Farm items in cost-glut pincer

By: | Updated: December 3, 2014 5:19 AM

Plentiful supplies globally and elevated costs of domestic production have put India in an unenviable situation...

Plentiful supplies globally and elevated costs of domestic production have put India in an unenviable situation, reports Banikinkar Pattanayak in New Delhi. This is because prices of several farm and food items have exceeded their subdued international levels, eroding the country’s competitiveness in the export markets in such items.

Coupled with a broader fall in appetite for raw materials in big consumers like China due to concerns over economic growth, high local prices of select items may drive down India’s farm export growth substantially this fiscal, compared with the average expansion of 21% over five years through 2013-14. Despite sitting on huge stocks due to a fourth straight year of production through 2013-14, the world’s second-largest sugar producer is unable to ship out refined sweetener as domestic prices are over 8% higher than in London, thanks mainly to the high benchmark cane prices set by some states.

Similarly, in raw sugar, exports are unviable without a government subsidy, which is yet to be announced for October, leading to a halt in shipments.


In the case of wheat, high minimum support prices caused the grain’s exports to drop 30% during the April-October period to $705 million. The shipment of other cereals, mainly corn, too, dropped 8% between April and September due to abundant supplies from the US and Latin American nations.

Global soyabean prices are 41% cheaper than in India, dragging down exports of soyameal, used as animal feed. Consequently, overall oilmeal exports plunged 51% in the first half of this fiscal from a year earlier. Although the country imposes a 10% import duty on refined edible oils, the domestic prices of locally-produced soyaoil are 15% higher than global levels. Similarly, tea prices are ruling higher than global levels, resulting in an 8% drop in exports during the April-September period, while export competitiveness in coffee has been significantly reduced now as local robusta prices are higher than in the US.

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