Why The Centre Needs To Exercise Caution In Allowing Duty-Free Imports Of Maize

by M R Subramani - Mar 2, 2019 01:43 PM +05:30 IST
Why The Centre Needs To Exercise Caution In Allowing Duty-Free Imports Of MaizeA farmer dries maize on a highway side road in Thoopran Mandal in Medak District, some 60 kilometers from Hyderabad. (NOAH SEELAM/AFP/GettyImages)
Snapshot
  • No efforts should be spared to increase the yield and the government should look for better avenues such as improved seed and tolerant varieties.

The second advance estimate of foodgrain production put out by the Agriculture Ministry on 28 February gives a mixed signal. While production of rice is estimated at a record 115.60 million tonnes (mt), output of coarse cereals, pulses and cotton is projected lower.

Wheat production is also seen at a new record, though estimates don’t put it at over 100 mt as projected by some experts a couple of weeks ago. Wheat is a rabi crop and there is still time before it arrives in the market.

It is likely that all these estimates will undergo changes at least twice when the government comes out with the fourth advance estimate sometime in July-August. But there are worry lines like a lower production of pulses and coarse cereals, particularly maize (corn).

Though production of pulses is reported to be low, one hopes the Centre will put the stocks of surplus production in the last two years to good use. If not, we could see prices of pulses surging again as we had seen three years ago. The situation on the pulses front is thoroughly manageable.

On the coarse cereals front, a drop in maize production looks to be reasons for concern. Last season (July 2018-June 2018), India produced 28.72 million tonnes of maize. This season, it is projected to drop to 27.80 mt by almost one mt.

In the global market, maize has been seeing a fall in prices for most part of this week. According to the International Grains Council (IGC), indicative export prices are between $162 and $192 (Rs 11,500 and Rs 13,650) a tonne for feed maize from Argentina, Brazil and the US.

Compared with this, the minimum support price (MSP) fixed for maize this year is Rs 1,700 a quintal, up from Rs 1,131 last year. In the spot market, barring a couple of markets, maize prices are ruling well above MSP.

The IGC has projected a higher global maize crop this year ending July at 1,109 mt against 1,090 mt last year. Consumption is seen higher at 1,147 mt against 1,118 mt last year. This will lead to a drop in carrying stocks to 297 mt from 336 mt last year.

This projection could mean that maize prices can tend to rise this year but the global market is sceptical since it expects production to increase in the US. The market is also caught in a blind alley as no one is sure of the stocks that China holds. IGC estimates it at 193.9 mt, nearly two-thirds estimated stocks across the globe.

Putting all these together, one should also look at news reports which say that India will import at least 1 mt of maize this year. In fact, a series of statements has been emanating in the media over the last couple of months.

First, the poultry sector moved the Centre on the need to import one mt of maize. Compound feed manufacturers joined the chorus later saying current level of (domestic) prices are unsustainable. Starch makers, who also make use of maize, are also seeking to import maize.

One of the reasons for these end users to represent the government on imports is that they are looking for a relief in the Customs duty imposed for maize imports. Currently, anyone importing maize has to pay 60 per cent Customs duty.

However, there is one route to ease the pressure of a higher import duty. The Centre allows import of maize duty-free under tariff rate quota. Up to 5 lakh tonnes of maize can be brought into the country by nominated agencies like STC, MMTC and PEC under this scheme.

Not every year is the tariff rate quota import used up fully. India is an exporter of maize, especially after farmers began cultivating hybrids since early this decade resulting in a surge in the crop’s production. In 2016, India imported about 2.25 lakh tonnes of maize under the tariff rate quota.

One of the demands of the industry is to allow it to import maize duty-free. The Commerce Ministry has assured the industry that it would consider its request positively.

A look at the demand-supply situation as well as the global outlook, there are some issues that need to be addressed. First, any report that India will import maize will result in a rise in global prices.

Are global traders trying to boost maize prices pointing to India as a potential buyer? Two, what is the guarantee that imports will be feasible when global prices begin to rise? Floating statements of imports could be part of efforts to talk down the domestic market.

The second advance estimate sees a 9.2 lakh tonnes drop in production from last year. According to the Federation of Indian Chambers of Commerce and Industry (FICCI), maize consumption by the poultry feed industry was 13.4 mt in 2016-17, while starch makes consumed 1.8 mt, while 1.2 mt went into the making of ethanol.

Another 6 mt had been used for food, seed and other usages, including exports. This makes a total consumption of 24 mt in 2016-17

This was 2 per cent higher than the offtake during 2015-16. Indian maize consumption is rising mainly on the tremendous growth that is being seen in the poultry sector, which is expanding by nearly 8-10 per cent every year.

It is likely that given the 2 per cent rise in consumption, consumption is likely to be around 25 mt this year. That leaves us with the question whether we are panicking needlessly over maize availability in the country.

One of the reasons why the industry could be concerned is that there is no scientific audit of production, consumption and ending stocks.

On the other hand, over 15 million farmers in the country grow maize providing employment to 650 million farm workers. Maize consumes less water and this is capable of providing higher output. Farmers save 90 per cent of water and 70 per cent of power by cultivating maize than paddy.

However, India’s average per hectare production of 2.54 tonnes is poor compared with 10.97 tonnes in the US and 5.97 tonnes in China. This means there is a potential to increase maize productivity in India.

A simple doubling of production can help farmers double their income, while addressing the supply concerns of end users. In this context, should the Centre or Commerce Ministry allow duty free imports of maize up to 1 mt?

The Centre has to balance the interests of farmers with that of the industry. While a slew of industries rely on corn, there are millions of farmers depending on the crop for their survival. Any sharp fall in the prices is bound to affect them.

So, what is the way out? One best way is for the Centre to first allow the users exhaust the 5 lakh tonne tariff rate quota for duty-free imports. If the prices still rule firm and the industry thinks prices are unsustainable, then the Centre can consider their requests.

However, a moot point is by the time any import is contracted and begins to arrive (Ukraine is the preferred source now), rabi maize could start arriving in the market. That will result in a lose-lose situation for all with farmers getting a lower price and industry paying more for the maize they are importing.

If imports are allowed under the tariff rate quota regime now, it could take at least a couple of months before the entire quantity runs out. By that time, a clear picture on demand-supply will emerge. Therefore, it will be only prudent for the government to wait a little more to assess the real situation.

The Centre can, perhaps, ask the nominated agencies not to impose user charges on the industry for helping them import maize.

On the other hand, it should prepare better for the oncoming crop year starting July. No efforts should be spared to increase the yield and the government should look for better avenues such as improved seed and tolerant varieties.

M.R. Subramani is Executive Editor, Swarajya. He tweets @mrsubramani

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