Big Picture. A bleak year for farm exports

India's export of agricultural and processed food products is set to decline for the second straight year to $30 billion or so if the data for the first seven months (April-October) of this fiscal are any indication. There’s no denying that global commodity markets are going through the wringer.

Most agricultural commodities have touched their all-time price lows — down 40-50 per cent on an average from their peaks in 2011. But there are other factors, which are equally important, that are depressing India's farm exports.

Over the years, China had been insulating its domestic prices from deflation by accumulating huge stockpiles of grains, cotton, sugar and edible oil. It also made massive imports. However, there’s a limit to how much stock one can hold.

Eventually, Chinese authorities couldn’t ignore the growing divergence between domestic and international prices and started removing the floor prices they had set. De-stocking and import curbs followed.

As a result, China imported 30 per cent less cotton at 1.48 million tonnes in 2015, the lowest since 2006. This trend is likely to continue in 2016 too. The USDA estimates that Chinese corn imports will dip by 55 per cent in 2015-16.

Real depreciation

Substantial depreciation of the Brazilian eal is proving to be a big dampener too. Brazil competes with India in export of several products — buffalo meat, soyabean and sugar.

The Brazilian real has fallen by 45 per cent against the US dollar in 2015, while the Indian rupee has lost only 4 per cent, thereby conferring a significant export price advantage on Brazilian exports vis-à-vis India. Given double-digit inflation and recession in that country, further depreciation of the real can’t be ruled out. That will adversely affect India’s export prospects, going forward.

Crashing global crude prices have reduced demand for guar gum from oil drillers based in the US, China and Russia, which together account for over 80 per cent of India’s total exports of this commodity. India’s monthly export of guar gum stood at $28 million in December 2015 compared to $115.1 million in December 2014, because of both volume and value declines.

Lower prices in export markets along with firm domestic prices have almost ousted Indian soyameal from international markets as is evident from its exports plunging.

Oilmeal exports plummeted 85 per cent to 59,818 tonnes in December from a year ago on lower soyabean crushing and cheaper imports from South American countries.

India's rice export is headed for another straight decline on reduced purchases from Iran and Nigeria. Rice shipments have declined 18 per cent in value terms for the April-November 2015 period. Higher domestic prices and cheaper imports from Brazil mean India will miss its sugar export target by a big margin. Indian mills have so far contracted to export about 850,000 tonnes — about 20 per cent of the export target of 4 million tonnes.

Hardening domestic prices of many agricultural commodities will worsen the situation, disincentivising exports. The delayed global economic recovery is also prompting many countries to limit imports, often on superficial grounds.

The EU decision to extend the ban on four Indian vegetables — bitter gourd, eggplant, taro (arbi) and snake gourd (accounting for around 5 per cent of India’s farm exports) — for another year, citing poor quality control and packaging norms is an instance. However, recent news of Vietnam lifting its nine-month-old ban on Indian groundnut offers some hope.

Executive actions (or inactions) are also adding to India’s farm export woes. For instance, India’s dilly-dallying on a proposed amendment to exempt payments made to Iran for crude oil from 40 per cent withholding tax if Tehran agreed to receive entire outstanding payments of $6.5 billion in rupees, is going to be another negative for India’s farm export prospects.

Iran could have used the rupee payments received for buying Indian merchandise such as basmati rice, sugar, soyameal, barley and buffalo meat.

Now, with sanctions lifted, Iran will insist on payments in dollars that it can use to buy these products from other suppliers such as Pakistan (basmati rice) and Brazil (sugar, soyameal and buffalo meat).

To sum up, in the short run, the glut in global markets, bleaker prospects for commodities in general, turmoil in Chinese markets and less promising import prospects from Iran will keep agri commodity prices depressed, and hurt India’s farm exports.

Restrictive market access policies adopted by top consuming markets such as the EU and US markets will further thwart India’s effort to push its export of farm and processed food exports.

The writer is Vice-President and Head of Agriculture, Food and Retail at Biznomics Consulting.