Financial Daily from THE HINDU group of publications
Thursday, Jan 22, 2004
Agri-Biz & Commodities
Industry & Economy - Exports & Imports
Guarded optimism over foodgrain export policy
New Delhi , Jan. 21
THERE is mixed response within the exporting community to the Government's new foodgrain export policy, enabling exporters to undertake direct grain purchases and claim re-imbursement on freight and other `WTO-compatible' costs.
This is as against the existing arrangement, where exporters source their grain entirely from the Food Corporation of India's (FCI) stocks - a route that has facilitated exports of around 30 million tonnes (mt) over the last three years, making India the second largest exporter of rice and the eighth largest exporter of wheat.
"The scheme seems good on paper. What we are awaiting are the finer details and guidelines for determining the extent of re-imbursement of WTO-compatible costs and how it is to be made operational," said Mr Sunil Duggal, Vice President (Exports), Pepsico India Holdings Private Ltd.
Broadly, the new scheme envisages exporters buying their grain directly from the market, subject to paying farmers the official minimum support price (MSP). The exporter would then sell the grain and produce the necessary documents showing proof of export against which he can claim reimbursement.
The reimbursement would be made at a flat rate, 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 WTO rules.
The advantage of this scheme is that it eliminates all the problems associated with sourcing grains from the Central pool.
"Also, there will be no uncertainty stemming from arbitrary changes in export prices by FCI," an exporter pointed out.
Echoing a similar view, Mr D.P. Singh, Managing Director of Sara International Ltd, said for FCI, exports were not a priority and "their primary concern, rightfully so, is to ensure adequate local availability of grains, especially to meet the needs of the public distribution system".
There was a time when stocks in the Central pool had touch 65 mt, whereas they have now depleted to about 25 mt. As a result, FCI has stopped making fresh grain allocations for exports since early-August 2003.
The trade is virtually reconciled to there being no fresh allocations at least till the arrival of the new wheat crop in the mandis from mid-April onwards. In any case, Mr Singh added, in the long run, exporters have no choice but to set up their own infrastructure for procurement, cleaning, warehousing and transport of the grain to the port.
This may not be easy though, considering that in the present system the entire procurement, storage and distribution operations and the associated costs at each stage are borne by FCI. The export prices are fixed by FCI now for every quarter are free-on-rail (f.o.r) 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 Visakhapatnam port.
In the new regime, the exporter will 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, which is prone to arbitrary changes, just as much as FCI's quarterly export prices.
The silver lining though is that international prices are on the rise, with Indian wheat now fetching around $155 per tonne free-on-board or around Rs 7,000 per tonne, compared to $105-110 per tonne a year ago. As against this, the MSP of wheat has been set at Rs 6,300 per tonne.
If one adds Rs 800 per tonne freight cost from Punjab to Kandla and fobbing charges of Rs 500 per tonne (including interest), the total cost incurred by the exporter comes to around Rs 7,600 per tonne.
Even if the re-imbursement rate (or subsidy) is kept at Rs 1,500 per tonne, the exporter can make a profit of about Rs 200 per tonne. Contrast this to the subsidy of Rs 4,500 per tonne under the FCI scheme till two years back!
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