European Subsidies & Global Sugar Prices + Trade-related Issues

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In This NEWS Bulletin ******************************** 1. Higher price prospects augurs well for Indian sugar exports - Phasing out of European subisidies causes rise in global prices - Oxfam GB report 2. Agri Export Zones (AEZs) fail to take off as govt goes slow on investment 3. Year 2006 gives out a note of caution to agri sector - India becomes major importer of wheat, pulses and vegetable oils 4. More Budgetary support likely for perishable commodities 5. Poultry industry - NECC- calls for ban on exports, futures trading in corn 6. Tobacco planters oppose VAT 7. Pawar for enhancing of outlays in Plan documents for agriculture -- Higher price prospects augurs well for Indian sugar exports - (phasing out of European subsidies cause global price rise - Oxfam GB report) http://www.financialexpress.com/fe_full_story.php?content_id=149815 ASHOK B SHARMA Posted online: Monday, December 25, 2006 at 0000 hours IST NEW DELHI, DEC 24: Indian sugar industry need not lament for missing the opportunity for exports due to the earlier ban imposed by the government at a time when the global prices were ruling high at $450 a tonne. The global prices, which has recently come down to around $320 a tonne are likely to appreciate further showering a boon on Indian exporters. A study done by Oxfam GB in India shows that the global

sugar prices are likely to show an upward trend mainly because of the gradual phasing out of European Union's subsidy on sugar resulting in consequent lower production in the coming years. The worldwide move to boost ethanol as an alternative fuel will continue the lure of sugar and soar its prices in the commodities markets. Apart from these there are other factors like decline in sugar output by 15% in 2005-06 in the major producing country, Thailand due to drought. Though other major producers increased their sugar output, Indian exporters can fill the gap created by Thailand. Indian sugar industry are looking upwards with the gradual phasing out of European subsidy. Even in the most neglected state - Bihar - the sugar mills began reaping more profits, the study said. The major destinations for Indian sugar exports are Pakistan, Bangladesh, Sri

Lanka, Indonesia, Malaysia and West Asia. Pakistan has increased its sugar output in 2005-06 to 3.2 million tonne and may not import much. In this context, The Oxfam GB study suggests that Indian exporters should, for the time being, concentrate on markets in south and South-East Asia and west Asia. The study also points out that Indian sugar has lot of potential in the global market as it is considered better than Brazilian sugar. The Oxfam GB study says that with recent changes in the government policies, India may witness production of ethanol directly from sugarcane as in Brazil. In Brazil ethanol production is more profitable than the present production of ethanol from molasses in India. Sweet Business • Indian sugar industry are looking upwards with the gradual phasing out of European subsidy• The major destinations for Indian sugar exports are Pakistan,

Bangladesh, Sri Lanka, Indonesia, Malaysia and West Asia In response to the rising domestic prices, the Indian government had imposed a ban on sugar exports on July 4, 2006. Only on December 18, this year, the government partially lifted the ban to allow mills, having earlier export commitments, to export. The Oxfam GB study estimates the huge damage done to the developing world on account of the subsidies and support given by the European Union. EU used to spend 3.30 euros in subsidies to export 1 euro worth of sugar and domestic prices were maintained at levels 3 times higher than the global prices. The biggest beneficiaries were the large farmers and sugar companies and the main losers were the farmers in the developing world and the European taxpayers and consumers. Due to such a protectionist regime EU was able to produce about 5 million tonne exportable surplus sugar and dump in the

developing world depressing the prices. The WTO dispute settlement body in September 2004 declared EU protectionism illegal and EU decided to gradually phase out its support.--------- Agri Export Zones (AEZs) fail to take off as govt goes slow on investment http://www.indianexpress.com/story/19068.html ASHOK B SHARMAPosted online: Friday, December 22, 2006 at 0000 hrs New Delhi: Five years after the government called for agri export zones (AEZs) to be set up across the country, the Centre and states have both drawn flak for failing to do enough to ensure that projects took off. A review group set up by the Ministry of Commerce has

blamed them for going slow on investment while farmers and exporters feel the zones need an accountable authority and greater initiative to bring in investment. Unlike special economic zones (SEZs), agri export zones are not based on any particular plot of land with physical boundaries. AEZs relate to agro-climatic regions known for growing speciality crops. It envisages integrated development of the region through development of needed infrastructure like roads, storage, transport and processing and value addition facilities. Since 2001, the plan has grown to around 60 AEZs in 20 states. Five years on, the Central and state governments have dragged their feet on fulfilling their promised share of investments. Nor have they actively engaged the private sector to put the infrastructure in place. As per initial criteria, investments by the central and state governments and the private sector was to be in the

1:1:2 ratio. Accordingly, the total investment for 60 approved AEZs was estimated around Rs 1718 crore. Against this, the total flow of investment till date is only around Rs 811 crore. Sources in the commerce ministry said the nodal agency — Agriculture and Processed Food Export Development Authority — had recently asked for Rs 271.5 crore support for seven AEZs. The ministry, however, has agreed to offer only Rs 50 crore. The AEZs could achieve about 50 per cent of the export target of Rs 11,821 crore over five years. “There is a lot of under-reporting by the state governments...We have received a figure for five years’ exports from AEZs at only Rs 5,185 crore. This should be much over Rs 6,000 crore,” a commerce ministry official said. The ministry’s review group has castigated both central and state governments in fulfilling their investment targets and encouraging the

growth of AEZs. “Government should encourage AEZs which promotes integrated rural development and scrap SEZs which usurp farmlands and cause a revenue loss of millions of rupees on account of fiscal sops extended to them,” Dr Krishan Bir Chaudhary, leader of Bharat Krishak Samaj, said. Exporters, on the other hand, say majority of the investments have been by the private sector; much more needs to be done for storage and processing facilities. Executive director of the Centre for International Trade in Agriculture and Agro-based Industries (CITA) Vijay Sardana said: “The investments could have been much higher had there been a transparent system for fixing accountability. In AEZs, multiple agencies of both central and state governments are involved. The Agriculture and Processed Food Export Development Authority is designated as the nodal agency without much effective authority

for implementation.”----------------------------Year 2006 gives out a note of caution to agri sector - (India becomes major importer of wheat, pulses, vegetable oils) http://www.financialexpress.com/fe_full_story.php?content_id=149819 ASHOK B SHARMA Posted online: Monday, December 25, 2006 at 0000 hours IST NEW DELHI, DEC 24: The year 2006 ended with India becoming a major importer of wheat, pulses and vegetable oils. One of the main reasons for allowing cheap imports was to contain the rising domestic prices of essential commodities. The price situation in the country became acute towards the end of the year with inflation rate measured on the point-to-point

movement of wholesale price index rising to over 5%. To contain the situation, the Reserve Bank of India (RBI) on December 8 hiked the cash reserve ratio (CRR) by 50 basis points to 5.50% in two stages, sucking out Rs 13,500 crore from the banking system. In fact, the domestic price situation began worrisome from January, when the prices of wheat started to rise in the domestic market. The wheat production in 2005 was 72 million tonne—sufficient to meet the domestic needs . Despite a good harvest of 72 million tonne wheat in 2005, the government could procure only 14.78 million tonne for its buffer stock. As the procurement was low, the stock dwindled to 4.7 million tonne and the government apprehended that this may further shrink down to below the buffer norm of 4 million tonne in April. But farmers’ leaders had cautioned against imports as the standing crops would be ready for harvest from April. They called

for dehoarding of stocks held by private trade and MNCs and asked for remunerative prices for procurement. The government, with its commitment to forge ahead with its plans to “further liberalise the agriculture markets,” found an alternative way in wheat import. In the first week of February, the government decided to import 500,000 tonne wheat against zero duty. The contract for supply of this quantity of wheat was placed with the scam-tainted AWB Ltd of Australia. Subsequently, the government floated 5 tenders, relaxing quarantine norms and finalising bids. The wheat import on government account totaled to 5.5 million tonne. The government also allowed food companies to go for duty-free wheat imports. Thus, the country, which is the third major producer and once 7th largest exporter, became a major importer of wheat. Global wheat prices and freights soared up as India became a net importer. According to the initial estimate made by the government, the wheat production in 2006 was pegged at around 73 million tonne. But in the middle of the year, the government reduced this estimate to 69 million tonne also the wheat output of 2005 to 68 million tonne. A civil society organisation, in a PIL, has challenged in the Supreme Court the government’s plan to import wheat by deliberately reducing production estimates. Other actions of the government has also been challenged in courts—A PIL against acquisition of farmlands for SEZs, a case in the Supreme Court against regulation of GMOs. Towards the second half of the year, the government came under pressure from all sides. The parliamentary panel suggested ban on futures trading in agro commodities. At last it authorized the states to impose restrictions on hoarding of wheat and pulses and also banned

export of pulses and allowed its dutyfree imports. Duty-free import of pulses was, however, genuine as the country does produce enough to meet its needs. Rising sugar prices also became a major matter of concern and the government banned its exports on July 4 and lifted its partially in December with the projected high output estimate. The government also opened up sugar imports by reducing tariff to 20% on quota basis. Towards the last quarter the government reduced import duty on palm oil by 10%.------------ More Budgetary support likely for exports of perishable commodities http://www.financialexpress.com/fe_full_story.php?content_id=149696 ARUN S & ASHOK B

SHARMA Posted online: Saturday, December 23, 2006 at 0159 hours IST NEW DELHI, DEC 22: To strengthen post-harvest cold chain capacities for perishable commodities—their transportation and export promotion activities—the government is likely to increase budgetary support to over Rs 1,000 crore (Rs 10,000 million). This, it will do by synergising allocation under various agencies, including Agricultural and Processed Food Export Development Authority (APEDA). Current assistance to APEDA for promoting exports is only Rs 250 crore. Official sources said the commerce ministry was negotiating with the agriculture ministry for sharing the budgetary support. The commerce ministry has asked the agriculture ministry for a share of support from the fund available with the National Horticulture Mission (NHM) and food processing ministry. Currently, APEDA’s assistance to

transporting perishables amounts to a meagre Rs 15 crore (Rs 150 million). The transport subsidies are given on the basis of not more than 10% of freight on-board value of consignments or not more than 25% of international freight, whichever is lower. The maximum support given under NHM for cold chain and other storage facilities is to the extent of only Rs 25 lakh (Rs 2.5 million), which is not sufficient. According to sources, the commerce and the food processing ministries have suggested allocations be synergised under various agencies so that a total assistance of over Rs 5,000 crore is available for setting up cold chain facilities, from the post-harvest stage until the time the produce reaches ports. ------------------------------- Poultry Industry - NECC calls for ban on exports, futures trading in corn http://www.financialexpress.com/fe_full_story.php?content_id=149727 ASHOK B SHARMA & COMMODITIES BUREAU Posted online: Saturday, December 23, 2006 at 0302 hours IST MUMBAI, NEW DELHI, DEC 22: The poultry industry has appealed to the Prime Minister, Manmohan Singh to immediately ban forward trading and export of maize with a view to contain the rising prices of this commodity. The National Egg Coordination Committee (NECC) representing the poultry industry has also made separate representations to this effect to the chairperson of the ruling UPA coalition, Sonia Gandhi, Union agriculture minister, Sharad Pawar and the finance minister, P Chidambaram. With a view to bail them out of the

damages caused by the recent incidence of bird flu in the country, the poultry industry has appealed for an extension by one more year the period for interest subvention and moratorium on repayment of loans from banks. According to NECC , “Normally at this time of the year, maize prices in the domestic market range between Rs 500- 550 a quintal. However, this year, it has gone up to around Rs 900 a quintal and in different parts of North India it is as high as Rs 1,000 a quintal. Such a steep increase of 90-100% was never experienced in the past 30 years.” NECC said that the main reasons for this unwarranted and unreasonable hike in domestic prices were the manipulations in forward trading and export of maize. Taking advantage of forward trading, multinationals like Cargill, ITC, and exporters like Adani Exports and large number of private traders had cornered huge quantities of maize causing a rise in prices.

Recently the parliamentary standing committee had recommended a ban on forward trading in all agricultural commodities, particularly grains. It had suggested a ban on forward/futures contract, derivatives and options for agro commodities. It recommended that both the spot markets (which are regulated by the concerned state governments) and and forward markets (regulated by central government agency) should be brought under the concurrent list or the Union list under the Constitution to bring better synergy in regulation The parliamentary panel also suggested that hedge funds, banks and provident funds should not be allowed to participate in futures markets. No foreign player should be allowed to speculate in the Indian market, at least till the regulator --Forward Markets Commission--is strengthened. All players, operating directly or through

brokers, should disclose their interest in “actual physical merchandising.” Except for a small number , who have reasonable control over liquidity, no pure speculator with massive resources should be allowed to enter the futures market, said the parliamentary panel report while deliberating on the government’s tabled Bill on regulatory structures for futures markets.---- Tobacco planters oppose VAT http://www.financialexpress.com/fe_full_story.php?content_id=149730 ASHOK B SHARMA Posted online: Saturday, December 23, 2006 at 0307 hours IST NEW DELHI, DEC 22: A group of farmers from Andhra Pradesh and Karnataka have written to the Prime Minister and the Union finance minister expressing concern over

the proposed plan to introduce value-added tax (VAT) on cigarettes. They have said that the introduction of VAT on the “already over-taxed” cigarette would not be in the interest of tobacco growers. They have also decided to make their submission before the Empowered Committee of the States on VAT, before it meets on January, 2007. Cultivation of tobacco is regulated by the government and about 700 million kg of tobacco leaves are produced annually, out of which Virginia tobacco leaves, which are used in cigarettes, amount to only 240 kg. About 20% of Virginia tobacco is used for the production of cigarettes and the remaining quantity is exported. The government’s taxation policy is based on discouraging the consumption of tobacco as it is found to be injurious to human health. However, BV Javaregowda, member of the Tobacco Board said, “The incidence of taxes on cigarettes is

already higher than that on other tobacco products like beedis, cigars and cheroots, chewing tobacco, pan masala and snuff.” Basic excise duty ranging from Rs 125 to Rs 1,645 per 1000 sticks is imposed on various categories of cigarettes. There is a 2% education cess on the basic excise duty. Also National Calamity Contingent Duty (NCCD) ranging from Rs 20 to Rs 235 per 1,000 sticks is imposed on various categories of cigarettes. Additional duty ranging from Rs 15 to Rs 180 per 1000 sticks is also imposed. The categories of cigarettes are defined in terms of the length of the stick and whether the stick has a filter at its tip or not. “The total tax burden works out to Rs 160 to Rs 2,060 per 1,000 sticks of various categories of cigarettes,” said Javaregowda. The president of Nellore & Prakasan Districts Tobacco Growers Association, Garikapati Seetharamaiah

said, “If VAT is imposed on cigarettes it would become costly and the consumers’ preference would shift to imported cigarettes or cigarettes smuggled into the country through illegal channels. As a result the domestic industry would suffer and would not procure tobacco leaves from growers in desired quantities.” Seetharamaiah is the former vice- chairman of the Tobacco Board. The general secretary of the Guntur-based Tobacco Growers Welfare Association, Gadde Sivaram Prasad made a point by saying, “Global leaf supply is projected to decline due to short supply in Zimbabwe, Canada and Europe. In this context, India is well posed to increase its exports. The government should encourage its production.”--------- Pawar for enhancing of outlays in Plan documents for agriculture http://www.financialexpress.com/fe_full_story.php?content_id=149729 ASHOK B SHARMACOMMODITIES BUREAU Posted online: Saturday, December 23, 2006 at 0306 hours IST NEW DELHI, DEC 22: The Union agriculture minister ,Sharad Pawar, called for enhancing the outlays for agriculture in the 11th Five Year Plan documents of both the central and state governments to achieve high growth in the sector. “It is also imperative that the state governments provide adequate funds, strengthen infrastructure and help capital formation and investment in agriculture,” he added. Addressing the conference of state agriculture ministers from various states in the country here on Friday, Pawar said that the mainstay of the next green revolution would be to produce more on less land and less

water and therefore, soil health and water conservation are of crucial significance. Other main areas needing urgent attention would be access to affordable credit, agricultural insurance, and development of marketing and other infrastructure. The conference has been called to discuss recommendations of the National Commission on Farmers headed by MS Swaminathan. The Commission submitted its fifth and final report to the government in October, this year. Pawar referred to the Prime Minister’s address to the last Indian Science Congress in January, this year in which he had emphasised on the application of science and biotechnology for the improvement of seeds and the utilisation of herbal and other plants and application of science to animal husbandry to improve the productivity of livestock and poultry to usher in a Second Green Revolution in the country. He said that

technology and new knowledge must be disseminated widely so that it resulted in higher yield and value to the farmer. “What we need to ensure in the coming years is to promote those proven technologies, which are appropriate to dryland agriculture so that the most vulnerable sections of the farming community, namely small and marginal farmers, are benefited.” The minister informed that a number of recommendations made by the Commission were already under implementation through new initiatives taken by the Government in the recent past. He mentioned Bharat Nirman, NREGP, National Horticulture Mission, expansion of institutional farm credit, scaling down of interest on farm loans, establishment of National Rainfed Area Authority and National Fisheries Development Board, and other programmes. He expected these initiatives would help find a durable solution to the agrarian crisis. Pawar said that the recommendations by the Commission would need to be examined quickly. The inputs received from the states at Friday’s conference would be extremely useful in prioritising action and formulating appropriate schemes in the Eleventh Plan, he said. The Union minister of state for agriculture, Kanti Lal Bhuria stated that a strong partnership between the Centre and the states would, as in the past, result in the prioritisation of actions required in the field of agriculture and evolve effective strategies. The steps taken by the different states to implement the strategy for the current Rabi season is likely to result in about one million hectare additional land coming under wheat, he said. The Union agriculture secretary PK Mishra expressed hope that the deliberations would help in adopting the National Policy for Farmers, which is the essence of the final recommendations of the National

Commission on Farmers. In his elaborate presentation, MS Swaminathan identified the core issues that needed to be addressed and the main components of the draft National Policy for Farmers proposed by the Commission. He concluded by saying that he hope that Budget 2007-08 would be a dream budget for agriculture. Send free SMS to your Friends on Mobile from your Messenger. Download Now! http://messenger./download.php