sales, hedging and buyback of farm commodities. That wheat production this year will fall
short by a few million tonnes of an estimated consumption of
94mt is now a given. But that is not of concern since the
government held stocks of close to 20mt at March beginning
against buffer requirement of 7mt. The concern is about quality
of the new crop and the challenge is surplus food management.
The crisis that has befallen the Indian sugar industry, the
world’s second largest after Brazil, would have been largely
avoided if New Delhi had supported exports by giving adequate
but WTO compliant subsidy to exports of raws and discouraged
imports by way of penal customs duty. Indian sugar factories
owe cane supplying farmers nearly $3 billion because of sugar
prices not even fully compensating the cost of cane, not to
mention wage bills and other cost components. Not only are all
sugar companies across the board in the red, the industry has
ceased receiving fresh investments in modernization and capacity
expansion. “The only way for India to export is for government
owned trading houses STC and MMTC to buy sugar from
factories at production cost at least and then sell it in the world
market. That way, the industry will be relieved of a portion of
inventory burden and the local market sentiment will somewhat
improve in turn,” says Dhanuka who owns a factory in Bihar.
The May delivery raw price on New York’s Intercontinental
Exchange (ICE) is trading at well below 13 cents a pound.
But why are sugar prices trading at multi-year lows? Recall
February 2011 when sugar futures traded at 36.08 cents a
pound. Since then, sugar made quite a few peaks and lows. As
the commodity is facing headwinds on more than one count, it
could still seek lower prices. First, according to US Department
of Agriculture, the world sugar production in 2014/15 (October
to September) will be an estimated 175.59mt against actual
output of 175.7mt in the previous year. What will put pressure
on prices is the expected current season ending stocks of
44.4mt. Remember nearly 80% of sugar is extracted from cane
and the balance from beet. Cane crop being perennial in nature,
it is not easy for growers to switch to other crops when returns
like now are poor. The Brazilian currency being at 12-year low,
the South American country Brazil, the world’s largest exporter
of sugar, now has an extra incentive to sell aggressively in the
world market. Finally, where is the incentive to produce biofuel
from cane when oil prices are trading this low? So more and
more cane for producing sugar.
In the meantime in a break from a regular rise in Indian agro
exports since 2010 financial year, the year ended March 2015
saw exports slipping by $3bn from $32bn. Fall in agro exports
of this order did not impact the country’s trade balance much
because of sharp falls in oil and gold prices. But Indian farmers
did take a hit as lower agro exports had a bearing on prices and
therefore, on their income.