Indian Corn Markets Hinge on MSP Battle
Maize prices are on the boil on reports of lower crop in the kharif 2018 season. With the prices at an all-time high, the poultry-feed and starch industries, which rely heavily on this grain, are facing tough times. Shortage of the raw material has led to high production costs and under-utilisation of capacities with the starch industry fearing the shutting down of plants. The maize crop has been hit by drought and pests leading to the shortage.
Maize, popularly known as corn is one of the emerging food cash crops & third largest cereal in the country after rice and wheat. As per the second advance estimates of kharif production released by the government in February, production of maize is expected to be 27.80 million tonnes in 2018-19, down from the previous year’s 28.72 million tonnes. The infestation of the dreaded pest Fall Army Worm (FAW) (Spodoptera frugiperda), coupled with weak monsoon rains witnessed in key producing States such as Karnataka and Telangana have shrunk the maize output this year. Already, the Rabi sowing of maize is down by around a tenth, in line with the broader trend on account of poor soil moisture levels owing to weak monsoon. Maize has been planted in 13.61 lakh hectares till January 11 as against 15.14 lakh hectares in corresponding last year.
The Centre had fixed an MSP of ₹1,700 per quintal for maize for the kharif 2018-19 season. Awarding a significant boost to the farmer’s income, the Cabinet Committee on Economic Affairs (CCEA) chaired by the PM Shri Narendra Modi has given a nod to the said increase in the Minimum Support Prices (MSPs) for all kharif crops for the 2018-19 season. The iconic decision of the CCEA tends to redeem the promise of the pre-determined principle of pegging the MSPs at a level of at least 150 per cent of the cost of production announced by the Union Budget for the FY 2018-19.
The steep rise in the minimum support price of maize guarantees 50% return on input costs to the farmers, which is a politically astute move that can ease farm distress and boost rural demand if implemented effectively, but it can also stoke inflation.
Maize prices, which hovered around ₹1,100-1,200 a quintal at the beginning of October 2018 are now ruling between ₹1,700-1,800 levels across several markets across the country. In fact, the modal maize prices in some markets had crossed ₹1,900. Last year, the Centre had increased the MSP for kharif maize by Rs 275 per quintal, or 20 per cent, to Rs 1,700 per quintal for 2018-19, from the Rs 1,425 earlier.
The rising trend in maize prices has brought cheers to the farmers but has made the consuming industries such as the poultry sector and starch makers jittery, triggering demand for duty-free imports of corn. Wheat and rice are lately emerging as a potent substitute of raw materials for the feed industries in view of the downsized corn supply. However, the maize-based starch industry has no other alternative raw material to use.
Following the deficient supply & unprecedent price hike, export of the commodity is also becoming unviable and uncompetitive. The price of maize has risen 75-80 per cent in the past one year from Rs 12 per kg to Rs 20-21. In consequence, the prices of starch and liquid glucose also experienced a sizeable hike, with starch selling at Rs 31-32 a kg. India’s starch and value-added demand, however, is very good, especially from the pharma and textile sectors.
India is likely to import up to 1 million tonnes (MT) of corn this year as lower production and growing domestic poultry consumption triggers demand for international purchases. The shift to imports in the world's seventh-largest corn producer, which typically exports to Asia, mainstreams the magnitude of the crop losses due to the drought and armyworm. According to the industry sources, the government is likely to reduce import duty on corn to 10-15 per cent from the current 60 per cent due to lower domestic production this year. Since the Indian corn requirements relates to Non-GMO corns, Ukraine emerges to be the only reliable source of procuring the commodity. The traders further expect the commerce ministry to allow state-owned Metals and Minerals Trading Corporation of India (MMTCNSE -1.99 %) to announce e-tender for half a million tonnes of corn in the coming times.
In the wake of rising prices & concerns about a poor crop, the government has triggered the move towards reducing the import duty which is aimed at improving domestic availability of the commodity. The domestic price of maize has now started falling after the government reduced import duty on feed-grade maize to 15% from 60%.
