Grain Drain

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SummaryFCI has no space to store grain and the govt delays cutting prices, so it cannot even be exported

While the Cabinet did well to lower the minimum export price of wheat last week to $260 per tonne, what is worrying is the opportunity cost of this. Over the years, agriculture has emerged as a big exporting area—from $14.5 billion to $31.9 billion between FY09 and FY13, agriculture’s share in India’s exports has risen from 7.2% to 10.6% during the period and to 11.4% in April-August FY14. The problem is that the minimum export price was set at a time when global markets were at well over $300 a tonne. So, when FCI sold the excess wheat stocks it had—on October 1, it had 36 million tonnes of wheat as compared to the 21 million tonnes that it should have had based on prudential norms—exporters still made a profit even after taking into account transportation costs from FCI’s godowns to Indian ports and from Indian ports to overseas markets. Problem is, global markets have been falling for some time now, and that is why there were no takers for FCI’s latest set of wheat tenders.

While it remains to be seen how much more wheat can be exported at current prices, surely a more logical thing would be to simply link the price at which FCI will sell wheat to a fixed percent lower than an international benchmark price—in which case, instead of the decision being held hostage to when a Cabinet meeting can take place, the price will always be competitive. The costs of the delay are lost export earnings, higher carrying costs for FCI and, possibly even more important, large rotting of grain since FCI does not have enough covered godowns to store more than 60% of the grain it has.

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