India Fails to Reconcile Mountains of Rice with Starving People
India has been unsuccessful in marketing its rice on the domestic and international markets due to uncompetitive price schemes and a gradual decline in crop quality. Consequently, stocks now far exceed the desired, or comfortable, buffer level of 10-12 million tons.
The Government of India (GOI) provides direct domestic support for agricultural products through its price support programs. Essentially, there is a standing offer to buy, or procure, rice from producers at a fixed support price, which has typically been lower than the world price. Support prices are currently above record low international prices and, thus, the government has become the buyer of choice. However, due to the degradation in quality, the government has reduced purchases.
The GOI changed domestic policy to stir demand but seemingly avoided important facts: (1) spoiled and unattractive stockpiled rice and (2) infrastructure problems that make product delivery very difficult. On the international front, it seems that the GOI simply did not consider the same difficulties other exporting countries are coping with: (1) record low world prices and (2) lack of significant import demand. The following table is a synopsis of pricing changes.
|Procurement Prices||Before price change: Discounted
for Poor Quality
After price change: $113-119/ton
* white rice 25% brokens
|Before price change: $215/ton
After price change: $135-140/ton
|Domestic Prices||Before price change: $240/ton
After price change: $177/ton
Following is a chronology of the policy changes and their impact on rice stocks that have occurred over the past 12 months.
October 1, 2000 - GOI estimated stocks at 13.4 million tons.
October 15, 2000 - Policy Change: Procurement Prices
Due to the deterioration in crops, the industry lobbied the GOI to relax rice procurement quality standards so that government buyers could increase purchases. The GOI countered with a proposal to pay a discounted procurement price. The industry rejected the proposal and continued to lobby for the full procurement price. The government agreed, retroactively, and stocks continued to build.
April 1, 2001 - GOI estimated stocks at 23.2 million tons.
May 1, 2001 - Policy Change: Export Prices, Export Subsidy.
The GOI approved the export of 3 million tons via private traders and government parastatals. The GOI set the FOB price for poor quality 25% brokens at $135 per ton, nearly $100 lower than prevailing quotes. That price was not as low as what impoverished Indian consumers would pay, but still above the world price for similar varieties of better quality.
June 1, 2001 - GOI estimated stocks at 22.2 million tons.
July 1, 2001 - Policy Change: Domestic Prices.
In order to stimulate domestic consumption and absorb some stocks into the domestic market, the GOI lowered the price to Indian citizens living above the poverty line, but stipulated that each family increase consumption by 5 kg.
August 1, 2001 - GOI estimated stocks at 22.2 million tons.
September 11, 2001 - Policy Change: Procurement Prices.
Recognizing the need to support the fragile farm sector, the GOI revisited the support/procurement price and raised it above the previous high established on October 15, 2000. But, again, the inflated procurement price proved counterproductive as it trickled down from the government to the millers, then to traders, and translated into high export prices, diminishing Indias competitiveness in the global market.
This series of price changes have been ineffective in achieving the goal of reducing stocks. While the GOI tried to mitigate the situation by adjusting prices, the magnitude of these adjustments has been insufficient and, more importantly, exacerbated the stocks problem via record procurements and lost export market share.
For more information, please contact Michelle Thomas at ThomasM@fas.usda.gov or 202-720-2513.
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