Food Situation Spinning Out Of Control In India

Below are two entries from Nogger’s blog.

(emphasis mine) [my comment]

Tuesday, 27 October 2009
India Spinning Out Of Control

The Indian government has put a 12-month waiver on the 70% import tax imposed on certain types of rice, in an effort to encourage more imports following reports that this years summer-sown rice crop would decline by 15-16 MMT, or around 18%, on last year's output.

The move is just the latest by a desperate government to stave off spiraling food price inflation.

Having already tinkered with regulations on sugar stocks - "to prevent hoarding" - the government finally announced last week, after months of badgering, that they would invite tenders for state-owned wheat stocks.
What surprised the market was that, despite supposedly having 30 MMT of wheat in store, the government wanted levels substantially higher than existing domestic prices.

Today, Farm Secretary T. Nanda Kumar, has boldly announced that the country is targeting to produce 82 MMT of wheat in 2010 [no chance] (planting begins in November). He didn't provide any details on exactly how India would pull off this coup following the country's worst monsoon rains in 37 years this summer.

As food security becomes more of an issue in the world's second most populous country local businesses are eying other countries ambitions abroad.

The Solvent Extractors’ Association (SEA) of India, a body of over 800 edible oil producing companies, is urging the government to follow China's lead and buy land abroad for food production.

They fancy South America where, they say, the cost of land is far cheaper than in India's breadbasket states like Punjab.

After crude oil, edible oil imports are the largest foreign exchange drain in India. Imports of vegetable oils during November 2008 to September 2009 jumped 47% to 79,000 MT from 54,000 MT during the same period a year ago.

The SEA would like the government to "smooth" a USD85 million loan from the Exim Bank of India to facilitate the purchase of an initial tranche of 10,000 hectares of productive land in Paraguay and Uruguay.

The government however don't seem to be listening, preferring to keep their money in their pockets, their grain under lock & key and believe in their own spin on food stocks & production estimates.

 

Wednesday, 28 October 2009
Wheat Hits New Contract Highs...

...in India. Yes, despite Chicago wheat falling out of bed this past few sessions, wheat futures in India are setting fresh contract highs this morning.

Why? Well it maybe won't surprise you to hear that the government STILL aren't releasing any of their state-owned stocks.

Wheat futures hit Rs 1,376/100kg today, that's the equivalent of around USD290/tonne, considerably higher than milling wheat prices on the international market.

Last week a report in the Hindu Business Line said that
the government had finally agreed to set the minimum tender price for wheat from it's reserves at Rs 1,379.70 - Rs 1,728.23/100kg (USD292-USD365/tonne).

Needless to say,
local millers are baulking at paying the government such inflated levels with world prices substantially cheaper. So why don't the millers just get on with it and start buying on the international market? The answer is the strict government-imposed quality restrictions. [as soon as these government-imposed quality restrictions are lifted (they will be lifted), world wheat prices will start heading up fast]

"As a first step, the private trade should be allowed to import wheat...
to ensure orderly arrivals, phyto-sanitary restrictions in place will have to be suspended for some time," says the Hindu Business Line.

"In what currently seems to be an unlikely event of the (2010) Indian wheat crop turning out to be normal or even near normal, the commercial risk of wheat imports is on the private trade. Import of 2-3 million tonnes during the next six months will prove beneficial from the point of view of additional supplies and reining in open market prices," the report concludes.

It may be that the Indian government are waiting to see how winter wheat planting progresses in November following the harvest of the late summer rice crop.

Wheat consumption in India is seen at a record 77 million tonnes in 2009/10, following a 15-16 million tonnes drop in summer rice production. It will be interesting to see if the government are prepared to relax the rules to allow millers to import wheat, or continue to hold a gun to their heads forcing them to buy state-owned stocks at prices well above the global market.

Certainly the latter would do little to help the government achieve their publicly-stated aim of curbing food price inflation.

My reaction:  Food situation is spinning out of control in India.

1)  India has put a 12-month waiver on the 70% import tax imposed on certain types of rice to encourage more imports (this will drive up

2)  Wheat futures in India are setting fresh contract highs this morning.

3)  Wheat consumption in India is seen at a record 77 million tonnes in 2009/10, following a 15-16 million tonnes drop in summer rice production.

4)  Indian government is desperate to stave off spiraling food price inflation.

5)  It is only a matter of time before strict government-imposed quality restrictions, and, when this happens, world wheat prices will start heading up fast, driven up by surging Indian imports.

My reaction:  Food crisis is beginning and will continue to worsen quickly.  At some point between December 2009 and February 2010, it should turn into a full scale global panic, and the real financial crisis will begin.

--------------------------------

(working on major article. It should be done in 10 to 12 hours)

This entry was posted in Food_Crisis, India, News_Developments. Bookmark the permalink.

10 Responses to Food Situation Spinning Out Of Control In India

  1. Anonymous says:

    Thanks so much. I really enjoy your blog!

  2. Anonymous says:

    the articel will be done will we have to wait another month to get it online? ive been waiting for anticipation of this article for weeks now! keep up the good work just speed it up and let me know the day the whole sytem is going to crumble please

  3. Anonymous says:

    Your blog is terrific!

  4. Anonymous says:

    Thanks for your hard work Eric. I hope your wrong buddy but for some reason I dont think you will be.

    Your timing may be a bit off as things are sometimes impossible to predict when.

    Time will tell, like I said for my families sake I hope your wrong.

  5. Anonymous says:

    i dont hope he is wrong cuz i am going to load up on all the double and triple inverse etfs and all the agricultural etf's and than im retiring in jamaica and going to smoke ganja all day long! just tell me when please sir. i respect your work so much its always spot on

  6. LawMan says:

    India is projected to have a 1 million tonne shortfall starting next year, down from the 11m buffer they usually have. They have 28m tons left.

    The India 's gov't is releasing 3 million tonnes. They are planting now more to make up for that rice shortage. There is not some massive shortage about to happen.

    It will happen by 2050 for sure, because of climate change models show even a 1/2 degree planet warming equalling about a 25% drop in wheat production, but not this winter. Post-monsoon rains came and the soil was wet and they planted more wheat to offset the rice loss. Next year they have less of a buffer, so wait and see how the market reacts if they have a bad year next year.

    http://in.reuters.com/article/domesticNews/idINBOM24976620091028?pageNumber=1&virtualBrandChannel;=0

    Also, Goldman Sachs reports they need to spend 12,78,400 crore over the next 9 years to upgrade their irrigation systems (some x10 their national defense budget), however they spend only 40,000 crore a year.

    http://www.hindustantimes.com/Climate-change-roils-India-s-agri-threatens-livelihood-of-670-mn/H1-Article3-468524.aspx

  7. Martijn says:

    Eric,

    If you find the time you really should read this article from Abrose. He makes a rather original case for the dollar.

    click

  8. You saved us lot of time with this 2009 report.
    I am recommending this article since it`s one of the best summaries available.

    Congratulations

    Reymidas

  9. Wendy says:

    @ Martjin,

    original? more like 'hopeful' for the tooth fairy and stories of mother goose n grimm. As Gerald Celente says, HOPE is the most bankrupt word around... What is this guys track record anyway? has this so called journalist made accurate predictions before or is it just biased opinions... Beijing Olympics' lip - synch, what lame analogy... All of china knew that the girl who appeared and the actual voice were two different people... This shows how unimformed most western audiences are of China alone... Finally, this abrose is just a journalist, and not a qualified economist is he? Anyway, many of these economists themselves didn't see this crisis coming... and they have they balls to tell when and how it is going to end? Give me a break....

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