Presentation to

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• Presentation to
• AGRICULTURE MINISTERS CONFERENCE ON AGRICULTURE
• Hardeep Singh
• Chairman, CII Taskforce on Agri Marketing
• Chairman, Cargill India Private Limited
• December 21, 2004 New Delhi

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Net Interregional Food Flows (grains, rice,
oilseeds, meals, oils, feed equivalent of meat)
mmt surplus/deficit
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Net Interregional Food Flows (grains, rice,
oilseeds, meals, oils, feed equivalent of meat
2002/03 crop year est)
mmt surplus/deficit
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(No Transcript)
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India- Agricultural Scenario

• Surpluses Myn Mts
• Wheat 3myn
• Rice 4myn
• Total Surplus 7myn ts

• Deficits Grain Equivlnt
• Ts Gr Eq
• Vegoil 5 34
• Pulses 1.8 7
• Cotton 0.3 3
• Total Grain Equiv 44

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India Net Agricultural balance
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Leverage Country Competitiveness

• Competitiveness of Indian Crops

• Focus on commodities where India has competitive
  advantage import with value of surpluses
  generated

Source Adapted and updated from NCAER/ Gulati
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Indian Vegoil Competitiveness
Even Worse Off Relative to Palm Oil Equivalence
Source Adapted/ Updated from NCAER/ Gulati
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Asia State of Play

• Role fo govts in food and ag trade the last 2
  decades is declining - China, Indonesia, Japan.
  and FSU
• centralized procurement systems being replaced by
  pvt investments.
• Privates emerging as co investors in
  infrastructure
• Govts seeing they cannot over manage the
  commercial environment and create an a
  transparent arena for the private sector to get
  involved. 

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Indian Farm Sector

• Small Size
• local barter/ low marketable surpluses
• Regional overcapitalization of on farm private
  investment
• Major scope for optimization/ incl non ag
• Land Lease /Hiring and Dehiring- Issues
• Farming is largely a way of life

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Current Indian Agricultural Scenario
Slowdown of sustainable value creating
investments in farm sector. Proliferation of
indirect subsidies.

• MSP is no longer a support price. It is a
  preferred price offered selectively as buyer of
  first resort
• Inequity/ Largesse/ Malpractice/ Waste
• Distortions in prices caused by govt
  intervention Lack of private investment in agri
  mktg and trade

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Indirect Subsidies- Impact

• Distorted markets Dangerously continuing Supply
  side thought process
• Distorted cropping patterns
• Overexploitation of ground water impact on
  recharge
• Indirect subsidies Fertilizer etc are not farm
  subsidies and lead to uneconomic resource
  utilization
• Foodgrain subsidy has increased dramatically from
  Rs 2,450 crore in 90-91 to gt Rs 25,800 crore in
  2004-05

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Foodgrain Production / Procurement

• Wheat Rice prodn 158mn ts 2003-04
• Govt/ FCI procures 38-40 mn tons 25pct
• Procurement confined to marketable surplus areas
• 90 of wheat from 2 States. 65 of rice from 3
  States
• Farmer own consumption/ barter/ hold back
  50/55pct
• Private Trade of surpluses - 20/25pct

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Rising Support Prices Year on Year ..While
world prices dropped

• Past accumulation of stocks far in excess of
  reasonable worst case need or agreed buffer
  stocking norms..
• And lost opportunity to maximise export value.
• Add gt Quality deterioration/ Wastage/ Pilferage/
  Losses/ Infrastructure load
  

• Total annual World Trade
• Wheat gt100 mn tons / Rice lt30 mn tons

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Farm policy must balance social objectives and
economic considerations

• Drive political consensus- sensitize polity to
  cost and consequences of current policy
• Incorporate transition mechanisms to manage
  change and minimise social/ political fallout

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Redefining Govt Intervention 1

• Support
• Price support prices should be operative across a
  wide range of crops including oilseeds, pulses,
  maize and cotton, to encourage crop
  diversification

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Redefining Govt Intervention 1

• Support (Cont)
• Focus on remote outlying areas where
  infrastructure trade capability is limited.
  Operate countrywide
• FCI to be a buyer of last resort
• FCI price support based procurement for providing
  farmers with backstop security.
• Balance should be left to market forces

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Redefining Govt Intervention 2

• Procurement
• Delink food security/ relief linked procurement
  from support price operations
• FCI to maintain within range of approved buffer
  stock for specified products each quarter.
• Dispose off excess or acquire supplemental
  quantity by open tender based on crop harvest
  cycle
• Buffer Stock norms to be periodically revised
• Privates should be encouraged to seriously
  participate in task of procuring, finacing,
  storing, transporting and marketing grain.
  Encourage states to review APMC
• Create a mechanism that supports the private
  warehouse receipt system

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Redefining Govt Intervention 3

• Distribution
• Grain distribution for public/ welfare/ relief
  programmes only
• Monetise BPL / PDS cash or food stamps instead
  of grain
• Increase the allocation of food granted for the
  food for work programmes, particularly where
  working on building the agri infrastructure
• Use widely networked public sector banking system
• Avoid multiple handling/ pilferage/ waste/
  corruption/ infrastructure load/ Inequity

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Suggested Transition Mechanisms

• Proportional monetary support to negatively
  impacted states for Rice and Wheat
• Linked to agreed, quantified and publicized
  phased reduction in Rice /wheat procurement
• Recommend to states to use as a per hectare
  direct subsidy
• Widely implement support prices on a broad basket
  of alternate crops
• Allay fears of marketability
• Drive much needed crop diversification
• Politically sustainable/ Socially equitable

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Major Spin Off Benefits..

• Will align grain markets with alternate crops and
  gradually with worldwide values
• Will reduce cropping distortions
• Will improve flow of technology/ genetics
• Will attract much needed private investment in
  grain handling/ infrastructure/ financing
• Demand led quality / identity preservation
• Trade surpluses nationally and internationally
  before losing value
• Will Spur investments in food processing
• Will release huge funding for developing farmgate
  infrastructure and value adding investments
• Arrest land degradationconserve water table
• Will make farming long term sustainable

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India policy environ The way ahead

• Invest for productivity Indirect subsidies are a
  zero sum game
• Embrace production enhancing technologies
• Take a long term view on natural trade flows
• Protect producers in export competitive segments
  and consumers in others!!
• Be inclusive to worldwide ag reform process-
  disciplining subsidy practices.

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Action Steps

• Immediate serious new study on competitive
  advantage
• Get the best brains together domestic and
  internationaldebate and decide.. Create
  support.. Heighten awareness of consequences- Get
  politicos, banks, farmer leaders, corporates, to
  buy in.. and then execute relentlessly..
  Integrate investments to align upstream and
  downstream within selected areas..Trash special
  interests
• Plan should be Politically sustainable/ Socially
  equitable
• Clean up unnecessary constraining legislation..
  Immediate!
• Plan for transition mechanisms graded timeline
• Get legislation cleaned up of useless controls
• Deploy the very best talent to monitor and
  execute plan

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Grain Handling investments-need for an
integrated approach

• Capability/ Objectives
• Identity Preservation
• Obviate Bagging/ Cost
• Ease in fumigation
• Optimize specs/ value
• Aggregate quality
• Economy in transport and shipping

• Components
• Hopper bottom trptn
• primary movement
• railcars
• Silo systems
• at both ends
• Customer interface
• Farmer Financing