Nabard to refinance loans for warehouses

NEW DELHI: The finance ministry has eased lending norms for the warehousing sector in a preemptive move to meet the massive requirement of storage capacity for the effective implementation of the Food Security Bill.

Under the new norms, the National Bank for Agriculture and Rural Development (Nabard) can fully refinance bank loans given out for construction of warehouses at a low 8% interest rate.

"The move will help the banks to lend more freely as they are assured of getting an 8% interest on such loans," said a finance ministry official.

The rate of interest to be charged to the borrowers will be decided by the respective banks as per their existing policy, he added.

As of now there are 115 warehouses registered in the country. A government study had indicated that additional capacity of about 152.97 lakh tones is required to be created in 19 states. It is expected that private players will create a storage capacity of 52.32 lakh tonnes.

"The storage capacity will need to increase at least two folds if we have to store essential foodgrains for distribution as proposed under the Food Security Act," the finance ministry official said.

The government is debating a food security law under which about 64% of population will be eligible for foodgrains at heavily subsidised rates.

Meeting this legal entitlement would require massive procurement and storage.

The refinance availed by the banks under this scheme will be repayable in annual instalments over a period of seven years, including a moratorium period of a maximum period of two years.

"We will also provide an interest rate rebate of 1.5% to those borrowers, who repay their loans along with interest," said KR Nair, chief general manager, Nabard. The rebate would be released by Nabard on receipt of a certificate issued by the financing bank, stating the full repayment of principal along with interest, he added.

The refinancing in this fiscal will be available for 2,000 crore as proposed under the budgetary announcement.

But Nabard has indicated that by the year 2013-14, the required amount will be in the range of 10,000 crore.

"With Food Corporation of India (FCI) taking godowns on lease for 10 years, we expect more private players to participate," said an executive director with a state run bank. FCI has a total storage capacity of 333.63 lakh tonnes, 90% of which have been utilised, as on June 2011.

Nabard will also undertake on-site and off-site monitoring of the implementation of the scheme throughout the loan period in association with the banks.

Chinese agri-lessons for Indian policymakers

Saurabh Bhatt - The Hindu Businessline December 18, 2011:  

Global food security and food inflation are closely linked to economic development and agricultural production of the two Asian giants, China and India, as they comprise over 30 per cent of the world population. High GDP growth rates and rising income levels in these countries have increased the demand for high nutrition and calorie intake, putting further pressure on a sector which is critical to the livelihood of a vast majority of the citizens of these agrarian giants.

Compared to India, China's grain production is double that of India despite lesser arable land and similar area of irrigated land. China has a liberal agriculture import policy whereas India's agri-import policies are restrictive. India's fragmented land holding has led to low mechanisation. China faces different challenges. China's collective land-ownership system is a major constraint on farm borrowing, leading to poor economies of scale. China's ratio of investment in agriculture to agri-GDP is similar to India, however, since 2000, China has invested significantly in agri-parks and dairy towns, which are fully integrated models right from cultivation to processing (financed by the agri-banks). Both countries address food-security challenges using policies which are both congruent and different on multiple fronts.

WATER AVAILABILITY

China and India face periodic drought-like conditions or floods across regions. China's fresh-water storage capacity is about 1,000 cu. m per capita , five times that of India. China's depletion of ground water table is lower as compared to many parts of India (because of tube-well abuse). Compared to China, Indian agriculture would require more water by 2050, but its water footprint would deplete faster, especially in the Ganges and other major river basins.

India also continues to grapple with the river-linking project in terms of environmental impact issues. On the other hand, China is already implementing many large-scale water projects (Three Gorges Dam, north-south aqueducts using Yangtze's water). Indian policy makers approach to the fresh-water storage and sustainability issue has been mired with slow decision-making and legal opposition by environmentalists. However, India scores better on micro-irrigation with its Government subsidy schemes.

GRAIN RESERVE AND AGRI-STORAGE

India and China build significant grain reserves each year. India's grain reserve is around 50-60 million tonnes (20-22 per cent of annual production) whereas in China it is about 150-180 million tonnes (35 per cent of annual production). Due to this huge reserve, the food system is less dependent on flows from the global market and helps China contain food inflation in tough years. In terms of grain-storage infrastructure, China has the capacity to store up to 200 million tonnes of wheat and paddy, while India's capacity is 87 million tonnes.

In India, there is an erosion of value of approximately 7-8 per cent (about 18 million tonnes) of total food production worth about $6 billion annually, due to unscientific and insufficient storage and supply-chain inefficiencies. Given China's large trade surplus and foreign currency reserves, any grain imports would not have material impact on their fiscal position. India may face a sharp currency depreciation and ballooning balance of payments if it were to resort to large-scale grain imports. Hence, India needs to enhance storage capacity and increase buffer stock to at least five to six months.

PRODUCTIVITY AND POLICY MAKING

The stated objective of both countries' agricultural policy is to achieve self-sufficiency and food security. China has surged ahead on productivity through the use of high-yielding seed varieties, extensive use of fertilisers and pesticides (twice of India by per-hectare use). China has also focused significantly on cash crops, helped by stagnation of grain consumption and increasing consumption of fruits, vegetables, milk, milk products and meat. The Chinese Government has, since the 1970s, invested significantly into agricultural research and development (R&D), especially to create high-yield varieties of rice, wheat and maize.

After the first green revolution , India's agriculture R&D has been academic and localised instead of supporting productivity at national levels.. China accounts for over 70 per cent of world's fresh-water aquaculture production and its livestock production has grown over 8 per cent annually for the last decade.

During the 1990s, China encouraged import of large amounts of new genetic material for hog, beef, poultry and dairy industries from the US, Japan, Canada and New Zealand, which has improved the quality of the genetic stock in China's livestock.

While India and China have some congruency on policy front including a State-enforced minimum support price, there are notable differences in respect of wholesale agri-markets, agriculture subsidies and cooperative financing system for agriculture.

Land ownership is individual in India but collective in China. While the Chinese Government provides direct subsidies to its farmers, subsidies in India are indirect. Compared to India, China has well-developed commodity exchanges and futures markets and tighter rules for converting or selling crop land for non-agricultural use. Unlike India, China has a price ceiling to minimise the effects of food inflation.

WASTE MANAGEMENT

In India, less than 3 per cent of fruits and vegetables produced is processed while total processing in the agriculture sector is less than 8 per cent. By contrast, 40 per cent of food consumed in China is now processed (80 per cent in Western nations). Lack of economies of scale due to size restrictions on industry (under Small Scale Industries rules), supply-side constraints for agri-inputs because of rules governing large-scale corporate farming, and paucity of dry and cold storage infrastructure are the key shortcomings of the Indian food-processing industry.Since many sections of food processing were reserved for the small sector, there are hardly any large food-processing companies in India. On the other hand, over 70 of China's 500 largest companies are in the food-processing sector (in India this would be at most 15), and this industry is growing rapidly.

AGRI-TRADE

India's agri-trade with the rest of the world is limited with agri-exports of $25 billion (10 per cent of total exports) in financial year 2011 and agri-imports of $8 billion (less than 3 per cent of total imports). Restrictive agri-import policies in India partly fuelled by insecurity of domestic cultivators (political motivations) and some genuine and misguided concerns of disease import have led to inflationary pressure on key food articles.

Bulk of India's agri-exports are rice, oil meal, cotton and spices (commodities with limited value addition) and bulk of the imports are pulses, edible oils and sugar. China, on the other hand, has a liberal agricultural import policy and is among the world's largest importers of commodities, including edible-oil seeds and even cattle.

According to China's Custom statistics, agri-imports for 2010 were $65 billion and exports were over $30 billion, taking the agri-trade value to over three times that of India. China's agri-trade deficit has been growing but is balanced by exports of manufacturing and electronic goods. This has enabled it to maintain food inflation under 6 per cent as compared to the consistent 10-plus per cent for India.

CONCLUSION

India and China are similar in terms of issues and policy challenges in agriculture. Both countries, due to their strong economic growth, are also experiencing inflationary pressures on food.

However, India's total fertility rate of 2.6 (China's is 1.6) poses greater challenges as India's population will continue to grow faster and remain young longer, demanding high-nutrition food.

Like China, India needs to focus on livestock, poultry and aquaculture (all key sources of protein), focus on R&D in agriculture by increasing budgetary allocations, promote farm mechanisation through producer cooperatives, focus on replenishing aquifers through scientific water-harvesting in villages, avoid pitfalls of excess use of fertilisers and pesticides liberalise agri-trade policies to manage food prices and focus on economies of scale and integration in food processing.

The writer is President and Managing Director (Corporate Finance and Development Banking), YES Bank.

FDI in Retail May Not Always be Favourable to Local Farmers

The Economic Times - A recent analysis of Nielsen data on food prices in US done by JP Morgan has found that for every 12-week period since May 14, 2011, Wal-Mart has been raising food prices faster than its competitors. So, if the consumers are not benefitting by way of lower rate of price increase, then who is benefitting from large retail chains? Certainly not the suppliers. Contrary to popular opinion, the FDI in India is not being driven by the consumers. Nor by the producers.

The process by which capitalism has been replaced by corporatisation is being defended using the theoretical principles of competitive capitalism. However, there is no theoretical economic foundation to support the prevailing belief that a corporatised economy is capable of meeting the overall needs of society.

Corporatism is not capitalism. Corporations are designed to amass capital – to generate profit and to grow. None of the necessary conditions for competitive capitalism exists in today’s economy in India. The economy is moving away from market coordination towards a corporate version of centralised planning (supported by state-of-the-art technology). The problems of the centrally-planned economies of the communist regimes were not merely a lack of sophistication in management and planning. Central planning by government or corporation is a fundamentally wrong way to try to coordinate an economy. Had centralised planning been a result of free-market competition, it would then have been good for society. Corporatisation is not a market aligned system but a centrally-command structure with the basic flaw of growth for the sake of growth.

Corporate agriculture is fundamentally different from the agriculture we have known in India, in the past. A corporation is a legal entity and not a person. It has no family, no community, and increasingly no nationality. The corporations that increasingly control agriculture have no commitment to India and certainly not to the farming in India. The retail corporations may help the growers get loans to buy buildings and equipment but they will abandon those growers if the contractual arrangement becomes unprofitable or even troublesome. We are in the midst of a great social experiment – an experiment being carried out by non-human entities that we have created and let loose to plunder Indians.

Specialisation, standardisation, and consolidation are often cited as the keys to successful farming. In the past, the policy and practice in India had supported the industrialisation of agriculture by favouring those who have specialised in specific enterprises, standard production practices and operated on a commercial scale. Until recently, the industrialisation of agriculture meant advantages of the economies of scale but now it points to a situation of increased corporate control.

For the farmers, the most important strategy for surviving the next farm crisis may be to get to know the neighbours and turn them into customers. The concerted moves for dismantling the APMC market structure in the name of malpractices and corruption is directed to deny the opportunities of a decentralised free-market to farmers.

Farmers’ markets, or cooperative marketing in any form, will provide more opportunities to bring local farmers and community members together through their common interests in sustainably produced food. Friends don’t abandon friends in the neighbourhood when the going gets tough.

Those who eat locally won’t go hungry and those who market locally won’t go broke. Instead, they will find ways to work through their problems together and their relationships will grow stronger as a consequence. 

Shyamal Gupta Chief Business Officer NCMSL 
views are personal

Food processing ministry to set up collection, distribution centres in 12th Plan

The Hindu Businessline Bangalore, Dec. 1: 

The Union Ministry of Food Processing in the XII Five Year Plan plans to give emphasis on improving supply chain by creating large primary collection and distribution centres throughout the country involving private sector.

Addressing the ‘Bounteous Karnataka' global agri-business and food processing summit 2011 in Bangalore, Mr Rakesh Kacker, Secretary to the Ministry of Food Processing Industries, said, “During the XI Five Year Plan, we gave emphasis on creating infrastructure, now the time has come to improve supply chain efficiencies, it is here we plan to create collection and distribution centres.”

“To achieve this, we plan to make Karnataka a model State for the State has food parks, cold chains and modern abettors,” he added.

The central government is also planning to involve State governments to implement some food processing projects which benefit both the farmers and consumers.

“For effective implementation and monitoring of projects, we plan to involve State governments, here Karnataka can take advantage,” he mentioned.

Dr S. Ayyappan, Director General (ICAR) & Secretary (DARE) in his address said “For the XII Five Year Plan, we plan to focus on human resources development and already discussions are underway to make ‘Students Ready' by involving agriculture universities and ‘Farmers First', where in students as part of the course have to spend 25 per cent of their time with farmers”.

“This is being done to help farmers for they need experts to guide and equip them with timely farm technology or knowledge,” he added.

“About 10 incubators related to agriculture are planned in the country to give major push to farm level innovation. In Karnataka, University of Agricultural Sciences, Bangalore and Dharwad are being included. This is expected to give a push in developing low cost farm technologies in the State,” he added.

As skill building exercise, ICAR is planning to use ICT to create Virtual Krishi Vigyan Kendra (VKVK) network in the country. The VKVK platform expects to connect all KVKs with farmers through internet and mobile technology.

Dhanuka in talks with 2 global pesticide majors for possible JVs

The Hindubusinessline New Delhi, Dec. 1: 

Dhanuka Agritech Ltd (DAL) is in talks with two global pesticide majors to set up manufacturing facilities here for technical material or active ingredients that go into proprietary formulations being marketed by it in India.

“We are negotiating with two multinationals, one American and the other Japanese, to manufacture technical (raw) material that we are now importing from them. These could be joint ventures or production under licensing arrangements, both for our own formulation requirements and as well as for exports. It would work out much cheaper to manufacture these molecules here,” said Mr M.K. Dhanuka, Managing Director, DAL.

The Rs 500-crore company, which claims to be the fifth largest domestic branded pesticide formulation marketer after BayerCropScience, Syngenta, Rallis India and DuPont, currently has 24 products based on technical material sourced from Dupont, Chemtura Corporation, FMC Corporation, Dow AgroSciences, Sumitomo Chemical Company, Mitsui Chemicals, Hokko Chemical Industry and Nissan Chemical Industries.

REVENUE

These 24 formulations, out of DAL's total 80-plus branded pesticides portfolio, generate about 60 per cent of its total revenues. These include some Rs 160 crore from just four products – Rs 100 crore from ‘Targa Super' (a proprietary herbicide, with quizalofop-p-ethylactive ingredient, belonging to Nissan Chemical), Rs 40 crore from ‘Caldan' (a cartap hydrochloride-based insecticide of Sumitomo Chemical), Rs 15 crore from ‘Omite' (a propargite miticide of Chemtura Corporation), and ‘Dunet' (a methomyl insecticide of DuPont).

In the above four cases – besides also for Dupont's ‘Qurin' (chlorimuron-ethyl herbicide), and Chemtura's ‘Vitavax'(carboxin fungicide) and ‘Dimlin' (diflubenzuron insecticide) – even the brands are owned by the foreign firms, with DAL effectively being a distributor for these products. For the remaining products, DAL has created its own brands such as ‘Sheathmar' (validamycin), ‘Nukil' (ethofenprox) and ‘Kasu-B' (kasugamycin), though their technical material is imported from Sumitomo, Mitsui and Hokko.

“Having built up a market for these molecules here, it would make sense to go for their manufacture. We have applied for 37 acres of land at Dahej in Gujarat, which could be the right site for this purpose to supply both the domestic as well as export market,” Mr Dhanuka told Business Line.

DAL's existing facilities at Gurgaon (Haryana) and Sanand (Gujarat) only manufacture formulations. “We have no intention of going in for manufacture of bulk active ingredients, barring the new generation molecules that we are now importing through our foreign tie-ups. There is no point in manufacturing generic technical materials such as cypermethrin, monocrotophos or glyphosate, where there are hardly any margins and we can very well source them cheaper locally from United Phosphorus, Excel Industries, Gharda Chemicals or Rallis,” he added.

But how sustainable is the company's model of being essentially a local distributor for multinational crop protection majors? “We have a huge advantage of 7,000-strong dealer network, reaching 70,000 outlets and 10 million farmers. Not many multinationals – except Bayer, Syngenta, DuPont or Monsanto – have this kind of distribution infrastructure in India. The Japanese, particularly, are not keen on investing in dealer depots, branch offices, godowns and marketing teams for selling just two or three molecules,” he pointed out.

vishwa@thehindu.co.in

FDI in India: Farmer bodies throw their weight behind retail FDI

The Economic Times 1/12/11KOLKATA/NEW DELHI: Large farm lobbies are backing the government's decision to allow foreign supermarkets to set up shop in the country, saying it will shorten the supply chain and get growers a larger share of the final selling price.

Most farmers, however, want the government to go a step further and make it mandatory for retailers to buy 75% of their produce directly from farmers, bypassing the restrictive 'mandi' auction system.

"Traders and middlemen are sucking our blood. But no political party is talking about our interest because we are not organised like labour unions, nor have deep pockets like traders," said P Chengal Reddy, secretary-general of Consortium of Indian Farmers Associations ( CIFA).

"India has 600 million farmers, 1,200 million consumers and 5 million traders. Both farmers and consumers are benefited by FDI in retail," Reddy added.

Last week, the government allowed 51% foreign direct investment (FDI) in multi-brand retail and also raised FDI limit in single-brand retail to 100%. The move, however, stirred up political dissent with parties such as the BJP, CPI(M) and TMC demanding the government drop its plan as it would cost millions of jobs.

But big farmers are all for retail reforms. Bharat Krishak Samaj, a farm lobby with more than 75,000 members, said it supports FDI in retail on the condition that direct procurement from farmers is made mandatory. "Till it is a law, nobody is going to follow it. Everyone is bothered about shopkeepers," chairman Ajay Jakhar said.

Farmer leaders say the stranglehold of middlemen and traders is at the root of rural poverty and India's food inflation.

CIFA's Reddy said farmers' biggest problem is marketing. "Farmers declared a crop holiday in Andhra Pradesh because they couldn't sell. Cotton farmers in Maharashtra committed suicide because they couldn't sell," he said.

"FDI in retail will open alternative avenues of sale for us," Reddy added.

He said the mandi system does not favour farmers because they lose 5% of the value in transportation, 10% in broker commission and 10% in quality parameters. "Direct purchase by large retailers will solve this problem."

The thumb rule of price rise from a farmer to a consumer in perishables such as fruits and vegetables is 1:2:3:4, said S Baskar Reddy, joint director (agriculture & rural development) at Ficci, an industry body. What a farmer sells for 1 is sold at the mandi at 2, which becomes 3 at the mandi at the consumption centre and 4 when it reaches the consumer through a retailer.

Farmers near urban areas are already finding ways to circumvent the mandi system and reach the consumer directly. For instance, 23-year-old farmer S Chandrasekhar drives 10 km every Sunday to sell fresh vegetables to joggers and walkers on Chennai's Besant Nagar beach. Some 1,160 km away, Shriram Gadhave, president of All India Vegetable Growers Association, organises buyer-seller meets at Thane and surrounding areas to facilitate better price recovery. "FDI in retail will give us an instrument to get better prices and help consumers as well," Chandrasekhar said.

Opening up retail sector to create over 10 m jobs: Sharma

The Hindu Businessline - New Delhi, Nov 25: 

The Centre on Friday said that its decision to further liberalise retail trade will in turn help in generating around 10 million jobs in the next three years. The move will also help attract several big-ticket investments worth “billions of dollars”, it said.

The Union Cabinet had on Thursday permitted 51 per cent foreign direct investment (FDI) in multi-brand retail trade with Government approval and 100 per cent FDI in single brand retail. The existing policy had prohibited FDI in multi-brand retail and allowed only 51 per cent FDI in single brand retail.

The Centre will issue a Press Note next week to lay down the guidelines of the policy on FDI in single-brand and multi-brand retail.

It expects fresh investment proposals in the retail trade soon after that and these proposals will then be considered by the Foreign Investment Promotion Board. After that, the companies will have to approach the States for the requisite licences to begin operations.

“In the next three years, over 4 million jobs will be created in the front-end, while the logistics side of the retail trade will generate around 5-6 million jobs,” the Commerce, Industry and Textiles Minister, Mr Anand Sharma, told reporters. The jobs will be created in the agro and food processing industries, packaging, bottling, canning, containerising, as well as transport sectors.

On the reason for liberalising the FDI policy on retail trade, Mr Sharma said, “Unless and until this is done (liberalise retail trade), we will have a situation where the farmer bleeds and the consumer is fleeced.” The new policy will result in better returns for farmers, cheaper options for consumers as well as help attract the latest technology in retail infrastructure, in cold chain and in value-addition, he said.

‘PREDATORY PRICING’

Mr Sharma also denied that allowing more FDI in the retail trade would result in big players resorting to predatory pricing to push out small stores. In this regard, he said the country has a strong Competition Commission of India (CCI), adding that discussions are on “at the highest level” to further strengthen CCI.

‘ONLINE RETAIL TRADE’

Asked how the condition of allowing retail sales locations to be set up only in cities with a population of over 10 lakh as per 2011 Census will be applicable at a time when more people are buying and selling using internet, Mr Sharma said the Industry Ministry will look into that aspect. However, the Minister admitted that the issue of online retail trade has not been adequately addressed by the policy.

Meanwhile, an official statement said only 53 cities qualify for FDI in multi-brand retail out of nearly 8,000 towns. “The FDI in multi-brand retail is being opened in 53 cities only with population of 1 million and for the rest of the country, current policy regime will apply,” it said, adding that cities may cover an area of 10 km around the municipal/urban agglomeration limits of such cities.

JOB CREATION

The official statement said: “Industry estimates suggest employment of one person per 350-400 sq.ft of retail space, about 1.5 million jobs will be created in the front-end alone in the next 5 years.

“Assuming that 10 per cent more people are required for the back-end, the direct employment generated by the organised retail sector in India over the coming 5 years will be close to 1.7 million jobs. Indirect employment generated on the supply chain to feed this retail business will add millions of jobs,” it added.

MINIMUM INVESTMENT

Mr Sharma said minimum amount to be brought in as FDI by the foreign investor would be $100 million. The Minister added that at least 50 per cent of total FDI brought in shall be invested in 'backend infrastructure'.

‘Back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units, the statement said. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse and agriculture market produce infrastructure. Significantly, expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure, it added.

SOURCING FROM SMALL INDUSTRY

The policy also mandates that at least 30 per cent of the procurement of manufactured/ processed products shall be sourced from 'micro and small industries’ which have a total investment in plant and machinery not exceeding $1 million. Mr Sharma said the new policy will also result in increased sourcing of products from India.

According to the policy, 30 per cent sourcing is to be done from micro and small enterprises which can be done from anywhere in the world and is not India specific. This is to make it compliant with the World Trade Organisation norms.

This condition is to ensure that India’s SME sector, including artisans, craftsman, handicraft and cottage industry benefits, especially in sectors like textiles, gems and jewellery, leather and jute, the statement said. “This condition is applicable for multi-brand retail in all cases and for single brand retail in cases where foreign equity exceeds 51 per cent,” it added.

ENHANCING FDI CAP IN SINGLE BRAND

On the rationale for enhancing FDI ceiling to 100 per cent in single brand retail trading, the statement said, "In the last 5 years, under the current regime of 51 per cent FDI in single brand retail, FDI of only $44.45 million have been received, constituting barely 0.03 per cent of total FDI inflows."

"Globally, single brand retail follow a business model of 100 per cent ownership and global majors have been reluctant to establish their presence in a restrictive policy environment. The current cap of 51 per cent confers a right to pass all ordinary resolutions, while enhancing cap to 100 per cent will confer full ownership and control," it said.

Mr Sharma also referred to the retail policy in countries such as China, Thailand, Russia, Indonesia, Brazil, Argentina, Singapore and Chile where 100 per cent FDI is permitted in the sector and added that the retail and wholesale trade as well as agro-processing sector have posted impressive growth in those countries. He said, therefore, the new policy would not adversely impact small retailers in India.

Fertilisers set to turn dearer on rupee's slide

The Hindu Businessline New Delhi, Nov. 22: 

Even as planting for the current rabi season gets underway, farmers are in for a tough time on the fertiliser front. The reason: A weakening rupee that has made imported fertilisers costlier and companies passing these on to them.

The maximum retail price (MRP, net of local taxes) of di-ammonium phosphate (DAP) ruled at around Rs 11,000 a tonne at the start of this year's kharif season, which rose to Rs 14,000 towards the end. For the ongoing rabi season, companies started off by raising the price further to Rs 18,200 a tonne.

“Those hikes were only a result of global prices going up over the last few months. It doesn't take into account the rupee's depreciation, which is much more recent. To offset that, we may have to hike the MRPs further to Rs 20,000 or more”, said an official from a leading private phosphatic and complex nutrients company.

The same holds for muriate of potash (MOP), which was priced at Rs 6,300 a tonne at the start of this kharif and then raised to Rs 9,000 mid-way through the season. For the current rabi, companies announced a rate of around Rs 11,300, which, they now say, will have to be revised still upwards to Rs 12,600 or so in the light of the rupee's recent slide. The rupee has weakened by 18.5 per cent against the dollar till date since April this year.

No hike: Iffco

The country's largest fertiliser seller – Indian Farmers' Fertiliser Cooperative (Iffco) – has, however, indicated that it will not raise prices further now. “We have begun negotiations with our suppliers seeking discounts on the contracted prices to tide over the situation as we don't want to pass on the burden to farmers,” said Dr U.S. Awasthi, Managing Director of Iffco.

The co-operative, which imports fertilisers from about 10 suppliers located in the US, Russia, Japan, Morocco, Israel and Jordan, has sought a discount of $50 or 7.3 per cent on its originally contracted price of $677 a tonne (cost & freight, India) for DAP. A similar discount of $45 a tonne is being sought on complex fertilisers that contain various proportions of nitrogen (N), phosphorous (P) and potash (K).

“It is an unprecedented situation. I hope our suppliers understand this and support us or else we may have to invoke force majeure clause, cut imports and shut down our units,” Dr Awasthi told Business Line.

Costlier DAP, MOP and complexes on account of increase in global prices as well as a weak rupee have also created a piquant situation vis-à-vis urea, the MRP of which continues to be regulated by the Centre. Since the decontrol of all non-urea fertilisers since March 2010, the MRP of DAP has almost doubled (from a level of Rs 9,350 a tonne), while almost trebling for MOP (from Rs 4,455 a tonne). On the other hand, urea prices have risen by just 11 per cent, from Rs 4,830 to Rs 5,364.69 a tonne.

The disproportionate price increases have led to a sharp dip in DAP and MOP sales, even while farmers are applying more urea (see Table).

Besides higher urea sales, companies have also sought to maximise production of complexes that contain less P and K compared with high analysis fertilisers such as DAP and MOP. Thus, instead of selling DAP or MOP directly, they have been trying to push more complexes such as 12:32:16:0, 20:20:0:0 or 14:28:14:0 that contain less of these nutrients.

vishwa@thehindu.co.in

Nabard sanctions Rs 717 cr for crop loan refinance in AP

The Hindu Businessline - Hyderabad, Nov. 22: 

Drought-hit farmers in Andhra Pradesh can look forward to some financial help. Nabard has sanctioned Rs 717 crore for providing refinance to co-operative banks and regional rural banks in the State.

Farmers in 555 of the nearly 1,100 mandals affected by drought need fresh credit this year. The additional allocation from Nabard is essentially for supporting seasonal agricultural operations (crop loans) by these banks.

According to a release, Rs 550 crore of the allotted funds have been earmarked for co-operative banks and Rs 167 crore for rural banks. This was in addition to the existing limits of Rs 4,200 crore, including Rs 2,600 crore for cooperative and Rs 1,600 crore for rural banks.

During last year the State could absorb Rs 3,300 crore from Nabard. There is an increase in credit demand from the farmers in the State. There was also a buoyancy in the ground level credit and banks are expecting that the credit demand will increase during the ongoing rabi season.

Of the Rs 2,600-crore allotted for the present year, co-operative banks have already refinanced up to Rs 1,762 crore from Nabard. In the case of rural banks, the figure is Rs 1,080 crore against Rs 1,600 crore.

While the banks are expected to utilise the full funds this year, Nabard was geared to consider further refinance to meet their requirements. Nabard provides crop loan refinance for production credit to cooperative banks at a rate of 4 per cent and for rural banks at 4.5 per cent a year respectively.

soma@thehindu.co.in

Seed replacement rate for paddy rise farmhands decrease

The Hindu Business Line - Mumbai, Nov. 14:

The problem of labour availability has brought in some cheer for the seeds industry, especially in South India.

“The seed replacement rate in paddy is increasing in South India in view of the labour problem,” said Dr M. Ramasami, Managing Director of Salem-based Rasi Seeds Pvt Ltd.

The replacement rate is around 95 per cent in paddy, according to him.

According to Government statistics, the seed replacement rate in Andhra Pradesh and Tamil Nadu for paddy is 82 per cent and 67 per cent respectively till 2008. The seed replacement rate is also higher in the case of maize since hybrids are being used. Even in paddy, the increased preference for hybrids is seen as the reason for the rise in seed replacement rate.

Till 2008, the all-India seed replacement rate was 25.87 for paddy, while it was marginally lower for wheat at 25.23. The seed replacement rate is higher for maize (corn) at 44.24 per cent and bajra at 48.47 per cent.

“Even in traditional varieties, farmers are going for seed replacement due to labour shortage. It needs labour to keep the seeds separate, process, dry and then store them,” Dr Ramasami said.
Economic viability

On the other hand, adoption of methods such as the system of rice intensification (SRI) in Andhra Pradesh and Tamil Nadu is also helping.

“Earlier, farmers were asked to use 30 kg seeds on an acre. With methods such as SRI, it is enough for them to use just 5 kg. It is economically feasible for them to buy seeds now,” he said.

Rasi Seeds, as part of its efforts to improve research and development in rice, has moved its rice research station to Hyderabad from Salem in Tamil Nadu.

It has also set up research stations for vegetables in Kullu (Himachal Pradesh), Gurgaon (near New Delhi) and Bangalore (Karnataka), said Dr Ramasami, who was here to attend the fifth World Cotton Research Conference.

“We have entered the vegetable seeds market aggressively in the last three years since it offers us better scope,” he said.

Rasi Seeds is more popular for its cotton seeds but the fact that the crop is grown in only nine States has forced the company to expand its activities to other crops and horticulture. The company has also started marketing maize seeds for the last three years.

On cotton, Dr Ramasami said that his company was field-testing a variety that would grow more closely. “We are conducting field trials in the North and may commercially release it next year,” he said.

The variety, by growing closely, will help in better fertilisation, irrigation and also ease problems of picking during harvest.

Asked how much the variety would yield, he said: “It is a better yielding one.”

On mechanisation of cotton cultivation, he said breeders or seed makers would have to be given proprietary rights or seed production costs would have to be drastically lower. “It will take time for mechanisation but these things will have to happen,” he said.

Food Logistics needs to expand its network

Paddy Procurement is set to be affected

Tomato market in Maharashtra keeps commission agents at bay

 The Economic Times

 

PUNE: The farmer does not pay the commission agents nor the porters here. He decides the price of his produce and sells it directly to the trader. The open auction market for tomatoes in Narayangaon on the Pune-Nashik highway is something that every farmer wishes exists in his village.

In any market where agricultural produce is sold through commission agents, the farmer does not know the price at which a deal happens between the agent and the trader. He has to believe what the agent tells him and be happy with whatever pittance he gets paid a month later. But at the Narayangaon market, the trader or his representative comes to the farmer and quotes a price. No middlemen involved and the deal is struck. The farmer gets his money right on the spot.

"We are now saving 30% just because of doing away with the commission agents and other market-related expenses," said Prakash Wagh, a tomato farmer from village Pimpalvandi near Narayangaon who is growing the vegetable for the past 30 years.

Today, farm income has more than doubled in the region while the Junnar APMC, under which the open auction market functions as a sub-market, has succeeded in increasing its income five times in four years. "Our turnover has increased from Rs 67 lakh four years ago to Rs 3.75 crore this year," said its secretary Balasaheb Mhaskare.

The market did not come into existence as a reform measure by the government. A group of younger farmers, called the Shivneri group of agricultural graduates, literally forced the government to allow the market come into existence.

"The turnover of the tomato market has increased from Rs 3 crore in 2004 to more than Rs 100 crore last year," said Sriram Gadhave, president of the Shivneri group and the national president of the All India Vegetable Growers' Association. Gadhave took the initiative of developing the market and is making sure that it survives in the midst of middlemen-controlled markets.

Due to its specific climatic conditions, Narayangaon supplies more than 60% of tomatoes consumed in the country during the four months of the rainy season.

There is a strong demand from farmers to extend the open auction system to other crops. The Junnar APMC has started such a market on a pilot basis for bananas at Otur near Junnar.

The growing irrelevance of a MSP

 The Business Standard

The Central government’s MSP has proven to be unrealistic and ultimately disastrous for India’s farmers.

Imagine that the first of the month rolls around triggering a ritual that never fails to give you a distinct, intangible sense of well-being —logging on to your online bank account and seeing your account balance pumped up thanks to a well-deserved paycheck that’s just been deposited. Imagine the feeling in the pit of your stomach when you realise that your paycheck is a third, or maybe even half what it should be because of the vagaries of some complex pricing mechanism controlled by Human Resources. Would you come back to work? This is sort of what farmers across the length and breadth of India have been wrestling with—where the costs of cultivating their land is seldom met by the sale of foodgrain to the government (In India, the government, not private companies, are responsible for procurement) because the price—called the minimum support price (MSP)—is far below what would allow the farmer to earn a living. So grave is the situation that 40,000 farmers in East Godavari district of Andhra Pradesh recently decided to let their fields go fallow this year.

Year after year, the central government declares an MSP which neither reflects the cost of production, nor provides support to farmers. Here’s how it is calculated: First, the department of statistics within the Ministry of Agriculture collects data from about 8000 farmers across the country on a daily basis for a month in a scheme called ‘Cost of Cultivation’. This includes a arange of agricultural inputs such as labour costs, land rent charges, and seed and fertiliser costs. These are then forwarded to the Committee of Agricultural Costs and Prices (CACP), within the same ministry which evaluates the data and then makes a recommendation of an MSP for 24 different commodities to be accepted or rejected by the Cabinet.

Yet, the MSPs very rarely reflect the on-ground reality of farmers in states as a farmer in Punjab, with an average cost of male labour at Rs 250 a day, for example, will face a very different economic equation than a farmer in Maharashtra where labour is Rs 80 a day. Input costs differ dramatically across states and regions. In fact, states go through a similar exercise every year to establish a realistic MSP for their states and send it to the Centre which apparently ignores it and churns its own numbers.

To give you a sense of how far-off the Centre’s finger is, on the pulse of agricultural reality in the country, here is the cost to grow moong based on the calculations done by the Maharashtra government this year versus the Centre’s numbers.

The main inputs (per quintal) with their rupee costs in brackets range from hired human labour, male (Rs 87) and bullock labour (Rs 3459) to seed (Rs 943) and manure (Rs 475), to insurance (Rs 167) and interest on capital (Rs 297) amongst other things. Now, these along with rent and family labour, give a cost per quintal of Rs 3,482. With a 15 per cent profit it becomes Rs 4,062.

The MSP for moong dal declared by the CACP is Rs 3300 this year.

The CACP never releases the inputs it uses to derive the magical numbers each year. “The labour costs, or the land costs are never revealed,’’ says Vijay Jawandhia, of Shetkari Sanghatna of Vidarbha, an organisation for farmer rights.

Last week, the latest MSPs were announced with channa going up to Rs 2,800 while the going market rate is Rs 3,500, in addition to the commodity’s import allowed duty-free. Soya has been selling in the market at Rs 2,000 a quintal for the last four years, but priced this year by the CACP at Rs 1,600.

Another big oversight is that the CACP doesn’t factor the steep rise in certain input costs. For instance, Di ammonium phosphate (DAP), a key fertiliser used by farmers at the rate of two to three bags in an acre of wheat, has seen its price increase from Rs 450 two years ago to Rs 900 today. A bag of 50 kilos sells for Rs 1200 in the black market.

Several objections have already been raised against the MSP methodology. The Parliamentary Standing Committee on Agriculture in 2008 questioned the method of averaging the cost of production and wages in different regions, saying it was unfair. It even suggested that if costs for all 24 inputs be calculated on neutral ground at a government university campus, it would offer a better solution. The MSP, said the committee, was being created by people sitting in offices and without even going to the field.

Yet, Ashok Gulati the new chairman of CACP feels that a higher MSP can never be a solution. “Not only will it add to inflation and hurt consumers, it serves no purpose if there is no procurement,'' he says citing the example of Bihar where farmers sold paddy at 15 per cent below the MSP. “The solution lies in cash compensation to farmers where they get prices below the MSP, or where there is no procurement.'' says Gulati.

Could that be a realistic panacea ? Take for instance this year’s bonus of Rs 500 that the Government had declared to farmers who sold pulses directly to NAFED (the central procurement agency for pulses) within two months of harvest. Jawandhia says that NAFED never even showed up in Vidharbha and no one got paid.

A. Haque the former CACP chairman dismisses Gulati’s solution of a cash compensation. “It is not practical to do it. Where are the banks, and where are the accounts in the remote villages?” he asks. Haque, to his credit, implemented a steep hike in MSP in his last year as chairman. “There is no substitute to a good MSP and procurement and storage. All other talk is just hot air,’’ he says.

Haque also dismisses Gulati’s fears that higher MSP would hurt consumers. If the Government is giving rice and wheat at Rs 2 and Rs 3 a kilo does that not negate the higher MSP the farmers are paid? You don’t need an economist to understand this. Of course there is a limit to increasing MSP. But at least it should reflect the cost incurred,’’ says Haque.

Haque’s solution: Take the highest price so no one loses. He also suggests a choice between minimum wages or market wages to calculate MSP. These would automatically boost the profit margin too, he says. Another welcome move: make the CACP a statutory body as recommended by the Y K Alagh committee set up to study reforms in CACP. This was repeated by the MS Swaminathan Committee. The Government ignored both. Farmers think that this is a key solution for their communities. “The CACP should be independent and it should speak for farmers and not for consumers,” says Ajay Jakhar a farm sector activist and son of former Speaker Balram Jakhar. He can only hope that someone in government is listening.

Effects of higher farm support prices

 The Hindu Businessline
Ensuring that the farm sector remains commercially viable is an important policy goal, given India's growing requirements for food.

Another good farm harvest is expected this year, although the monsoon rains were not quite well-timed everywhere. There was untimely and excessive rainfall in several places and the impact was felt in the higher prices of fruits and vegetables. Nevertheless, a foodgrain harvest of 240 million tonnes has now been projected.

The year is set to be another procurement and storage challenge for the FCI and other agencies. With the current stock of foodgrain in the central pool at about 50 million tonnes, the task of storage and distribution will require much more innovation and efficiency to ensure that better output simply does not mean more subsidy and wastage.

With the bountiful harvest in sight, will prices oblige and lead to a decline in the inflation rate? If the increase in food prices is essentially a signal of rising demand relative to supply, then maintaining a favourable price environment for farmers is important to increase supplies.

Apart from the bountiful harvest now there is also a favourable price environment for major foodgrains. After all, the minimum support price was raised by 8 per cent for kharif rice, and by 9-10 per cent for pulses. The increase in the case of oilseeds was even greater.

Even in cotton, which has seen a technology revolution, there was an increase in MSP. The MSP for rabi crops has also now been increased significantly. In fact, the turnaround in pulses production in recent years is attributed to the price effect.

Unavoidable increase

Given the sharp increase in cost of production, the increases in minimum prices were probably unavoidable. Ensuring that the farm sector remains commercially viable is a policy goal for a populous country like ours, given the growing requirements for food.

The minimum prices are actually set subject to a variety of conditions, keeping in view the interests of producers, consumers and the government, which has to manage the financial outlays besides the commercial incentives for farmers. The generally tight international grain markets in recent times and the depreciation of the rupee would also justify favourable prices for domestic producers.

MSP is not the only instrument with which to influence production, although unfavourable prices are unlikely to boost output. The balance between price and other instruments to raise production has always been a tenuous one. If prices favourable to producers also lead to more investments, productivity improvements and therefore output, a period of rising farm prices is worth the effort.

Facilitating the subsequent changes is crucial for the success of price as an instrument to achieve output growth. The minimum support price is one instrument but it has several goals to consider. More important, it has to be combined with other policy instruments to achieve the often contradictory goals. A further complication that MSPs must contend with is the international markets. If domestic prices are systematically higher than international prices, domestic consumers are losing out on consumption. If the price scenario is the opposite, producers are losing out on income opportunities.

Impact on market prices

To the list of concerns that those setting the MSPs must be watchful of, we must now add inflation. Do the minimum support prices lead to a cost-price spiral, as the wage increases may lead to a wage cost-price spiral? In a sense, any moderation in farm prices is also subject to a moderation in the prices of farm inputs, particularly energy, fertilisers and wages.

If the increases in input prices are persistent there would indeed be stagnation in farm output and higher prices as well. The cost-price linkage can be broken more effectively if the cost-push elements are diffused and there are productivity responses.

Procurement prices are often higher than the MSP. They are more likely to have an impact on market prices and the prices received by the farmers than just the MSP. It is also the case that changes in MSP do not necessarily translate into the same percentage change in actual prices. For instance, the increase in the WPI for rice has remained at about 5 per cent or less in June-September this year.

If market prices are higher than the minimum prices, market forces have some room to operate in times of a bumper harvest. There is also the fact that effective purchase mechanisms may not be available for all farmers, who may end up selling their produce at lower prices.

The MSP is at least a signal that farm income is likely to suffer if there is no price correction. It may act as price protection to farmers where implementation is effective. But its positive impact is limited to the crops where it is available. In this sense, even when MSP does not play a significant role, as in the case of fruits, vegetables, milk, eggs, fish and meat, price increases have to be addressed by improving supplies.

(The author is Senior Research Counsellor, NCAER. The views are personal. blfeedback@thehindu.co.in)

Government brings farmers in loop to push FDI in multi-brand retail

 The Economic Times -

NEW DELHI: The government has readied a plan that will make it mandatory for foreign retailers eyeing India's multi-brand retail sector to do bulk of their sourcing from small farmers, its latest attempt to make the long-delayed reform palatable to opponents.

The commerce and industry ministry is ready with a cabinet note that suggests allowing 51% foreign direct investment in multi-brand retail and has provisions that require potential entrants to source at least 60% of farm produce from small farmers having land holdings of less than 10 hectares, officials with knowledge of the note's contents said.

The note also includes another provision that will ential multi-brand retailers sourcing 30% of their supplies from small and medium enterprises anywhere in the world, they added. The cabinet note is ready and is awaiting clearances from the highest level, an industry ministry official said.

Of late, FDI in multi-brand retail has become a test case of the UPA government's commitment to push pending economic reforms and revive flagging sentiment.

Indian rules now allow 51% FDI in single-brand retail and 100% in wholesale cash and carry operations. Multinational retailers have for long been lobbying for entry into India's $400-billion and fast expanding retail market, but foreign investment in multi-brand retail has for years been a political hot potato, with elements within the ruling coalition, the Left parties and the BJP opposed to it because they believe organised retailers will kill small shopkeepers and traders.

Policymakers in the government are keen to allow FDI in multi-brand retail as they believe this is one reform that could bring modern technology in much-needed back-end infrastructure and help farmers get better remuneration for their produce. The idea received strong backing at a recent meeting of key government economists called by Prime Minister Manmohan Singh.

Officials and some ministers also believe that allowing FDI in multi-brand retail is one reform that could be implemented without much difficulty as it does not need parliamentary approval, unlike the proposal to lift the cap on foreign holdings in insurance companies to 49% from 26%, which needs to be cleared by Parliament.