Agribulk trade has taken a new dimension for India which
continues to reel under last year’s most deficient south-west
monsoon since 1972 when rains were 27% less vis-à-vis the long
period average. Normally an exporter of a few agribulk
commodities like non-basmati rice and sugar, major droughtdriven
price inflation raising public ire led the government to
scrap customs on rice, wheat, edible oils in non-refined form and
raw as well as refined sugar. The problem that arises when a
normally self-sufficient, if not export surplus country like India
comes to the world market as a buyer then prices significantly
Industry official Om Prakash Dhanuka says “driven by strong
import demand from India and also more than normal imports
by China, Pakistan, Indonesia and Egypt raw sugar climbed to a
29 year peak to 30.40 cents a pound on 1 February. Mind you
what also fanned the bullish fire was another low Indian sugar
production of around 18mt [million tonnes] on the back of a
disastrously low 14.6mt in 2008/09 caused on both occasions by
extreme dry weather in almost all cane growing regions.
Moreover, the world’s largest sugar producer and exporter Brazil
lost nearly 3mt of sugar because of heavy rains in the season’s
closing months making cane harvesting a difficult proposition.”
Prices stayed high for a long spell because of a high global deficit
for three years in a row and also a lack of subsidized sugar from
European Union in particular.
But why has raw sugar fallen by over 45% since the February
peak? Giving the answer, Dhanuka says the rapid price fall is to
be traced to forecasts of bumper production both in Brazil and
India next season to start in October 2010. The leading Brazilian
sugar and ethanol producer Cosan is expecting the 2010/11
sugar production to be a bumper 35mt. Brazil itself will need
12mt for domestic use leaving it with an export surplus of 23mt.
In the meantime, Indian farmers having received rich rewards for
growing cane in the past two seasons have this time brought
significantly large extra land under the crop. The weatherman is
forecasting a normal monsoon for India to start in June and this
should boost land productivity and equally importantly sugar
content in cane. Dhanuka says India, as a result, should produce
anything between 26mt and 27mt of sugar in the season
beginning October 2010. So India, which has imported as much
as 5mt of sugar in the current season, will not need to buy
anything in the world market during 2010/11, while Brazil will
have a lot more extra to sell.
Mainly on account of groundnut, India’s production of nine
major oilseeds suffered a dry weather related setback to
23.11mt during 2009/10 from the previous season’s 24.16mt.
Thanks to low Indian oilseeds productivity of about 900kg a
hectare — that is, half the world average — and the demand
growth fuelled by rising prosperity of the growing middle class,
now half the country’s oils requirements are met by imports
against 5% in 1994/95, according to Ashok Sethia, president of
Solvent Extractors Association of India. The size of domestic
output of oilseeds is the determinant of the volume of India’s
imports of oils, constituting largely of palm oil and to some
extent soyabean and sunflower oils. That is why last year’s
setback in seeds production saw India’s oils imports rising
significantly to 8.184mt against 5.609mt in 2007/08.
To India’s annual domestic supply of vegetable oils from nine
major oilseeds is to be added around indigenously produced
2.5mt of rice bran and cottonseed oils. Sethia says as vegetable
oils originating domestically are feared to be lower at 7.88mt
this season against 8.21mt in 2008/09, the country will end up
importing at least 9mt to take care of domestic requirements.
India’s edible oils import bill is next only to crude petroleum
import cost. As supply tightness led to some major rises in
edible oils prices to the distress of common man and
embarrassment for the government, it took the sensible step to
allow duty free import of crude palm oil and soyabean oil and
charge customs plus education cess of 7.73% on refined,
bleached and deodorized palm oil to ensure that the domestic
refinery capacity is better utilized. According to N.R. Viswaradhya,
president of the Central Organization for Oil Industry & Trade,
the fact that oilseeds in India are grown on marginal and submarginal
lands and less than 25% of such lands get irrigation
water is responsible for low productivity. Through efficient
extension programme including supply of high yielding varieties
of seeds, plant nutrients and bringing more and more areas under
irrigation, productivity is to be improved. But there is little
scope, if any, for migration of land from foodgrains to oilseeds.
It is in the context of gaining a higher level of self-reliance in
edible oils that the resounding success of Indonesia and Malaysia
in growing palm oil has caught the fancy of Indian policymakers.
The fact is palm plantation yields oil up to four tonnes a hectare
compared with 350kg to 400kg a hectare in the case of
groundnut or rapeseed. The government has identified 800,000
hectares of land for palm cultivation. But the actual progress on
ground so far is a measly about 100,000 hectares. Industry
officials say palm cultivation will make the desired level of
progress provided it is given the status of ‘plantation crop’
entitling it to a number of tax breaks. Private parties, which are
in touch with Malaysian planters for know-how, will start
investing once palm gets the plantation status facilitating land
acquisition on a big scale.
Giving a low-down on the world outlook for vegetable oils,
an industry official says world supply will remain somewhat tight
till the second half of the season ending September 2010. This is
because the combined oil supply from soyabeans and other
sources, including palm oil cannot be increased to match the
growing global demand. This is partly due to insufficient supplies
of high oil-yielding crops, primarily sunflowerseed but also
rapeseed, which are, therefore, likely to command rising price
premiums relative to soyabeans. Moreover, palm oil production
has slowed down of late and is below consumption leading to
stock depletion. Thanks to record South American crops, the
world will be seeing an incremental soyabean crushing of about
9mt in the second half. But soyabeans being just about 19% in oil
content, there is not going to be any large increase in soy oil
supply. Bonn-based Oil World says, “by the end of this season the
stocks-to-usage ratio of 17 oils and fats will decline further to
only 10% of annual world consumption.”
Precisely for the same reason that India is required to step up
imports of oils, the country’s exports of oilmeals saw a major fall
of 41% to a little over 3mt in the 11 months to February 2010
from 5.084mt in the corresponding period of the previous year.
Lower crushing of seeds apart, a fallout of crop setback, weak
enquiries from buyers and a depreciating dollar also played a
role in Indian oilmeals export debacle. Oil World says, “soya meal
prices will come under pronounced pressure in the next few
months. World production and supplies of soya meal will
increase faster than demand in April–September 2010, resulting
in an accumulation of stocks by up to 1.8mt. This will put
considerable downward pressure on meal prices.”
Pulses constitute an important item in Indian diet. However,
against the country’s annual requirements of around 18mt, local
production in 2009/10 is 14.74mt. In fact, production has
remained around that level for a number of years making India
largely dependent on imports. Canada is the principal source of
imports of yellow peas. India also buys large quantities of pulses
from Australia and some African countries. A trade official says
“our neighbour Myanmar with export surplus of over 2mt
should be an ideal import sourcing point for India. But the
structure of trade there is such that we have not been able to
make much headway in Myanmar.” A common use item, pulses
prices have a sensitivity about them like rice and wheat. As
world prices of pulses are higher than domestic prices, the
government is subsidizing imports by state agencies to the
extent of 15%.
Even while production of rice suffered a setback of nearly
12mt to 87.56mt, some good spells of late monsoon rains and
also timely winter rains has allowed India to harvest a wheat
crop of 80.28mt. Now in order to give protection to local
producers and traders the government is considering imposition
of 40% import duty on wheat. An official note says such
customs is contemplated “in view the difference of cost between
domestic wheat and imported wheat at Indian ports.” But the
millers and bulk consumers say a duty of that order will make
imports an unviable proposition. Wheat imports have been
allowed at zero customs since February 2006.
A country with a population of over a billion and which is
targeting a sustainable double digit GDP growth will always leave
a big impact on the world agribulk trade. Even while agriculture
contributed 15.7% to GDP and had a share of 10.2% in the
country’s total exports during 2008/09, it finds employment for
52% of the workforce.