The government has fixed the minimum support price (MSP) of wheat at Rs 1,100 per quintal, an increase of Rs 20, or 1.86 per cent, over last year’s figure. The increase is moderate relative to the Rs 60 to Rs 150 a quintal hikes resorted to in the last few years. The Rs 1,100 price is also lower than the ruling market price of Rs 1,400 a quintal in Delhi.
It had earlier increased the MSP of two paddy varieties by 11-12 per cent, as the output of domestic kharif rice was estimated 18 per cent lower at 69.45 million tonnes (mt). The MSP for Grade-A and common varieties of paddy were increased by Rs 100 a quintal to Rs 980 and Rs 950, respectively. Last week, the government had also announced a bonus of Rs 50 per quintal on both these varieties.
The higher paddy MSP is expected to boost the government’s procurement of rice. However, the situation in wheat is different, since wheat crop is expected to be normal and the government pool has a stock of 28.45 million tonnes as on October 1.
The government also announced MSP for other rabi crops. The MSP for chana has been raised by Rs 30 to Rs 1,760 per quintal while that of of barley has been increased by Rs 70 to Rs 750 per quintal. MSP of mustard and masur have been kept unchanged at Rs 1,830 per quintal and Rs 1,870 per quintal, respectively.
Showing posts with label Commodity. Show all posts
Showing posts with label Commodity. Show all posts
November 6, 2009
October 13, 2009
Government asks sugar mills to sell 20 per cent of output to PDS
The central government on Monday notified its decision to double the amount of sugar purchased from millers for distribution through ration shops in the 2009-10 season to protect the poor against high sweetener prices which have threatened to touch Rs 40 a kg due to a slump in output.
Significantly, mills are not required to sell proceeds from duty-free imported raw or white sugar to the government for supply under the public distribution system (PDS).
Last month, the empowered group of ministers (eGoM) on food had decided to double the quota of levy sugar meant for supply through ration shops of mills to 20 per cent of their total output from October 1.
Also importers of sugar who import duty-free raw sugar for processing into white and refined sugar or import duty-free refined sugar shall not be required to sell levy sugar to the government in respect of such white or refined sugar processed from imported raw sugar or such imported white or refined sugar.
However, the Centre has not yet announced any change in the price of sugar it buys from millers for supply under the public distribution system. Cardholders get sugar through ration shops at Rs 13.50 per kg.
Earlier, the Centre had decided to pay more for sugar it buys from millers from an average of Rs 1,322 a quintal. However, no notification as such has been announced. Sugar price in any case would not be raised for ration card holders as of now. Sugar prices almost doubled in a year on uncertainties over output which slumped to 15 million tonnes in the 2008-09 season from about 26.4 million tonnes a year earlier, significantly denting the country’s reserves.
Prices are still ruling high at about Rs 35 a kg on scepticism over adequate supply this season as well due to less area under the sugarcane crop. Sugar prices climbed on Monday on improvement in festive demand and as most sugar mills will begin crushing behind the schedule due to rains.
India needs about 23-23.5 million tonnes of sugar for annual domestic consumption.
Source:The Economic Times
Significantly, mills are not required to sell proceeds from duty-free imported raw or white sugar to the government for supply under the public distribution system (PDS).
Last month, the empowered group of ministers (eGoM) on food had decided to double the quota of levy sugar meant for supply through ration shops of mills to 20 per cent of their total output from October 1.
Also importers of sugar who import duty-free raw sugar for processing into white and refined sugar or import duty-free refined sugar shall not be required to sell levy sugar to the government in respect of such white or refined sugar processed from imported raw sugar or such imported white or refined sugar.
However, the Centre has not yet announced any change in the price of sugar it buys from millers for supply under the public distribution system. Cardholders get sugar through ration shops at Rs 13.50 per kg.
Earlier, the Centre had decided to pay more for sugar it buys from millers from an average of Rs 1,322 a quintal. However, no notification as such has been announced. Sugar price in any case would not be raised for ration card holders as of now. Sugar prices almost doubled in a year on uncertainties over output which slumped to 15 million tonnes in the 2008-09 season from about 26.4 million tonnes a year earlier, significantly denting the country’s reserves.
Prices are still ruling high at about Rs 35 a kg on scepticism over adequate supply this season as well due to less area under the sugarcane crop. Sugar prices climbed on Monday on improvement in festive demand and as most sugar mills will begin crushing behind the schedule due to rains.
India needs about 23-23.5 million tonnes of sugar for annual domestic consumption.
Source:The Economic Times
September 4, 2009
Indian Government releases 20.45 lakh tonnes sugar for the month of September 2009
The Central Government has decided to release 20.45 lakh tonnes of sugar for the month of September 2009. The release includes normal quota of 14 lakh tonnes and dismantled buffer stock of 1.34 lakh tonnes. According to government, the quantity of 20.45 lakh tonnes is sufficient to meet the internal demand of sugar for the month of September 2009.
Sugar Quota Break-up (Figures are in lakh tonnes)
Levy Sugar:2.11
Non Levy Sugar:
a.Normal Quota:14.00
b.Dismantled Buffer Stock:1.34
c.Imported White Sugar out of Converted Raw Sugar:2.00
d.Expected Availability from Imported White/Refined Sugar:1.00
Total:20.45
The Central Government has also decided to introduce a system of fortnightly sale in respect of non-levy monthly sugar quota effective from September 09. Henceforth, sugar mills will be required to sell and dispatch their monthly non-levy quota on a fortnightly basis in two equal installments. The sugar mills would also be required to report actual sale and dispatch each fortnight, and this should reach the Directorate of Sugar within 7 days i.e. by 22nd of the month and 7th of the following month.
The Central Government has further decided to reduce the validity period of the release orders for white/refined sugar processed out of imported raw sugar released under accelerated release mechanism from 3 months to 1 month. Accordingly, the validity period of the August 2009 release order in respect of white/refined sugar processed out of imported raw sugar will stand reduced from the existing 31.10.2009 to 30.9.2009. Future releases of such sugar will also be issued with the validity period of 1 month. This has been done to bring in more sugars into the domestic market.
The Central Government had earlier put restriction on large consumers of sugar whose monthly consumption is more than 10 quintals from stocking sugar for more than 15 days. The above notification will come into effect after 21 days of its publication in the official Gazette i.e. on 12th September, 2009.
Sugar prices rose sharply today after the quota release. Spot prices of M Grade Sugar at Kolhapur touched Rs.3214.70 per quintal and S Grade Sugar at Vashi touched Rs.3225.90 per quintal. There seems to be no respite for the Indian consumers from the rising sugar prices. Sugar prices have almost doubled from the last year's prices as production fell sharply for 2008-09. Production for 2008-09 is estimated at around 140 to 150 lakh tonnes and for 2009-10 it is 150 to 160 lakh tonnes. India consumes around 230 lakh tonnes annually. That means, a shortage of around 60 to 70 lakh tonnes, which would be met from the buffer stocks and importing raw sugar from the global market. Indian government has extended the period for raw sugar import by the millers at zero duty till December 2010.
Sugar Quota Break-up (Figures are in lakh tonnes)
Levy Sugar:2.11
Non Levy Sugar:
a.Normal Quota:14.00
b.Dismantled Buffer Stock:1.34
c.Imported White Sugar out of Converted Raw Sugar:2.00
d.Expected Availability from Imported White/Refined Sugar:1.00
Total:20.45
The Central Government has also decided to introduce a system of fortnightly sale in respect of non-levy monthly sugar quota effective from September 09. Henceforth, sugar mills will be required to sell and dispatch their monthly non-levy quota on a fortnightly basis in two equal installments. The sugar mills would also be required to report actual sale and dispatch each fortnight, and this should reach the Directorate of Sugar within 7 days i.e. by 22nd of the month and 7th of the following month.
The Central Government has further decided to reduce the validity period of the release orders for white/refined sugar processed out of imported raw sugar released under accelerated release mechanism from 3 months to 1 month. Accordingly, the validity period of the August 2009 release order in respect of white/refined sugar processed out of imported raw sugar will stand reduced from the existing 31.10.2009 to 30.9.2009. Future releases of such sugar will also be issued with the validity period of 1 month. This has been done to bring in more sugars into the domestic market.
The Central Government had earlier put restriction on large consumers of sugar whose monthly consumption is more than 10 quintals from stocking sugar for more than 15 days. The above notification will come into effect after 21 days of its publication in the official Gazette i.e. on 12th September, 2009.
Sugar prices rose sharply today after the quota release. Spot prices of M Grade Sugar at Kolhapur touched Rs.3214.70 per quintal and S Grade Sugar at Vashi touched Rs.3225.90 per quintal. There seems to be no respite for the Indian consumers from the rising sugar prices. Sugar prices have almost doubled from the last year's prices as production fell sharply for 2008-09. Production for 2008-09 is estimated at around 140 to 150 lakh tonnes and for 2009-10 it is 150 to 160 lakh tonnes. India consumes around 230 lakh tonnes annually. That means, a shortage of around 60 to 70 lakh tonnes, which would be met from the buffer stocks and importing raw sugar from the global market. Indian government has extended the period for raw sugar import by the millers at zero duty till December 2010.
August 7, 2009
Indian Oilmeal Exports fall by 63 per cent
India's oilmeal exports fell by 63 per cent year-on-year due to the impact of the global economic recession and non-availability of adequate meal. Exports during the four months ended June 30, 2009 were placed at 7.6 lakh tonnes against 19 lakh tonnes (1.9 million tonnes) during the same period a year-ago.
According to Solvent Extractors’ Association of India, total exports during the month reduced to 173,329 tonnes as compared to 474,590 tonnes in the corresponding month last year.
In the first four months of the current financial year, cattle feed shipments slumped 59 per cent to 787,857 tonnes as compared to 1,908,396 tonnes in the same period last year. India’s poor performance can be attributed to worsening demand in Southeast Asian countries as they were the major importers of Indian meal.
Meanwhile, domestic demand has improved significantly, giving no reason as to why producers would opt for exports when realisation in the local market was almost on a par with exports. Oilmeal exports supported better realisation for local farmers. The export market of oilmeal has developed after great efforts in many years and India was now enjoying the reputation of a dependable supplier.
During the period between April and July 2009, China bought 137,252 tonnes of oilmeals, mainly consisting of rapeseed meal of 136,592 tonnes and a small quantity of soybean meal.
However, exports to Vietnam steeply reduced to 238,232 tonnes from 511,401 tonnes in April-July 2008. Similarly, exports to South Korea, Japan, Indonesia and Thailand have also reduced due to reduction in consumption. In case of Japan, it stood at 84,493 tonne from 2.2 lakh tonnes, while it was 1.1 lakh tonnes from 2.9 lakh tonnes in case of South Korea. Exports to Indonesia for the four-month period were placed at 65,820 tonne as against 1.5 lakh tonnes in 2008.
Traders and analysts are now hoping that the kharif soyabean crop is robust to ensure that exports bounce back.
According to Solvent Extractors’ Association of India, total exports during the month reduced to 173,329 tonnes as compared to 474,590 tonnes in the corresponding month last year.
In the first four months of the current financial year, cattle feed shipments slumped 59 per cent to 787,857 tonnes as compared to 1,908,396 tonnes in the same period last year. India’s poor performance can be attributed to worsening demand in Southeast Asian countries as they were the major importers of Indian meal.
Meanwhile, domestic demand has improved significantly, giving no reason as to why producers would opt for exports when realisation in the local market was almost on a par with exports. Oilmeal exports supported better realisation for local farmers. The export market of oilmeal has developed after great efforts in many years and India was now enjoying the reputation of a dependable supplier.
During the period between April and July 2009, China bought 137,252 tonnes of oilmeals, mainly consisting of rapeseed meal of 136,592 tonnes and a small quantity of soybean meal.
However, exports to Vietnam steeply reduced to 238,232 tonnes from 511,401 tonnes in April-July 2008. Similarly, exports to South Korea, Japan, Indonesia and Thailand have also reduced due to reduction in consumption. In case of Japan, it stood at 84,493 tonne from 2.2 lakh tonnes, while it was 1.1 lakh tonnes from 2.9 lakh tonnes in case of South Korea. Exports to Indonesia for the four-month period were placed at 65,820 tonne as against 1.5 lakh tonnes in 2008.
Traders and analysts are now hoping that the kharif soyabean crop is robust to ensure that exports bounce back.
August 6, 2009
Tur dal price may touch Rs 140 in Andhra Pradesh
Traders indicate the tur dal price could go up to Rs 140 in the next two months, as arrivals from key markets plummet. The failure of monsoons too might add to the problem.
The State, which recorded a dip of 33 per cent (one lakh tonnes) in tur dal production in 2008-09 over the previous year’s three lakh tonnes, is likely to witness a further fall in production this year due to the failure of the monsoon.
Though the price has seen a downward trend in the last few days, it is likely to touch Rs 140 a kg.
While the State Government puts the blame on the traders for the unprecedented crisis, the traders allege the huge dip in arrivals resulted in the price increase this year.
The arrivals of raw tur dal from Tandur market, which used to be 3.70 lakh bags annually, are down to 1.70 lakh bags this year, a shortfall of two lakh quintals.
Reacting to the allegation that traders were resorting to hoarding, Mr Rajendar Kimtee, General-Secretary of the Twin Cities Daal Millers and Merchants Association said, the total stocks in the twin cities and Rangareddy district markets were pegged at 15,000 quintals of raw tur dal and a same quantity of tur dal.
The State imposes a stock limit of 2,000 quintals (of all pulses put together) on wholesalers.
The raw dal itself is costing (the millers) Rs 54 a kg. After conversion, it costs Rs 68-70. Added to this is the 4 per cent VAT and the retailer margins, resulting in the high price.
Realising the sensitiveness of the dal price issue, traders have decided to open special counters to sell it at a lesser price.
Also, the kharif season indicates still harder days ahead. The State, which grows tur in 4.52 lakh hectares, is expected to end with lesser output this year due to severe shortage of rainfall. The area shrunk from 4.63 lakh hectares in 2007-08 to 4.42 lakh hectares in 2008-09.
As on July 30, there is a shortfall of 30 per cent in the total area sown. This would further increase as rains continue to elude the tur growing area.
The State, which recorded a dip of 33 per cent (one lakh tonnes) in tur dal production in 2008-09 over the previous year’s three lakh tonnes, is likely to witness a further fall in production this year due to the failure of the monsoon.
Though the price has seen a downward trend in the last few days, it is likely to touch Rs 140 a kg.
While the State Government puts the blame on the traders for the unprecedented crisis, the traders allege the huge dip in arrivals resulted in the price increase this year.
The arrivals of raw tur dal from Tandur market, which used to be 3.70 lakh bags annually, are down to 1.70 lakh bags this year, a shortfall of two lakh quintals.
Reacting to the allegation that traders were resorting to hoarding, Mr Rajendar Kimtee, General-Secretary of the Twin Cities Daal Millers and Merchants Association said, the total stocks in the twin cities and Rangareddy district markets were pegged at 15,000 quintals of raw tur dal and a same quantity of tur dal.
The State imposes a stock limit of 2,000 quintals (of all pulses put together) on wholesalers.
The raw dal itself is costing (the millers) Rs 54 a kg. After conversion, it costs Rs 68-70. Added to this is the 4 per cent VAT and the retailer margins, resulting in the high price.
Realising the sensitiveness of the dal price issue, traders have decided to open special counters to sell it at a lesser price.
Also, the kharif season indicates still harder days ahead. The State, which grows tur in 4.52 lakh hectares, is expected to end with lesser output this year due to severe shortage of rainfall. The area shrunk from 4.63 lakh hectares in 2007-08 to 4.42 lakh hectares in 2008-09.
As on July 30, there is a shortfall of 30 per cent in the total area sown. This would further increase as rains continue to elude the tur growing area.
Karnataka heading for a bumper maize crop
Karnataka is clearly heading for a bumper maize crop in the ongoing kharif season. According to data available, acreage under maize has already touched the 9.59-lakh-hectare-mark, indicating 100% of the targeted acreage.
It is estimated that the state's acreage would easily cross the 10 lakh hectare mark with production zooming past the 20-lakh-tonne level. The state's productivity is pegged around 30 quintals (100 kg) per hectare.
According to state agriculture department official, Maize has gained in acreage as farmers have been buoyed by the 35 per cent rise in the minimum support price (MSP) last year. Farmers across all the major producing districts be it Davangere, Haveri, Belgaum or Hassan are showing a preference for maize this year. Maize MSP was revised upwards to Rs 840 per quintal against Rs 620 per quintal.
Potato farmers in the state’s Hassan district have, for instance, shown preference for maize after the outbreak of the dreaded "potato blight" last year. Potato acreage is barely 50 per cent of the targeted acreage in the ongoing kharif season.
The state which accounts for 8 per cent to 10 per cent of the national maize output is also expected to benefit from the possible lower output in the other major producing states like Andhra Pradesh, Rajasthan and Uttar Pradesh. Estimates indicate that the production shortfall in these three states could be between 20 per cent and 30 cent this kharif season. Collectively, these three account for about 40 per cent of India’s 20 million tonnes of maize production.
Traders, who are keeping a close tab on the maize acreage in the state, say that if the Union government decides to hike the MSP once again, procurement could be hit. The last hike itself made local maize pricey and impacted buyers.
While poultry units account for close to 50 per cent of the national offtake, about 30 per cent to 35 per cent is procured by starch makers with the balance being either used for human consumption or is carried forward.
It is estimated that the state's acreage would easily cross the 10 lakh hectare mark with production zooming past the 20-lakh-tonne level. The state's productivity is pegged around 30 quintals (100 kg) per hectare.
According to state agriculture department official, Maize has gained in acreage as farmers have been buoyed by the 35 per cent rise in the minimum support price (MSP) last year. Farmers across all the major producing districts be it Davangere, Haveri, Belgaum or Hassan are showing a preference for maize this year. Maize MSP was revised upwards to Rs 840 per quintal against Rs 620 per quintal.
Potato farmers in the state’s Hassan district have, for instance, shown preference for maize after the outbreak of the dreaded "potato blight" last year. Potato acreage is barely 50 per cent of the targeted acreage in the ongoing kharif season.
The state which accounts for 8 per cent to 10 per cent of the national maize output is also expected to benefit from the possible lower output in the other major producing states like Andhra Pradesh, Rajasthan and Uttar Pradesh. Estimates indicate that the production shortfall in these three states could be between 20 per cent and 30 cent this kharif season. Collectively, these three account for about 40 per cent of India’s 20 million tonnes of maize production.
Traders, who are keeping a close tab on the maize acreage in the state, say that if the Union government decides to hike the MSP once again, procurement could be hit. The last hike itself made local maize pricey and impacted buyers.
While poultry units account for close to 50 per cent of the national offtake, about 30 per cent to 35 per cent is procured by starch makers with the balance being either used for human consumption or is carried forward.
August 5, 2009
Guargum and Guarseed prices to remain firm on lower crop outlook
Guar seed and gaur gum prices, which have increased sharply during the past fortnight, are set to gain further as guar production is likely to be sharply lower on scanty rains in the growing areas.
Guar seed prices have gained 5 per cent in the last fortnight, while the gum prices have increased 15 per cent.
According to market experts, guar production is likely to be only three lakh tonnes (30 lakh bags of 100 kg) in 2009-10 against 10 lakh tonnes last year. At the same time, global demand is expected to remain unchanged. Therefore, the market will witness sharp rise.
Guar or cluster beans is a legume crop that grows best in semi-arid regions in the country. It is grown primarily in Rajasthan. The crop is also grown in Haryana, Punjab, Gujarat and Madhya Pradesh. While guar is seen as a vegetable in the South, it is primarily seen as a raw material to produce guar gum in the North.
Guar gum is used as a thickening agent and additives in food products such as instant soups, sauces, processed meat products, baked goods, milk and cheese products, yoghurt and ice-creams. It is also used in industrial applications such as paper and textile sectors, ore floatation, explosives manufacture and fracturing of oil and gas formations. India is the major producer of guarseed and gum, making up 80 per cent of the total global supply.
The crop in Rajasthan is likely to be two lakh tonnes only, while Haryana’s production will be 60,000 tonnes. Gujarat could produce 25,000 tonnes, while the rest is expected to come from other growing areas. Rajasthan and Haryana contribute 70 per cent and 20 per cent respectively to the total guar production in the country.
While scanty rains have affected the production prospects, another reason for the fall is farmers’ preference for crops such as pulses over guar to get better remuneration. Haryana and Rajasthan Governments’ move to distribute hybrid seeds of bajra, moong and moth has also had its impact on the crop.
Guar sowing was expected to gather momentum after July 25, 2009 but with monsoon being scanty over Haryana and Rajasthan’s Hanumangarh and Ganganagar districts, the outlook has turned bleak.
Guar seed prices have gained 5 per cent in the last fortnight, while the gum prices have increased 15 per cent.
According to market experts, guar production is likely to be only three lakh tonnes (30 lakh bags of 100 kg) in 2009-10 against 10 lakh tonnes last year. At the same time, global demand is expected to remain unchanged. Therefore, the market will witness sharp rise.
Guar or cluster beans is a legume crop that grows best in semi-arid regions in the country. It is grown primarily in Rajasthan. The crop is also grown in Haryana, Punjab, Gujarat and Madhya Pradesh. While guar is seen as a vegetable in the South, it is primarily seen as a raw material to produce guar gum in the North.
Guar gum is used as a thickening agent and additives in food products such as instant soups, sauces, processed meat products, baked goods, milk and cheese products, yoghurt and ice-creams. It is also used in industrial applications such as paper and textile sectors, ore floatation, explosives manufacture and fracturing of oil and gas formations. India is the major producer of guarseed and gum, making up 80 per cent of the total global supply.
The crop in Rajasthan is likely to be two lakh tonnes only, while Haryana’s production will be 60,000 tonnes. Gujarat could produce 25,000 tonnes, while the rest is expected to come from other growing areas. Rajasthan and Haryana contribute 70 per cent and 20 per cent respectively to the total guar production in the country.
While scanty rains have affected the production prospects, another reason for the fall is farmers’ preference for crops such as pulses over guar to get better remuneration. Haryana and Rajasthan Governments’ move to distribute hybrid seeds of bajra, moong and moth has also had its impact on the crop.
Guar sowing was expected to gather momentum after July 25, 2009 but with monsoon being scanty over Haryana and Rajasthan’s Hanumangarh and Ganganagar districts, the outlook has turned bleak.
Maharashtra cuts sugar output estimates for 2009-10
The country’s No. 1 sugar producing State, Maharashtra, has cut its output estimates for the ensuing 2009-10 crushing season (October to September).
The state had earlier expected to crush 455 lakh tonnes of cane, which, at an average recovery of 11.5 per cent, would have yielded around 52 lakh tonnes of sugar. But now, it looks mills would crush only 410 lakh tonnes, translating into a sugar production of slightly over 47 lakh tonnes.
The new projection is not markedly higher than the 46.14 lakh tonnes produced during the 2008-09 season, which saw 400.42 lakh tonnes of cane being crushed at an average recovery of 11.52 per cent. That, in turn, could have a bearing on the overall sugar supply-demand balance for the coming year, which is predicted on the prospects of a significant recovery in output from the official 150 to 155 lakh tonnes estimate for 2008-09.
Maharashtra’s downward revision is being attributed to the delayed onset of southwest monsoon rains. The cane producing areas had hardly received any rains throughout June.
It led to a severe shortage of fodder. And since the only patch of green that could be seen then was the semi-mature, standing cane crop, some of it got diverted for fodder. Even, last year a certain percentage of cane crop was diverted for fodder due to erratic rains.
The farmers get anything around Rs 2,000 a tonne for the fodder and that too, in ready cash (as against the average Rs 1,400 that mills paid for the fully mature cane crushed during the recent season). June being so dry, nobody thought the rains to recover in July (as they did). So, there was a desperate demand for fodder to feed the animals and the cane growers just cashed in on that.
The state had earlier expected to crush 455 lakh tonnes of cane, which, at an average recovery of 11.5 per cent, would have yielded around 52 lakh tonnes of sugar. But now, it looks mills would crush only 410 lakh tonnes, translating into a sugar production of slightly over 47 lakh tonnes.
The new projection is not markedly higher than the 46.14 lakh tonnes produced during the 2008-09 season, which saw 400.42 lakh tonnes of cane being crushed at an average recovery of 11.52 per cent. That, in turn, could have a bearing on the overall sugar supply-demand balance for the coming year, which is predicted on the prospects of a significant recovery in output from the official 150 to 155 lakh tonnes estimate for 2008-09.
Maharashtra’s downward revision is being attributed to the delayed onset of southwest monsoon rains. The cane producing areas had hardly received any rains throughout June.
It led to a severe shortage of fodder. And since the only patch of green that could be seen then was the semi-mature, standing cane crop, some of it got diverted for fodder. Even, last year a certain percentage of cane crop was diverted for fodder due to erratic rains.
The farmers get anything around Rs 2,000 a tonne for the fodder and that too, in ready cash (as against the average Rs 1,400 that mills paid for the fully mature cane crushed during the recent season). June being so dry, nobody thought the rains to recover in July (as they did). So, there was a desperate demand for fodder to feed the animals and the cane growers just cashed in on that.
July 31, 2009
Indian government releases 16.50 lakh tonnes sugar for open sale in August
The Indian government has released 16.5 lakh tonnes of sugar for the open market sales by mills for the month of August 2009. The release includes 13.77 lakh tonnes of Free Sale Quota (FSQ) of mills, besides 1.33 lakh tonnes out of the dismantled buffer stock created earlier, and 1.4 lakh tonnes of white sugar processed from the imported raw sugar.
The government has done away with the practice of announcing the non-levy or free sale sugar quota on quarterly basis and instead started releasing it on a monthly basis with effect from July 2009, till suspension of futures trading in sugar remains in force.
Further, 61371 million tonnes of white/refined sugar imported by designated agencies has already landed. It is expected that importers would dispose of at least one third of quantity imported white/refined sugar in the month of August 2009.
A quantity of 1.85 lakh tonnes has also been released under levy sugar for distribution in the public distribution system (PDS) for August. Thus, the total sugar available in August 2009 would be 18.55 lakh tonnes, sufficient to meet the internal demand of sugar for this month.
Sugar experts feel that the latest decision has been taken to conserve sugar. With estimated opening stocks of 95 lakh tonnes, production of 150 lakh tonnes and consumption of 230 lakh tonnes, the current 2008-09 sugar season (October-September) will close with stocks of 15 lakh tonnes.
Although the country might end up importing 30 lakh tonnes of raw sugar, only about 10 lakh tonnes of this might be converted into whites. Much of the raw sugar that have been imported can be processed only from December, when the mills start crushing and there is bagasse available from the cane that can be used as fuel.
The government has done away with the practice of announcing the non-levy or free sale sugar quota on quarterly basis and instead started releasing it on a monthly basis with effect from July 2009, till suspension of futures trading in sugar remains in force.
Further, 61371 million tonnes of white/refined sugar imported by designated agencies has already landed. It is expected that importers would dispose of at least one third of quantity imported white/refined sugar in the month of August 2009.
A quantity of 1.85 lakh tonnes has also been released under levy sugar for distribution in the public distribution system (PDS) for August. Thus, the total sugar available in August 2009 would be 18.55 lakh tonnes, sufficient to meet the internal demand of sugar for this month.
Sugar experts feel that the latest decision has been taken to conserve sugar. With estimated opening stocks of 95 lakh tonnes, production of 150 lakh tonnes and consumption of 230 lakh tonnes, the current 2008-09 sugar season (October-September) will close with stocks of 15 lakh tonnes.
Although the country might end up importing 30 lakh tonnes of raw sugar, only about 10 lakh tonnes of this might be converted into whites. Much of the raw sugar that have been imported can be processed only from December, when the mills start crushing and there is bagasse available from the cane that can be used as fuel.
July 28, 2009
Government allows duty-free raw sugar import beyond August 1 2009
The Union Government has extended beyond 1 August 2009
the import facility for raw sugar at zero duty without
any export obligation and that of white sugar through
state-owned trading firms to augment domestic supply.
The move has come amid growing apprehension about the
fate of sugar production next season, starting October,
following a decline in the area under sugarcane to 42.5
lakh hectares (as on July 17) from 43.8 lakh hectares
in the same period a year ago.
Earlier in April, the government had scrapped a 60 per
cent import duty on raw sugar and allowed duty-free import
till August 1 under the pen GeneralLicense (OGL) scheme,
under which mills do not have any export obligation.
It had also allowed Minerals and Metals Trading Corp (MMTC),
State Trading Corp (STC) and PEC to import refined sugar up
to 10 lakh tonnes at zero duty till August 1.
According to sugar industry experts, the country has imported
raw sugar of 16.8 lakh tonnes as of now, while another 1.7
lakh tonnes are expected to reach by the end of this month.
Around 29 lakh tonnes have been contracted so far.
Similarly, the PSUs have contracted 1.2 lakh tonnes of refined
sugar so far, out of which 43,550 tonnes have already arrived.
A total of 79,605 tonnes is expected to land here by the end
of this month.
The lower output has resulted in a higher price of sugar,
which is currently selling at Rs 27-30 a kg in retail markets
compared to Rs 16-17 a kg a year before.
India's sugar output in 2009/10 is expected to reach 175 to 185
lakh tonnes, lower than the previously estimated 200 lakh tonnes
due to delay in progress of monsoon.
the import facility for raw sugar at zero duty without
any export obligation and that of white sugar through
state-owned trading firms to augment domestic supply.
The move has come amid growing apprehension about the
fate of sugar production next season, starting October,
following a decline in the area under sugarcane to 42.5
lakh hectares (as on July 17) from 43.8 lakh hectares
in the same period a year ago.
Earlier in April, the government had scrapped a 60 per
cent import duty on raw sugar and allowed duty-free import
till August 1 under the pen GeneralLicense (OGL) scheme,
under which mills do not have any export obligation.
It had also allowed Minerals and Metals Trading Corp (MMTC),
State Trading Corp (STC) and PEC to import refined sugar up
to 10 lakh tonnes at zero duty till August 1.
According to sugar industry experts, the country has imported
raw sugar of 16.8 lakh tonnes as of now, while another 1.7
lakh tonnes are expected to reach by the end of this month.
Around 29 lakh tonnes have been contracted so far.
Similarly, the PSUs have contracted 1.2 lakh tonnes of refined
sugar so far, out of which 43,550 tonnes have already arrived.
A total of 79,605 tonnes is expected to land here by the end
of this month.
The lower output has resulted in a higher price of sugar,
which is currently selling at Rs 27-30 a kg in retail markets
compared to Rs 16-17 a kg a year before.
India's sugar output in 2009/10 is expected to reach 175 to 185
lakh tonnes, lower than the previously estimated 200 lakh tonnes
due to delay in progress of monsoon.
July 22, 2009
Indian Government raises food grain output estimates
The Union Government has revised upwards its food grain production estimates for 2008-09 by over four million tonnes.
The Agriculture Ministry’s ‘Fourth Advance Estimate’, finalised last week, puts the country’s total food grain output for 2008-09 at an all-time-high of 233.88 million tonnes (mt), bettering the earlier record of 230.78 mt achieved in 2007-08.
The latest 233.88 mt figure is also more than the ‘Third Advance Estimate’ of 229.85 mt and the ‘Second Advance Estimate’ of 227.88 mt, released in May and February, respectively. Much of the upward revision is on account of wheat and maize.
According to the estimate, the rice production rose to an all-time high of 99.15 million tonnes during 2008-09, compared to 96.69 million tonnes in 2007-08. The 2008-09 wheat crop’s size is now reckoned at a new high of 80.58 mt, compared with the preceding estimates of 77.63 mt and 77.78 mt. The reassessment follows an unprecedented 25.14 mt of procurement by Government agencies, surpassing the 22.69 mt that was mopped up from the 2007-08 crop of 78.57 mt.
The output estimates of maize have likewise been raised from 17.04 mt (February) and 18.48 mt (May) to a record 19.29 mt.
Pulses production has been revised slightly upward to 14.66 million tonnes against 14.18 million tonnes in the third advance estimates. Pulses output stood at 14.76 million tonnes in 2007-08 season.
Among oilseeds, the production of soyabean, has been revised downward, while mustard and groundnut output is reported higher than the last estimate.
Soyabean production is now seen at 9.9 million tonnes, mustard output at 7.37 million tonnes and groundnut at 7.34 million tonnes.
According to the agriculture ministry data, the nation is estimated to have produced 271.25 million tonnes of sugarcane and 23.16 million tonnes of cotton bales in 2008-09 season (170 kg a bale).
The government had fixed a target of 233 million tonnes food grains production for 2008-09.
The Agriculture Ministry’s ‘Fourth Advance Estimate’, finalised last week, puts the country’s total food grain output for 2008-09 at an all-time-high of 233.88 million tonnes (mt), bettering the earlier record of 230.78 mt achieved in 2007-08.
The latest 233.88 mt figure is also more than the ‘Third Advance Estimate’ of 229.85 mt and the ‘Second Advance Estimate’ of 227.88 mt, released in May and February, respectively. Much of the upward revision is on account of wheat and maize.
According to the estimate, the rice production rose to an all-time high of 99.15 million tonnes during 2008-09, compared to 96.69 million tonnes in 2007-08. The 2008-09 wheat crop’s size is now reckoned at a new high of 80.58 mt, compared with the preceding estimates of 77.63 mt and 77.78 mt. The reassessment follows an unprecedented 25.14 mt of procurement by Government agencies, surpassing the 22.69 mt that was mopped up from the 2007-08 crop of 78.57 mt.
The output estimates of maize have likewise been raised from 17.04 mt (February) and 18.48 mt (May) to a record 19.29 mt.
Pulses production has been revised slightly upward to 14.66 million tonnes against 14.18 million tonnes in the third advance estimates. Pulses output stood at 14.76 million tonnes in 2007-08 season.
Among oilseeds, the production of soyabean, has been revised downward, while mustard and groundnut output is reported higher than the last estimate.
Soyabean production is now seen at 9.9 million tonnes, mustard output at 7.37 million tonnes and groundnut at 7.34 million tonnes.
According to the agriculture ministry data, the nation is estimated to have produced 271.25 million tonnes of sugarcane and 23.16 million tonnes of cotton bales in 2008-09 season (170 kg a bale).
The government had fixed a target of 233 million tonnes food grains production for 2008-09.
April 3, 2009
There is no escaping high sugar prices
According to the Indian Sugar Mills Association (ISMA), sugar production in India this season (October 2008-September 2009) is expected to fall to 15.5 million tonnes, much below the estimates given by the Agriculture Ministry (16 mt); this would be over 40 per cent decline from the previous year figure which stood at 26.4 million tonnes. Various analysts may differ on this figure; many have over projected the figure assuming that the current high prices would lead to a significant increase in the production. But, as Indian agriculture depends mostly on monsoon it would be too early to say that the figure for the next year would lead to surplus.
It was evident in the month of July-August (2008) that the production would fall this year (crops were badly affected by the failure of monsoon). Yet, the Indian government failed to take corrective measures to ensure that the common man is not affected by the sudden fall in the production figure. It took months for the Indian government to allow the sugar mills to import duty-free raw sugar to sale locally after processing it under the Advance Licenses (AL) agreement. Now, when it is evident that the production has in fact fallen drastically, the government is yet to take a decision on allowing duty-free white sugar (refined) for the domestic consumption.
At present, imports of both raw and white sugar attract 60 percent import duty. But, mills are allowed to import raw sugar at zero duty against advance licenses subject to fulfilling an obligation to re-export one tonne of white (refined) sugar for every 1.05 tonnes of raw sugar imported. With the production figure falling in India, international prices have also moved up. This makes import of even white sugar at zero duty not viable as there are other costs like transportation, packaging, sales tax, etc which takes the overall cost above or around what it is being traded right now in the Indian market.
Many mills in Uttar Pradesh and Maharashtra have already closed their crushing due to unavailability of sugarcane. The others are to follow them in a few weeks. In India, sugarcane is used to produce sugar as well as jaggery. With the shortage of sugarcane, much of the sugarcane this year was diverted towards jaggery as the farmers were getting better pay there. There are reports in the media that the sugar mills are encouraging farmers to go in for cane cultivation by offering them higher prices and incentives. They fear that farmers may divert towards other crops which seems to be attractive at present. Prices of various commodities like rice, maize, oil-seeds, etc have increased in the past few months. At the same time, these crops are shorter duration crops and have quicker returns unlike sugarcane where the farmers have to wait for a few months to realize their payments. Thus, it seems that farmers would be attracted towards other crops. So, it is not easy for the Indian Sugar industry to come out of this mess as production this year may not rise drastically as predicted by many experts.
The consumption in India this season is expected to be around 23 million tonnes which is much higher than what India is estimated to produce (15.5 to 16 million tonnes). The deficit is expected to be met by imports which is not viable at present as the prices are currently ruling high. Therefore, in near future, sugar prices would continue to rule high due to sugarcane shortage and demand from the cold drink and ice-cream makers. Also, it is a marriage season in the North India, so demand would be good throughout this quarter. At, present retail prices are ruling at around Rs.23 to Rs.26 per quintal. So even if imports come into play, prices will still rule around Rs.20 to Rs.22 per quintal which is still higher than the previous year.
It was evident in the month of July-August (2008) that the production would fall this year (crops were badly affected by the failure of monsoon). Yet, the Indian government failed to take corrective measures to ensure that the common man is not affected by the sudden fall in the production figure. It took months for the Indian government to allow the sugar mills to import duty-free raw sugar to sale locally after processing it under the Advance Licenses (AL) agreement. Now, when it is evident that the production has in fact fallen drastically, the government is yet to take a decision on allowing duty-free white sugar (refined) for the domestic consumption.
At present, imports of both raw and white sugar attract 60 percent import duty. But, mills are allowed to import raw sugar at zero duty against advance licenses subject to fulfilling an obligation to re-export one tonne of white (refined) sugar for every 1.05 tonnes of raw sugar imported. With the production figure falling in India, international prices have also moved up. This makes import of even white sugar at zero duty not viable as there are other costs like transportation, packaging, sales tax, etc which takes the overall cost above or around what it is being traded right now in the Indian market.
Many mills in Uttar Pradesh and Maharashtra have already closed their crushing due to unavailability of sugarcane. The others are to follow them in a few weeks. In India, sugarcane is used to produce sugar as well as jaggery. With the shortage of sugarcane, much of the sugarcane this year was diverted towards jaggery as the farmers were getting better pay there. There are reports in the media that the sugar mills are encouraging farmers to go in for cane cultivation by offering them higher prices and incentives. They fear that farmers may divert towards other crops which seems to be attractive at present. Prices of various commodities like rice, maize, oil-seeds, etc have increased in the past few months. At the same time, these crops are shorter duration crops and have quicker returns unlike sugarcane where the farmers have to wait for a few months to realize their payments. Thus, it seems that farmers would be attracted towards other crops. So, it is not easy for the Indian Sugar industry to come out of this mess as production this year may not rise drastically as predicted by many experts.
The consumption in India this season is expected to be around 23 million tonnes which is much higher than what India is estimated to produce (15.5 to 16 million tonnes). The deficit is expected to be met by imports which is not viable at present as the prices are currently ruling high. Therefore, in near future, sugar prices would continue to rule high due to sugarcane shortage and demand from the cold drink and ice-cream makers. Also, it is a marriage season in the North India, so demand would be good throughout this quarter. At, present retail prices are ruling at around Rs.23 to Rs.26 per quintal. So even if imports come into play, prices will still rule around Rs.20 to Rs.22 per quintal which is still higher than the previous year.
February 5, 2009
Sugar prices to remain firm
Sugar prices have been continuously rising since past few months. It was predictable. Sugar experts all over the country had warned the government through their analysis about the mismatch of demand and supply; and how the prices would rule firm in the near future. In my earlier blog, I had mentioned how sugar prices would rule firm at the year end. The agriculture minister was wrong from the very beginning. Though, it has allowed sugar mills to import duty-free sugar against advance licenses (AL) on a ‘tonne-to-tonne’ basis, yet the decision came very late. Already, sugar prices are ruling very high.
A few weeks back, the agriculture minister Sharad Pawar had said that the production in India would fall to around 18 million tones from 26 million tonnes a year ago. Yet, the ministry was reluctant to allow imports. The difference in opinion between the agriculture minister and the commerce minister has affected the sugar sector badly. Yet, the decision will bring some cheers to all those involved with the sugar sector. I will explain the reason for saying some cheers.
With this decision, the mills can now import the duty-free sugar and sell it in the domestic market after reprocessing it into white sugar. The export obligation can be made later on from the domestic production, but within two year. This will help bring down the prices by making available more sugar in the market. According to earlier policy, which believed in ‘grain-to-grain’, the mills that were allowed to import raw sugar had an obligation to re-export the same consignment after reprocessing it within two years of the AL being issued. But, the present policy means that the mills can meet the export obligation by processing cane independently.
Though, in the near term prices may cool a bit, yet, in the long run the sugar sector will see many happenings. The prices will climb to a new height unless government comes out with more liberal policies for this sector. The reports coming from various quarters indicate that the production of sugar this year will fall even below the expected 18 million tonnes. It should be noted that last year due to average monsoon in the sugarcane growing areas of Maharashtra, farmers had converted their standing cane for fodder. Poor monsoon led to poor production of fodder; hence, farmers had no other option but, to convert their crop into fodder. So, the farmers then chose to harvest the cane for fodder rather than waiting for the crops to mature to sell it to the sugar mills.
Sugar recovery too this year is expected to fall drastically. Sugar recovery is the percentage of sugar mills extract from every tonne of cane crushed. The average recovery in Uttar Pradesh so far this season has been 8.8 per cent against 9.48 per cent in the same period last year. As a result, the overall production in the state is expected to fall. Lower recovery of sugar is due to cane plant suffering damage from the frost.
Even the area under cultivation was lower last year as the mills were (are) not in a position to pay farmers the State Advised Price (SAP). At the same time, due to poor monsoon, yield too fell to around 32 tonnes a hectare from 58 tonnes a hectare in the year 2007-08. One thing that the government needs to carefully examine is the pricing of cane. What should be the right price for the mills to be able to pay to the farmers? More important, who should dictate the price? It is irony that the Union Government comes out with Statutory Minimum Price (SMP) and the state comes out with their State Advised Price (SAP), usually much higher than the SMP to score brownie points without realizing the implications of such policy. When the prices rule very high and the consumers are in pain, it is the Central Government that has to act and not the state government. So, why should a state be given a right to decide the pricing of cane when it doesn’t come into picture?
Due to poor availability of cane for crushing, most of the mills are expected to shut their crushing by March end. Normally, crushing continues till April. In Maharashtra, out of 145 mills that had started crushing this season, 14 have already closed, compared to one out of 165 mills last year (2007-08). So, the overall picture looks bleak for the sugar sector. In the near term, prices will rule in a range as the government will ensure sufficient supply in the market through free sale quota (FSQ) as this is a election year.
A few weeks back, the agriculture minister Sharad Pawar had said that the production in India would fall to around 18 million tones from 26 million tonnes a year ago. Yet, the ministry was reluctant to allow imports. The difference in opinion between the agriculture minister and the commerce minister has affected the sugar sector badly. Yet, the decision will bring some cheers to all those involved with the sugar sector. I will explain the reason for saying some cheers.
With this decision, the mills can now import the duty-free sugar and sell it in the domestic market after reprocessing it into white sugar. The export obligation can be made later on from the domestic production, but within two year. This will help bring down the prices by making available more sugar in the market. According to earlier policy, which believed in ‘grain-to-grain’, the mills that were allowed to import raw sugar had an obligation to re-export the same consignment after reprocessing it within two years of the AL being issued. But, the present policy means that the mills can meet the export obligation by processing cane independently.
Though, in the near term prices may cool a bit, yet, in the long run the sugar sector will see many happenings. The prices will climb to a new height unless government comes out with more liberal policies for this sector. The reports coming from various quarters indicate that the production of sugar this year will fall even below the expected 18 million tonnes. It should be noted that last year due to average monsoon in the sugarcane growing areas of Maharashtra, farmers had converted their standing cane for fodder. Poor monsoon led to poor production of fodder; hence, farmers had no other option but, to convert their crop into fodder. So, the farmers then chose to harvest the cane for fodder rather than waiting for the crops to mature to sell it to the sugar mills.
Sugar recovery too this year is expected to fall drastically. Sugar recovery is the percentage of sugar mills extract from every tonne of cane crushed. The average recovery in Uttar Pradesh so far this season has been 8.8 per cent against 9.48 per cent in the same period last year. As a result, the overall production in the state is expected to fall. Lower recovery of sugar is due to cane plant suffering damage from the frost.
Even the area under cultivation was lower last year as the mills were (are) not in a position to pay farmers the State Advised Price (SAP). At the same time, due to poor monsoon, yield too fell to around 32 tonnes a hectare from 58 tonnes a hectare in the year 2007-08. One thing that the government needs to carefully examine is the pricing of cane. What should be the right price for the mills to be able to pay to the farmers? More important, who should dictate the price? It is irony that the Union Government comes out with Statutory Minimum Price (SMP) and the state comes out with their State Advised Price (SAP), usually much higher than the SMP to score brownie points without realizing the implications of such policy. When the prices rule very high and the consumers are in pain, it is the Central Government that has to act and not the state government. So, why should a state be given a right to decide the pricing of cane when it doesn’t come into picture?
Due to poor availability of cane for crushing, most of the mills are expected to shut their crushing by March end. Normally, crushing continues till April. In Maharashtra, out of 145 mills that had started crushing this season, 14 have already closed, compared to one out of 165 mills last year (2007-08). So, the overall picture looks bleak for the sugar sector. In the near term, prices will rule in a range as the government will ensure sufficient supply in the market through free sale quota (FSQ) as this is a election year.
August 22, 2008
Domestic LPG cylinders to have radio chips
To curb the diversion of domestic LPG cylinders for the commercial purpose, the government has come out with a unique solution. Presently, domestic LPG costs Rs 348.89 less than the cylinders meant for commercial use and this difference often leads them into restaurants and hotels that are supposed to use only industrial LPG. This means loss not only to the government, but also to the consumers who have to wait for their cylinders as quite often the oil companies run out of stocks for domestic purpose.
Now, the Petroleum Ministry has decided to tag cylinders with radio frequency ID (RFID) chips. This will help track the movement of each cylinder from the time it leaves the filling station and returns for a refill. Indian Oil Corp has already conducted two successful trial runs for tagging LPG cylinders with radio frequency chips, while Bharat Petroleum has carried a trial run at its Pune plant. Hindustan Petroleum has done the same at its Nasik plant
All cylinders will be tagged with a unique number and consumers will be issued smart cards. Every time a refill is delivered, the unique number would be stored on the smart cards. All this information will be accessible to oil firms who would bottle LPG only in those cylinders, which had actually been used in some household.
Moreover, oil companies have already colour differentiated the domestic use cylinders from those meant for non-domestic usage -- red is the colour of 14.2-kg cylinder meant for household use and oxford blue would be the colour for 19-kg commercial cylinder.
Apart from these measures, oil companies have also decided to eliminate multiple connections in one household and stop supply of subsidized gas to places having piped natural gas supply.
All cylinders will be tagged with a unique number and consumers will be issued smart cards. Every time a refill is delivered, the unique number would be stored on the smart cards. All this information will be accessible to oil firms who would bottle LPG only in those cylinders, which had actually been used in some household.
Moreover, oil companies have already colour differentiated the domestic use cylinders from those meant for non-domestic usage -- red is the colour of 14.2-kg cylinder meant for household use and oxford blue would be the colour for 19-kg commercial cylinder.
Apart from these measures, oil companies have also decided to eliminate multiple connections in one household and stop supply of subsidized gas to places having piped natural gas supply.
Finally Centre plans to offload wheat in the open market
As the inflation for the week ending August 9, 2008 touched 12.63 per cent (as released on 21st August 2008), government was caught with a tricky situation. How to tame the rising prices? The Centre has now decided to offload 60 lakh tonnes of wheat from the central pool in the open market to enhance availability during the coming festival season and to contain prices. According to the government, this would be done after meeting the requirements of the targeted Public Distribution System (PDS) and setting aside 40 lakh tonnes of buffer stock (on April 1) and 30 lakh tonnes of reserve stocks that were made possible through a record procurement this year at over 225 lakh tonnes against 111 lakh tonnes last year.
At the same time, the Centre has also decided to extend till April 4, 2009 the order imposing limits on stocks and free movement of wheat, pulses and rice. This order will now cover paddy also, as there had been reports that millers in some States were hoarding paddy in the hope that they may gain if the Minimum Support Price (MSP) is enhanced to Rs. 1,000 a quintal as demanded.
Out of 60 lakh tonnes of wheat to be offloaded, 10 lakh tonnes would be allocated to States for the Above Poverty Line (APL) population. The rest would be for retail sale through the State governments and for bulk consumers (bread, biscuit manufacturers and roller flour millers) through open tendering.
Timing of open sale of wheat is yet to be decided. But, as the festivals are nearing and with increasing demand for various commodities, it is believed that the open sale will start from the first week of September. The prices for the open sale of wheat would be above Rs.1000 per quintal plus transportation cost. The Centre is yet to decide on the open sale of rice though, the procurement of rice was higher than last year at 267 lakh tonnes.
At the same time, the Centre has also decided to extend till April 4, 2009 the order imposing limits on stocks and free movement of wheat, pulses and rice. This order will now cover paddy also, as there had been reports that millers in some States were hoarding paddy in the hope that they may gain if the Minimum Support Price (MSP) is enhanced to Rs. 1,000 a quintal as demanded.
Out of 60 lakh tonnes of wheat to be offloaded, 10 lakh tonnes would be allocated to States for the Above Poverty Line (APL) population. The rest would be for retail sale through the State governments and for bulk consumers (bread, biscuit manufacturers and roller flour millers) through open tendering.
Timing of open sale of wheat is yet to be decided. But, as the festivals are nearing and with increasing demand for various commodities, it is believed that the open sale will start from the first week of September. The prices for the open sale of wheat would be above Rs.1000 per quintal plus transportation cost. The Centre is yet to decide on the open sale of rice though, the procurement of rice was higher than last year at 267 lakh tonnes.
August 1, 2008
Sugar at Rs.2,000 a quintal!
The sudden surge in sugar prices has made everyone redo their homework. Prices of sugar have seen a continuous bull run for the past few days. Even though the production this year was exceptionally good yet the prices are ruling firm. NCDEX December contract for M Grade Kolhapur is currently ruling at Rs.1835 a quintal which is Rs.187 more or 11 per cent higher than the August price of Rs.1648. Logically, prices should be lowest in December due to supply pressure. So, why the prices are heading northward? For this, we need to first understand the dynamics of sugar industry.
Dynamics of sugar Industry
India is the largest consumer and second largest producer of sugar in the world. Sugarcane occupies about 4.2% of the total kharif area under cultivated area and it is one of the most important cash crops in the country. Sugar is a sensitive issue in India just like onion. The economics of sugar in India is very complicated as compared to other countries. This is because in India there is two type of sugar industry; one the large mills and second, is the small cottage industries that manufacture specially gur (solidified cane juice) and khandsari (semi-white centrifugal sugar). Therefore, both these industries compete for sugar cane.
In India, sugar comes under the Essential Commodities Act, 1955 and the government involvement is at each level, right from fixing the Statutory Minimum Price (SMP) to the growers, to giving industrial licensing for establishment of sugar factory. In addition to it, the government also decides the quantity that can be sold in the open market, fixes the price of the levy quota sugar and determines the maximum stock levels for wholesalers, etc.
At present, sugar mills are forced to sell 10% of their output to government at cheaper rates (generally 20 per cent lower than the cost of the output). Government uses this sugar to meet its target under PDS (Public Distribution System) to sell sugar at cheap rates to the poor. At the same time, government authorities also decide how much of the remaining they can sell in the open market. This is done to keep the prices stable in the domestic market and is achieved through quota system wherein government announces the release of sugar quota for each quarter. For instance, the sugar quota released for this quarter, i.e., July, August and September is 30 lakh tonnes. Apart from that, buffer stock of 8 lakh tonnes is also supposed to be released in this quarter.
Government announces the SMP for sugarcane every year based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). While the Central Government regulates the sugar industry, the State Governments exercise control over supply and distribution of cane as an agricultural crop. Thus, the State Government announces State Advised Prices (SAPs) for sugarcane in respect of cane supplied to mills within their boundaries. The SAPs which mills are required to pay are generally substantially higher than the SMP. Also, every mill is given a certain boundary region. All canes grown in that region are to be compulsorily sold to the mills allotted to that region.
Current Scenario
Over the past few weeks, sugar prices have been continuously rising. There are various factors for the rise in the sugar prices. As usual, first is the demand and supply scenario.
The demand for the sugar sector seems to be good in the coming days. With strong demand, weak price will be thing of the past. It is reported that sugar prospects in Brazil and India is not good. Production is expected to decline. With the re-entering of Russia, the largest importer, prices of sugar are expected to head northward.
The world sugar fundamentals are expected to tighten next season. In 2007-08, world sugar consumption is projected at about 160 million tonnes against the expected production of 170 million tonnes. The surplus is about 10 million tonnes. But, with reports coming from various corners of the world, the production would be about 160 million tonnes the year 2008-09. The production in India, China and Pakistan is expected to be lower than the previous year. Even reports from Brazil indicate that the crop is behind the schedule.
Indian Scenario
According to the Ministry of Agriculture, the area under sugarcane for the year 2008-09 is down to 4.3 million hectares from the 5.2 million hectares in the previous year. Aberrant monsoon in the Western states like Maharashtra, Karnataka and Andhra Pradesh has created a risk of yield loss. It believed that the total output for the country will fall to about 22 to 23 million tonnes against 27 million tonnes of previous year.
Indian exports for this season have already touched 3.5 million tonnes and is about to reach 4.5 million tonnes. The reason for this is weakening rupee and firm export price. However, with the production expected to decline next year, export would not materialize as the government may ban exports of sugar to reign in the domestic prices. There is high possibility of such actions with the elections of various states which are to be conducted next year.
The report from Maharashtra is even worse. The prolonged dry spell is inducing farmers to convert their standing cane for fodder. When the rains fail, the cattle have no fodder thereby pushing up the prices for fodder. So, the farmers then choose to harvest the cane for fodder rather than waiting for the crops to mature to sell it to the sugar mills. Cane availability for this year's crushing season is expected to go down to 50 million tonnes out of total cane production of 54.4 million tonnes due to diversion. If that happens then the production will be badly affected.
Indian sugar industry typically follows a 4 to 5 or 6 year cycle. The down trends in the sugar cycle starts with improved profitability of sugar mills. This results in prompt and higher payment to the farmers resulting in low sugarcane arrears. Good payment and low arrears lead to higher area under sugarcane cultivation and bumper production. All these lead to drop in prices of sugar. When the sugar prices fall drastically, it leads to losses or low profit to sugar mills. Hence, mills are not able to pay the farmers on time leading to increase in arrears. The farmers are ultimately forced to move towards other cash crops. The production falls and prices start moving up again. This whole viscous cycle continue for about 5 to 6 years. It is believed that the current year is a peak year on sugar cycle due to bumper production since last few years. Hence, prices are expected to peak this year leading to fall in production. However, long term trend of production is of increasing in nature.
Ethanol will play an important part in rising sugar prices. It is expected that Brazil will divert more of their sugar crop towards ethanol production due to rising crude prices which have affected almost every other commodities. Also, Indian government is toying with the idea of allowing petrol blending with 10 per cent of ethanol. This will drastically affect the sugar output.
Forward prices are firming and sugar prices will begin to surge with the beginning of the festival season by mid-August.Therefore, looking at various factors one should not be surprised if the prices touch Rs.2,000 a quintal.
Dynamics of sugar Industry
India is the largest consumer and second largest producer of sugar in the world. Sugarcane occupies about 4.2% of the total kharif area under cultivated area and it is one of the most important cash crops in the country. Sugar is a sensitive issue in India just like onion. The economics of sugar in India is very complicated as compared to other countries. This is because in India there is two type of sugar industry; one the large mills and second, is the small cottage industries that manufacture specially gur (solidified cane juice) and khandsari (semi-white centrifugal sugar). Therefore, both these industries compete for sugar cane.
In India, sugar comes under the Essential Commodities Act, 1955 and the government involvement is at each level, right from fixing the Statutory Minimum Price (SMP) to the growers, to giving industrial licensing for establishment of sugar factory. In addition to it, the government also decides the quantity that can be sold in the open market, fixes the price of the levy quota sugar and determines the maximum stock levels for wholesalers, etc.
At present, sugar mills are forced to sell 10% of their output to government at cheaper rates (generally 20 per cent lower than the cost of the output). Government uses this sugar to meet its target under PDS (Public Distribution System) to sell sugar at cheap rates to the poor. At the same time, government authorities also decide how much of the remaining they can sell in the open market. This is done to keep the prices stable in the domestic market and is achieved through quota system wherein government announces the release of sugar quota for each quarter. For instance, the sugar quota released for this quarter, i.e., July, August and September is 30 lakh tonnes. Apart from that, buffer stock of 8 lakh tonnes is also supposed to be released in this quarter.
Government announces the SMP for sugarcane every year based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). While the Central Government regulates the sugar industry, the State Governments exercise control over supply and distribution of cane as an agricultural crop. Thus, the State Government announces State Advised Prices (SAPs) for sugarcane in respect of cane supplied to mills within their boundaries. The SAPs which mills are required to pay are generally substantially higher than the SMP. Also, every mill is given a certain boundary region. All canes grown in that region are to be compulsorily sold to the mills allotted to that region.
Current Scenario
Over the past few weeks, sugar prices have been continuously rising. There are various factors for the rise in the sugar prices. As usual, first is the demand and supply scenario.
The demand for the sugar sector seems to be good in the coming days. With strong demand, weak price will be thing of the past. It is reported that sugar prospects in Brazil and India is not good. Production is expected to decline. With the re-entering of Russia, the largest importer, prices of sugar are expected to head northward.
The world sugar fundamentals are expected to tighten next season. In 2007-08, world sugar consumption is projected at about 160 million tonnes against the expected production of 170 million tonnes. The surplus is about 10 million tonnes. But, with reports coming from various corners of the world, the production would be about 160 million tonnes the year 2008-09. The production in India, China and Pakistan is expected to be lower than the previous year. Even reports from Brazil indicate that the crop is behind the schedule.
Indian Scenario
According to the Ministry of Agriculture, the area under sugarcane for the year 2008-09 is down to 4.3 million hectares from the 5.2 million hectares in the previous year. Aberrant monsoon in the Western states like Maharashtra, Karnataka and Andhra Pradesh has created a risk of yield loss. It believed that the total output for the country will fall to about 22 to 23 million tonnes against 27 million tonnes of previous year.
Indian exports for this season have already touched 3.5 million tonnes and is about to reach 4.5 million tonnes. The reason for this is weakening rupee and firm export price. However, with the production expected to decline next year, export would not materialize as the government may ban exports of sugar to reign in the domestic prices. There is high possibility of such actions with the elections of various states which are to be conducted next year.
The report from Maharashtra is even worse. The prolonged dry spell is inducing farmers to convert their standing cane for fodder. When the rains fail, the cattle have no fodder thereby pushing up the prices for fodder. So, the farmers then choose to harvest the cane for fodder rather than waiting for the crops to mature to sell it to the sugar mills. Cane availability for this year's crushing season is expected to go down to 50 million tonnes out of total cane production of 54.4 million tonnes due to diversion. If that happens then the production will be badly affected.
Indian sugar industry typically follows a 4 to 5 or 6 year cycle. The down trends in the sugar cycle starts with improved profitability of sugar mills. This results in prompt and higher payment to the farmers resulting in low sugarcane arrears. Good payment and low arrears lead to higher area under sugarcane cultivation and bumper production. All these lead to drop in prices of sugar. When the sugar prices fall drastically, it leads to losses or low profit to sugar mills. Hence, mills are not able to pay the farmers on time leading to increase in arrears. The farmers are ultimately forced to move towards other cash crops. The production falls and prices start moving up again. This whole viscous cycle continue for about 5 to 6 years. It is believed that the current year is a peak year on sugar cycle due to bumper production since last few years. Hence, prices are expected to peak this year leading to fall in production. However, long term trend of production is of increasing in nature.
Ethanol will play an important part in rising sugar prices. It is expected that Brazil will divert more of their sugar crop towards ethanol production due to rising crude prices which have affected almost every other commodities. Also, Indian government is toying with the idea of allowing petrol blending with 10 per cent of ethanol. This will drastically affect the sugar output.
Forward prices are firming and sugar prices will begin to surge with the beginning of the festival season by mid-August.Therefore, looking at various factors one should not be surprised if the prices touch Rs.2,000 a quintal.
July 25, 2008
Banning Futures in Agri is not a solution
Parliamentary panel has recently submitted its report to the government and has advised to the government to ban futures trading in agro-products. The reason given is that it leads to artificial rise in prices and does not benefit the Indian farmers. About 82 per cent of the farming community in India constitute of small and marginal farmers. These farmers are unable to take the advantage of forward trading and therefore, they need to be protected against any sharp fall in prices. The committee further pointed that futures trading has not been beneficial to farmers. It is the traders and middlemen who are earning at the cost of the farmers.
The panel’s view came as a shock and led to the fall in the futures market. On my earlier blog, I had written about why government should remove ban from certain commodities that were banned earlier. To a certain extent, it is true that farmers don’t benefit from the futures trading. But, there are indirect affects. They get a brief idea about what the prices are prevailing in the market. Though, this is debatable, let us not debate on this. Rather, I should ask you, would banning futures trading in agro-products heal the farmers’ problems. The answer is no. Different farmers have different problems. Small and marginal farmers cannot even afford to look at futures trading. Same is the case for equity market. So first, we must understand the purpose of this market. The purpose is price discovery. So, is it performing its function.
Let us examine this. The prices for various commodities have rose across various markets, both national and international. Prices of commodities reflect the demand and supply situation in any market. Or else, how can you explain the rise in cotton prices even after government had abolished the import duty on it. On my earlier blog, I had written about why government should remove ban from certain commodities that were banned earlier. The inflation that we are talking about is mostly imported. The rise in oil prices directly and indirectly lead to increase in prices for various commodities.
Inflation problem is not only confined to India. Almost every emerging economy is faced with this. Will the inflation rate come down after the ban? On the contrary, inflation has further increased even after the ban of certain commodities. Banning futures trading will not help. A study by NCDEX on various commodities (on my earlier blog) a few months back revealed that even after the ban prices for many essential commodities rose sharply. This reflected supply side problem. With the rising crude oil prices amid fear of depleting reserves, developed countries like US have shifted a major portion of corn and other agro-products for bio-fuel making. This has led to fewer stocks available for trade. Prices of edible oil are high because, due to high prices of crude oil, more and more vegetable oils are being diverted for use as bio-fuels. India imports soy oil heavily so, its prices in the domestic market therefore, depend on the palm oil production in Indonesia and Malaysia and soya bean production in the US, Argentina and Brazil. Moreover, rubber is an industrial commodity and not an essential one, and therefore it doesn't contribute to higher inflation. India also imports pulses heavily from abroad. Hence, price control is beyond its reach. Thus, earlier ban on commodities was a mistake that government committed under political pressure. It had nothing to do with inflation.
The other major issue is lack of knowledge. Government every year comes out with Minimum Statutory Price (MSP) for various agricultural products like wheat, rice, etc. So, do farmers get any benefit from it? The reality is that only big farmers get benefits who have large farmlands, and have knowledge of such MSP. What about small farmers who don’t know about MSP; neither he can approach government with his small amount of produce. So, the solution is not scrapping MSP because all farmers are not benefiting. The solution is to educate them. As, I have mentioned earlier there are indirect benefits of MSP. Farmers sell their produce to the middlemen who either sell to government or come to futures market for trading. So, the role of futures market becomes essential. The prices that are prevailing in the market give brief idea to the farmers at the time of sowing. They can then take their own wise decisions depending upon his analysis of the situation. Speculators are given a chance to participate to bring liquidity and stability in the market.
The panel’s view came as a shock and led to the fall in the futures market. On my earlier blog, I had written about why government should remove ban from certain commodities that were banned earlier. To a certain extent, it is true that farmers don’t benefit from the futures trading. But, there are indirect affects. They get a brief idea about what the prices are prevailing in the market. Though, this is debatable, let us not debate on this. Rather, I should ask you, would banning futures trading in agro-products heal the farmers’ problems. The answer is no. Different farmers have different problems. Small and marginal farmers cannot even afford to look at futures trading. Same is the case for equity market. So first, we must understand the purpose of this market. The purpose is price discovery. So, is it performing its function.
Let us examine this. The prices for various commodities have rose across various markets, both national and international. Prices of commodities reflect the demand and supply situation in any market. Or else, how can you explain the rise in cotton prices even after government had abolished the import duty on it. On my earlier blog, I had written about why government should remove ban from certain commodities that were banned earlier. The inflation that we are talking about is mostly imported. The rise in oil prices directly and indirectly lead to increase in prices for various commodities.
Inflation problem is not only confined to India. Almost every emerging economy is faced with this. Will the inflation rate come down after the ban? On the contrary, inflation has further increased even after the ban of certain commodities. Banning futures trading will not help. A study by NCDEX on various commodities (on my earlier blog) a few months back revealed that even after the ban prices for many essential commodities rose sharply. This reflected supply side problem. With the rising crude oil prices amid fear of depleting reserves, developed countries like US have shifted a major portion of corn and other agro-products for bio-fuel making. This has led to fewer stocks available for trade. Prices of edible oil are high because, due to high prices of crude oil, more and more vegetable oils are being diverted for use as bio-fuels. India imports soy oil heavily so, its prices in the domestic market therefore, depend on the palm oil production in Indonesia and Malaysia and soya bean production in the US, Argentina and Brazil. Moreover, rubber is an industrial commodity and not an essential one, and therefore it doesn't contribute to higher inflation. India also imports pulses heavily from abroad. Hence, price control is beyond its reach. Thus, earlier ban on commodities was a mistake that government committed under political pressure. It had nothing to do with inflation.
The other major issue is lack of knowledge. Government every year comes out with Minimum Statutory Price (MSP) for various agricultural products like wheat, rice, etc. So, do farmers get any benefit from it? The reality is that only big farmers get benefits who have large farmlands, and have knowledge of such MSP. What about small farmers who don’t know about MSP; neither he can approach government with his small amount of produce. So, the solution is not scrapping MSP because all farmers are not benefiting. The solution is to educate them. As, I have mentioned earlier there are indirect benefits of MSP. Farmers sell their produce to the middlemen who either sell to government or come to futures market for trading. So, the role of futures market becomes essential. The prices that are prevailing in the market give brief idea to the farmers at the time of sowing. They can then take their own wise decisions depending upon his analysis of the situation. Speculators are given a chance to participate to bring liquidity and stability in the market.
July 24, 2008
Government steps in to arrest the rising domestic cotton prices
Over the past few weeks, cotton prices had been rising rapidly. Government was under tremendous pressure from the domestic textile industry to ban exports of cotton. Only a fortnight ago, government had scrapped 14 per cent import duty on raw cotton and additionally withdrew 1 per cent export incentive (duty drawbacks). Even after these measures, cotton prices were heading north. So, to arrest the rising domestic cotton prices, government has placed an export restraint on cotton by stipulating mandatory registration of contracts with the Textile Commissioner before their shipment. Moreover, the Directorate General of Foreign Trade has also made it mandatory for the Customs authority to verify the contracts before clearing the cotton consignment. The restriction covers exports of cotton, cotton waste and yarn waste.
The current move is expected to have a dampening effect on cotton exports. But, if we look at the fundamentals then, this step will have a moderate effect on the cotton prices. Prices may come down initially as this will put psychological pressure on exporters. But, in the long run prices will reflect the demand and supply situation in India. India exported about 6.5 million bales of cotton in 2007-08. Cotton exports grew from 4.7 million bales in 2005-06 to 5.8 million bales in 2006-07. Exports this year are estimated to touch 8.5 million bales.
It is alleged that only about 0.4 million cotton bales are available for consumption by the domestic industry, while multinationals companies are hoarding about 2.5 million bales. With monsoons getting delayed in most of the western states in India, production is expected to take a dip. Hence, even after these measures cotton prices are expected to rule firm in near future. Therefore, to end this uncertainty government can fix a quota on exports so that domestic prices are stable.
The current move is expected to have a dampening effect on cotton exports. But, if we look at the fundamentals then, this step will have a moderate effect on the cotton prices. Prices may come down initially as this will put psychological pressure on exporters. But, in the long run prices will reflect the demand and supply situation in India. India exported about 6.5 million bales of cotton in 2007-08. Cotton exports grew from 4.7 million bales in 2005-06 to 5.8 million bales in 2006-07. Exports this year are estimated to touch 8.5 million bales.
It is alleged that only about 0.4 million cotton bales are available for consumption by the domestic industry, while multinationals companies are hoarding about 2.5 million bales. With monsoons getting delayed in most of the western states in India, production is expected to take a dip. Hence, even after these measures cotton prices are expected to rule firm in near future. Therefore, to end this uncertainty government can fix a quota on exports so that domestic prices are stable.
July 21, 2008
Should you invest in Gold ETFs?
Gold Exchange Traded Funds (ETFs) are a relatively new concept in the Indian mutual fund history. The first Gold ETF was launched in February 2007. At present, there are six gold ETFs in the Indian market, with only two having a performance history exceeding one year. Presently, investors have two options if they want to invest in gold. The first option is to buy gold physically which is the conventional method. The second option is to invest in Gold ETFs.
Are gold ETFs investments in gold? It can be yes or no; traditional sense, no. So, what is really a gold ETF investment all about? The fund house that issues these gold ETFs certificates buy gold from the physical market to the extent of your investment and when you want to liquidate your position it simply sells the gold in the physical market and the proceeds calculated at the spot prices are given to you. So, an investor in ETF is neither entitled to receive gold nor does he can sell ETF to get gold. Moreover, he cannot even exchange ETF for gold. These ETFs are listed on the NSE and can be purchased and sold on the NSE as if you are dealing in the gold bullion market, but without trading physically in gold.
Therefore, an investor invests indirectly in gold but never gets to possess the metal physically. Since, it is listed on a stock exchange; investors can buy and sell them like any other stock on the stock exchange, on a real-time basis. Hence, Gold ETFs offer a rather unique investment opportunity to investors who want to invest in gold. Investors should select the option that best suits to them.
Should you invest in Gold ETFs?
Now, the obvious question is, is it worth investing in Gold ETFs? If we look at the performance of these funds then yes. At a time when the stock market is in doldrums, investments in Gold ETFs sound good as they have proven by giving good returns. From an investment point of view, what should be the investment objectives for the investors? Well, investment objectives should be good and consistent returns.
Let’s look at some basic factors about gold. What rives gold prices? Geopolitical events, a steep rise in crude oil prices and unstable currencies (esp. dollar) drive gold price volatility. Gold moves in the opposite direction to the dollar as it is seen as an alternative asset. This is because dollar began circulating world wide after World War I, when completely damaged European powers started borrowing from the US. With the passage of the Bretton Woods international monetary agreement, dollar was the only currency pegged to gold. Other currencies were pegged to dollar.
Dollar reigned over the world for many years. But, with the introduction of the Euro, dollar started weakening. The decade of 90’s saw many emerging economies whose currencies started strengthening against dollar. Ultimately, dollar saw some competitions. With the announcement of few countries including Iran to sell crude oil only in Euro, it seems a red alert for dollar. So, as dollar weakens, gold prices strengthen. Also, with crude prices touching new sky everyday, it seems the stock market will take time to bounce back. So, as an investor you should look at every opportunities to increase your returns.
Many people argue that gold can never match the equity market returns. That seems to be true if we compare the long term returns say of 10 years. Gold is not among the top asset classes in giving long term returns. Like every other commodity, gold goes through cycles- only the cycles seems to be longer. Since last seven years, gold had an amazing run and has given very good returns.
If we look at the long term say ten years, then the returns are average. In fact, stock market has given better returns. But, in short term or rather to diversify your portfolio, investment in gold looks good. Gold is highly volatile though less than Sensex (Bombay Stock Exchange 30 share Index).
Objectives may vary from person to person. Gold ETFs offer investors a convenient means to invest in gold. But, this may not sound appropriate for all investors. So, Gold ETFs would probably be appropriate for investors who wish to invest in gold in bulk and are likely to face storage problem. Also, those investors who do not have time to do a quality check, can look at investing in gold through ETFs.
One special reason for investing in Gold ETFs can be to avoid wealth tax. If you have wealth in excess of Rs.15 lakh, you are liable to wealth tax. Gold held in physical form is counted towards this figure. But, when you invest in Gold ETFs, you are holding it as units of mutual funds. Capital gains on units sold of such MFs, is termed as long term if held for more than one year. Hence, no tax as long term capital gain tax is zero. Same is true for physical gold but, for that you will have to hold it for three years. So, this adds uniqueness to Gold ETFs.
At the same time, investors should keep in mind that there is one disadvantage of investing in gold ETFs apart from recurring expense. If a fund house declares a dividend on gold ETFs, dividend distribution tax will have to be borne by the investors.
Things to look while investing in Gold ETFs
As an investor you should avoid investing in Gold ETFs during the new fund offer (NFO) period. This is because you will have to pay an entry load during this period. Gold Benchmark Exchange Traded Scheme (Gold BeES), launched in February 2007, charged an entry load of 1.5 per cent. Similarly, UTI Gold Exchange Traded Fund, launched in March 2007, charged an entry load of 2.5 per cent. Hence, you should avoid investing in these funds during the NFO period. Instead, you can invest in these funds when they are listed on the stock exchange and thereby avoid bearing entry load. In this case, you will have to pay brokerage to the broker. Brokerage differs with different broking firms. So, you can choose that broking firm that charges brokerage less than the entry load.
Second is the other expense that you should keep in mind while investing in Gold ETFs. A pre-requisite for investing in Gold ETF is to have demat and trading account with the registered broker. You will have to pay some annual charges for the maintenance of these accounts which depends from broker to broker. Also, there is some recurring expense attached with the fund that you will have to pay.
But, if you have a bank locker, it is better you invest in physical gold as you don’t have to worry about where to store it. Also, an existing bank locker means that you don’t have to pay any additional recurring charges.
Are gold ETFs investments in gold? It can be yes or no; traditional sense, no. So, what is really a gold ETF investment all about? The fund house that issues these gold ETFs certificates buy gold from the physical market to the extent of your investment and when you want to liquidate your position it simply sells the gold in the physical market and the proceeds calculated at the spot prices are given to you. So, an investor in ETF is neither entitled to receive gold nor does he can sell ETF to get gold. Moreover, he cannot even exchange ETF for gold. These ETFs are listed on the NSE and can be purchased and sold on the NSE as if you are dealing in the gold bullion market, but without trading physically in gold.
Therefore, an investor invests indirectly in gold but never gets to possess the metal physically. Since, it is listed on a stock exchange; investors can buy and sell them like any other stock on the stock exchange, on a real-time basis. Hence, Gold ETFs offer a rather unique investment opportunity to investors who want to invest in gold. Investors should select the option that best suits to them.
Should you invest in Gold ETFs?
Now, the obvious question is, is it worth investing in Gold ETFs? If we look at the performance of these funds then yes. At a time when the stock market is in doldrums, investments in Gold ETFs sound good as they have proven by giving good returns. From an investment point of view, what should be the investment objectives for the investors? Well, investment objectives should be good and consistent returns.
Let’s look at some basic factors about gold. What rives gold prices? Geopolitical events, a steep rise in crude oil prices and unstable currencies (esp. dollar) drive gold price volatility. Gold moves in the opposite direction to the dollar as it is seen as an alternative asset. This is because dollar began circulating world wide after World War I, when completely damaged European powers started borrowing from the US. With the passage of the Bretton Woods international monetary agreement, dollar was the only currency pegged to gold. Other currencies were pegged to dollar.
Dollar reigned over the world for many years. But, with the introduction of the Euro, dollar started weakening. The decade of 90’s saw many emerging economies whose currencies started strengthening against dollar. Ultimately, dollar saw some competitions. With the announcement of few countries including Iran to sell crude oil only in Euro, it seems a red alert for dollar. So, as dollar weakens, gold prices strengthen. Also, with crude prices touching new sky everyday, it seems the stock market will take time to bounce back. So, as an investor you should look at every opportunities to increase your returns.
Many people argue that gold can never match the equity market returns. That seems to be true if we compare the long term returns say of 10 years. Gold is not among the top asset classes in giving long term returns. Like every other commodity, gold goes through cycles- only the cycles seems to be longer. Since last seven years, gold had an amazing run and has given very good returns.
If we look at the long term say ten years, then the returns are average. In fact, stock market has given better returns. But, in short term or rather to diversify your portfolio, investment in gold looks good. Gold is highly volatile though less than Sensex (Bombay Stock Exchange 30 share Index).
Objectives may vary from person to person. Gold ETFs offer investors a convenient means to invest in gold. But, this may not sound appropriate for all investors. So, Gold ETFs would probably be appropriate for investors who wish to invest in gold in bulk and are likely to face storage problem. Also, those investors who do not have time to do a quality check, can look at investing in gold through ETFs.
One special reason for investing in Gold ETFs can be to avoid wealth tax. If you have wealth in excess of Rs.15 lakh, you are liable to wealth tax. Gold held in physical form is counted towards this figure. But, when you invest in Gold ETFs, you are holding it as units of mutual funds. Capital gains on units sold of such MFs, is termed as long term if held for more than one year. Hence, no tax as long term capital gain tax is zero. Same is true for physical gold but, for that you will have to hold it for three years. So, this adds uniqueness to Gold ETFs.
At the same time, investors should keep in mind that there is one disadvantage of investing in gold ETFs apart from recurring expense. If a fund house declares a dividend on gold ETFs, dividend distribution tax will have to be borne by the investors.
Things to look while investing in Gold ETFs
As an investor you should avoid investing in Gold ETFs during the new fund offer (NFO) period. This is because you will have to pay an entry load during this period. Gold Benchmark Exchange Traded Scheme (Gold BeES), launched in February 2007, charged an entry load of 1.5 per cent. Similarly, UTI Gold Exchange Traded Fund, launched in March 2007, charged an entry load of 2.5 per cent. Hence, you should avoid investing in these funds during the NFO period. Instead, you can invest in these funds when they are listed on the stock exchange and thereby avoid bearing entry load. In this case, you will have to pay brokerage to the broker. Brokerage differs with different broking firms. So, you can choose that broking firm that charges brokerage less than the entry load.
Second is the other expense that you should keep in mind while investing in Gold ETFs. A pre-requisite for investing in Gold ETF is to have demat and trading account with the registered broker. You will have to pay some annual charges for the maintenance of these accounts which depends from broker to broker. Also, there is some recurring expense attached with the fund that you will have to pay.
But, if you have a bank locker, it is better you invest in physical gold as you don’t have to worry about where to store it. Also, an existing bank locker means that you don’t have to pay any additional recurring charges.
July 15, 2008
Tackling Inflation
Inflation is a global phenomenon as the current inflation is not confined to India alone. The continuous rise in crude prices along with price rise in essential commodities like food grains, processed foods, metals and chemicals have contributed to the present situation. Poor production and diversification of food grains for bio fuels have resulted in shortage of food grains and, hence, price rise. So far the government has taken various measures to tackle inflation. But, even after all those measures inflation crossed the double digit. So, there is a need to ensure that monetary tightness does not affect the growth momentum.
Since last few months the discussion throughout the world has been crude oil prices and inflation. In India government gives a lot more importance to WPI inflation figure. This year the inflation figure has broken all the records. It has touched a new high since last few years. It is argued that inflation this year is imported. To say in simple way, crude oil prices are pushing the inflation to record heights. India’s import of crude is almost 70 per cent. So, it can’t do anything about the crude prices. But, yes it can try to insulate the consumers from the inflation shock.
Steps taken by Government:
Government banned exports of rice, wheat, pulses and other food articles and brought down the import duty on edible oils and other food items to zero. It also raised the minimum export price for basmati rice and maize. Moreover, it simultaneously banned the trading of potato, chana, rubber and refined soya oil in the commodity market. Last year, government had banned trading in rice, turmeric, wheat and some pulses though a year later it was found that prices still went on rising. It also allowed import of steel, iron ore and cement at zero duty. Moreover, to discourage exports of these items it imposed certain export duty. Government had also requested the cement and steel companies not to increase the prices.
At the same time, Reserve bank of India (RBI) had raised the Repo rate and CRR. This was done to tighten the liquidity in the Indian market. But, raising interest rates mean curbing the demand. If the demand is curbed then there would be a slow down in the growth. So, many analysts already feel that these steps have already affected many sectors.
Can inflation be tamed?
Yes, it can be with proper planning and policies. Oil prices have risen with sudden pace not because oil consumption has increased considerably. It has increased because the speculators have become more active in oil futures. Banning speculation in futures trading will not help. What we can do is that we should allow our rupee to appreciate against dollar. If rupee becomes stronger then the price of oil for Indian company will be lower. This step will affect exports especially from the IT sector an textiles. But, government can help exporters through various ways.
Government should focus more on better supply management of food grains and other essential commodities. According to Centre’s fourth advance estimates for crop production, the country’s total food grain production in 2007-08 (June-May crop year) is pegged at an impressive 230 million tonnes; wheat alone accounting for 78 million tonnes. Rice production is estimated to be 96.34 million tonnes which is almost one million tonnes over the 95.6 million tonnes estimated in April. Hence, the most critical task for the government is to strengthen its public distribution system and creating a better infrastructure for storing the food grains.
To curb inflation, RBI has taken various monetary steps like increasing CRR and Repo rate. This is affecting the growth of the Indian economy. Therefore, instead of rate hike RBI should allow the rupee to appreciate by releasing more dollars in the economy. A stronger rupee is a bigger tool to fight against inflation as imports of crude oil and other essential commodities like pulses become much cheaper. At the same time, government should try to curb the speculative activities by merchants, traders and middlemen through better supply chain management of food grains and improving public distribution system.
Energy consumption should be brought down. We consume three times more energy, as a percentage of GDP, than the world average. This can be done through various means. A study has shown that the energy required for agriculture pumping is drastically reduced if the groundwater table is raised. Railways consume only one-third of the energy needed to move things to places as against road transport. Water transports consume even less. Therefore, government should focus on building infrastructure in this regard so that we start using these alternatives more frequently. Also, energy from non-oil sources should be developed. The private sector should be encouraged to use more renewable source like solar, wind, waves, tides, hydro and biomass to generate energy.
We lack good infrastructure. If infrastructure improves, the cost of goods and services comes down. Hence, government should quickly build highways, power plants and ports.
Centre for Monitoring Indian Economy Private Limited (CMIE) estimates the expected inflation for this year at around 5.5 per cent. This estimate is based on the expected good monsoon and overall good kharif crop. The food situation problem should not be a long-term problem. Higher prices will induce farmers to increase their produce. But, government will have to take care as higher prices do not always reach farmers. So, government must create conditions where farmers are able to sell their produce directly to consumers so that both can benefit.
Since last few months the discussion throughout the world has been crude oil prices and inflation. In India government gives a lot more importance to WPI inflation figure. This year the inflation figure has broken all the records. It has touched a new high since last few years. It is argued that inflation this year is imported. To say in simple way, crude oil prices are pushing the inflation to record heights. India’s import of crude is almost 70 per cent. So, it can’t do anything about the crude prices. But, yes it can try to insulate the consumers from the inflation shock.
Steps taken by Government:
Government banned exports of rice, wheat, pulses and other food articles and brought down the import duty on edible oils and other food items to zero. It also raised the minimum export price for basmati rice and maize. Moreover, it simultaneously banned the trading of potato, chana, rubber and refined soya oil in the commodity market. Last year, government had banned trading in rice, turmeric, wheat and some pulses though a year later it was found that prices still went on rising. It also allowed import of steel, iron ore and cement at zero duty. Moreover, to discourage exports of these items it imposed certain export duty. Government had also requested the cement and steel companies not to increase the prices.
At the same time, Reserve bank of India (RBI) had raised the Repo rate and CRR. This was done to tighten the liquidity in the Indian market. But, raising interest rates mean curbing the demand. If the demand is curbed then there would be a slow down in the growth. So, many analysts already feel that these steps have already affected many sectors.
Can inflation be tamed?
Yes, it can be with proper planning and policies. Oil prices have risen with sudden pace not because oil consumption has increased considerably. It has increased because the speculators have become more active in oil futures. Banning speculation in futures trading will not help. What we can do is that we should allow our rupee to appreciate against dollar. If rupee becomes stronger then the price of oil for Indian company will be lower. This step will affect exports especially from the IT sector an textiles. But, government can help exporters through various ways.
Government should focus more on better supply management of food grains and other essential commodities. According to Centre’s fourth advance estimates for crop production, the country’s total food grain production in 2007-08 (June-May crop year) is pegged at an impressive 230 million tonnes; wheat alone accounting for 78 million tonnes. Rice production is estimated to be 96.34 million tonnes which is almost one million tonnes over the 95.6 million tonnes estimated in April. Hence, the most critical task for the government is to strengthen its public distribution system and creating a better infrastructure for storing the food grains.
To curb inflation, RBI has taken various monetary steps like increasing CRR and Repo rate. This is affecting the growth of the Indian economy. Therefore, instead of rate hike RBI should allow the rupee to appreciate by releasing more dollars in the economy. A stronger rupee is a bigger tool to fight against inflation as imports of crude oil and other essential commodities like pulses become much cheaper. At the same time, government should try to curb the speculative activities by merchants, traders and middlemen through better supply chain management of food grains and improving public distribution system.
Energy consumption should be brought down. We consume three times more energy, as a percentage of GDP, than the world average. This can be done through various means. A study has shown that the energy required for agriculture pumping is drastically reduced if the groundwater table is raised. Railways consume only one-third of the energy needed to move things to places as against road transport. Water transports consume even less. Therefore, government should focus on building infrastructure in this regard so that we start using these alternatives more frequently. Also, energy from non-oil sources should be developed. The private sector should be encouraged to use more renewable source like solar, wind, waves, tides, hydro and biomass to generate energy.
We lack good infrastructure. If infrastructure improves, the cost of goods and services comes down. Hence, government should quickly build highways, power plants and ports.
Centre for Monitoring Indian Economy Private Limited (CMIE) estimates the expected inflation for this year at around 5.5 per cent. This estimate is based on the expected good monsoon and overall good kharif crop. The food situation problem should not be a long-term problem. Higher prices will induce farmers to increase their produce. But, government will have to take care as higher prices do not always reach farmers. So, government must create conditions where farmers are able to sell their produce directly to consumers so that both can benefit.
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