Financial Daily from THE HINDU group of publications
Friday, Nov 21, 2003
Agri-Biz & Commodities
Industry & Economy - Exports & Imports
New grain export policy gets mixed response
New Delhi , Nov. 20
EVEN as the Commerce Ministry is working on a new foodgrain export policy enabling exporters to make direct grain purchases and claim reimbursement on freight and other `WTO-compatible' expenses, doubts are being expressed over the scheme's viability.
On paper, the proposed scheme is seemingly superior to the existing arrangement, where exporters source their grain from the Food Corporation of India's (FCI) stocks. The alternative that is being suggested involves the exporter buying the grain directly from the market, subject to their paying the farmer the Government's minimum support price (MSP).
The exporter would then sell the grain in the international market and produce the necessary documents showing proof of export against which he can claim reimbursement. The reimbursement would, in turn, be made at a flat rate of say, Rs 2,500 per tonne, with these being fixed on a quarterly basis separately for rice and wheat based on global price movements. The reimbursement would cover inland and ocean freight, port handling (`fobbing') and all other expenses permitted under the World Trade Organisation's (WTO) rules.
The main advantage of this scheme is that it eliminates all the current problems associated with sourcing grains from the Central pool. The exporter will not have to go through the process of obtaining an allocation order from FCI against a valid contract, making the payment against these and obtaining a separate order for `release' of the grain, presenting it for placing an indent with the Railways to book a rake at the station of loading and taking delivery of the rake at the port. ``Once we procure the grain on our own, we will no longer be dependent on FCI's allocation and release orders. Also, there will be no uncertainty stemming from arbitrary changes in export prices by FCI,'' an exporter pointed out.
Food Ministry officials say that they would have no objection to the scheme because the more the exporters buy grains directly, there will be that much lower burden on FCI to procure all the rice and wheat arriving in the market.
``If the exporters purchase 9-10 million tonnes every year, it would bring down FCI's own procurement volumes and carrying costs to that extent. FCI can, then, limit itself to procuring enough to discharge its normal Central pool functions like channelising grains for the public distribution sytem,'' they noted.
But the flip side is that not all exporters will find it easy to source large grain volumes directly from the market.
Much of the arrivals of wheat in the mandis, for instance, take place during mid-April to early-May, which is also the time when FCI and State agencies undertake procurement for the Central pool. Not only would the exporters, then, be forced to pay the MSP, but they will also have to establish the necessary infrastructure for procurement, warehousing and transport of the grain to the port.
This is unlike the present system where the entire procurement, storage and distribution operations and the associated costs at each stage are borne by FCI.
The export prices fixed by FCI now for every quarter are free-on-rail (FOR) port-town. In other words, the grain is issued directly to the exporter at the railhead closest to the port and the price for the grain is the same, whether it is shipped from Kandla, Mumbai or Vizag port.
In the proposed new regime, the exporter would have to bear the whole cost right from procurement to storage and transport of the grain to the port.
After all that, he is entitled only to a flat reimbursement rate. And this rate is prone to arbitrary changes, just as much as FCI's quarterly export prices.
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