Interview:- Will MSP hike in pulses, oilseeds negatively affect prices

Last Updated : 31 October 2011 at 10:50 IST
The India government, in a bid to incentivize production of oil seeds have decided to give a fillip in the form of MSP(Minimum Support Price) hike for Mustard Seed and several other commodities. Also, the government hiked the MSP for wheat, but not to the same extent that it decided in case of mustard seed.

So, will the hike in MSP for mustard seed affect its prices negatively on the NCDEX? If yes, when and to what extent? Will the hike in MSP’s for oil seed would be at the cost of Wheat production?

Sudha Acharya, oil seed/pulses analyst with Kotak Commodities gives the answers to Rakesh Neelakandan of Commodity Online in an interview.

Q: How effective is the MSP regime when it comes to boosting crop output?

Sudha: The announcement of Minimum Support Price has a positive impact on crop output. It largely helps the farmers to give preference in order to allocate his farm acreage. However one should not forget that MSP is not the key factor to boost the production prospects as there are various other factors like.

a) Weather conditions

b) Rainfall and soil moisture

c) Price during the season

d) Prices for the competitive crop

We have a very good example this year during Kharif season where favorable weather played a very important role in allotment of acreage despite the significant surge in MSP.









Q: To what extent do you think production and productivity of the MSP-hiked commodities would gain?

Sudha: The productivity of any commodity largely depends on the rainfall and weather conditions during the period of crop growth. Also quality of seed sown impacts the productivity and the production. Hence the hike in MSP will not largely impact the production as it is an incentive to the farmers to allocate the land to the commodity while sowing.

Q: Will the hike in MSP for mustard seed affect its prices negatively on the NCDEX? If yes, when and to what extent?

Sudha: The recent hike in Mustard Seed MSP by Rs.550/qtl to Rs.2500 will not have any negative impact on prices due to firm fundamentals. Mustard seed prices traded at NCDEX during 1st to 27th October has rallied from Rs.2663/qtl to Rs.3114/qtl. The rise in price is mainly attributed to declining stocks at NCDEX ware house (from 160556 tons to 90143 tons during 3rd to 25th October 2011) and low inventories with the traders at the cash market.

Q: Chana (and for that matter masoor) are also seen getting a hike in MSP’s. Will the move affect chana prices negatively?

Sudha: Rise in Chana MSP is much higher as compared to other commodities this season. Chana MSP is at Rs.2800/qtl up by Rs.700/qtl as compared to last year. Such a move by the government is made in order to boost the pulses production in Rabi season and to offset the lower output during the Kharif season and also lower the dependence on imports. I do not see any negative impact on prices due to lower inventories and production during the season 2010-11.

Q: Do you feel soybean is getting enough of price support in MSP?

Sudha: I feel that soy beans are not getting enough support through MSP as compared to other oil seed crops this year. As compared to the spot.









Q: Will the hike in MSP’s for oil seed would be at the cost of Wheat production?

Sudha: I don’t feel the hike in MSP for oil seed would be at a cost of wheat production. India’s edible oil imports counts for more than 50% of its annual consumption. Hence, in order to lower the country’s dependence on imports and make the country self reliant we need to give incentive to the farmers to increase the oilseed cultivation. The major reason for discouraging the farmers to cover acreages in Wheat is overflowing stocks with the government of India. Higher stocks are result of record wheat production since last two years as compared to other crops.

As published in: http://www.commodityonline.com/news/Will-MSP-hike-in-pulses-oilseeds-negatively-affect-prices-43339-3-1.html

Follow Indonesia or perish: Reality facing Malaysian palm oil industry

Looking from outside, it looks as if 1 million Malaysian oil palm small holders are against sixty thousand Orangutans; the latter on the verge of extinction and the former pride-of-the-evolution continuing its march of dominance.

The fuss is about ‘Truth In Labelling—Palm Oil Bill’ being under the consideration of Australian House of Representatives--the lower house of the Parliament--which has been approved by the Senate, but had been rejected by the Committee.

The bill was proposed by the Australian Senator Nick Xenophone way back in 2009.

‘The Australians have been consuming palm oil over the past years without even realizing that it is palm oil.’ He argues. Currently, palm oil is labeled as ‘vegetable oil’ in food packets with palm oil content in Australia. Hence, the senator through his bill has proposed that palm oil should be labeled as it is; which is legitimate.

So, what is the issue!

Australia is famous for its penchant it has been exhibiting when it comes to preservation of the nature and ecosystem, given that it is a commodity country where miners have dug their roots deep. (Remember, the carbon tax issue has been a major head-line grabber in many Australian newspapers for the better part of the current year.)

This aspect prevailing, the conservation groups in Australia and abroad have been revealed a provision for new lease of life for Orangutans—Asia’s only existing Great Ape-- in the Palm Oil Bill, that would largely affect Malaysian interests.

This is how it is:

Vast tracts of forest land in Malaysia have been cleared for oil palm cultivation killing 1000 Orangutans on an annual basis, according to Guardian.

During the period stretching from 1979-2010, Malaysian palm oil production jumped 600%; an average 7% growth per annum! This gives a fair idea of the pace at which forest land being cleared in Malaysia.

If the pace continues, by 2022, 98%of natural rainforest in Malaysia and Indonesia (another prominent oil palm cultivator) would be cleared. This is roughly equivalent of 300 football pitches of forest wiped out each hour into 2022, says Guardian.

“Malaysian palm oil companies have engineered a sustained long-term expansion of plantation area, increasing 3.85 million hectares since 1980 or 385 percent. Much of this development has been at the expense of native tropical forest, with national forest cover in core palm oil producing areas declining dramatically over the same period.”, says USDA.

And the victims are the poor Orangutans which have now been reduced to a figure anywhere between paltry 50,000—60,000.

So, if the bill gets transformed into a law that can be a game changer for Orangutans. All items with palm oil content will have to blare that it includes palm oil.

Now, with a little campaigning, the label proclaiming the presence of palm oil in a product, may well incite the imagery of innocent looking Orangutans (though Wikipedia says some Orangutans may rape women) in the average Australian and may prompt him dump his piece of favorite toothpaste or food item.

After all, an environmental conscious Australian is far more dangerous than a health-conscious one, as far as the palm oil industry is concerned. Imagine both being rolled into one!

What Malaysia stands to lose is a big pie! The palm oil exports alone fetch Malaysia $20bn in revenues. Australia alone imported 125,986 tons of Malaysian palm oil last calendar year.

“Annual global palm oil demand has increased at roughly 2.3 million tons per year over the past 10 years, with Malaysia supplying nearly 30 percent of the increase in production required to meet this demand…”says USDA.

Given these facts, it is natural that the average Malaysian farmer is getting angry.

Says, Tan Sri Bernard Dompok, the Malaysian Minister for Plantation Industries and Commodities:

‘About, 570,000 people are employed in plantations in Malaysia and a further 290,000 in downstream industries, chiefly making the oil.’

"The industry has helped a lot of our people to come out of poverty," he was quoted by The Wall Street Journal as saying.

The National Association of Smallholders, Malaysia in an open letter (to Australian Parliament Leader of the Opposition, Tony Abbott, independent Senator Nick Xenophon and Leader of the Greens Party, Tony Brown) argues that the issue of labeling has been “unjustifiably linked it to environmental issues, which the industry, on the contrary, has demonstrated an unfailing commitment to protect and preserve.”

No wonder, the Malaysian government sent across its commodities minister to Australia for lobbying.

Lessons from Indonesia

Indonesia, another prominent player in this domain has seen an opportunity in this crisis. In Sumatra, Indonesia also host a species of Orangutans. The country has decided to come up with its own version of Certified Sustainable Palm Oil dubbed ISPO (Indonesian Sustainable Palm Oil). It is similar to the voluntary RSPO (Round Table on Sustainable Palm Oil) certification but has an extra layer of teeth.

Failure to comply with the certification will be a punishable offence!

The government intends to cover 7 million hectares of oil palm acreage under the compliance regime in three years. A tough call!

The attractiveness of ISPO is that, unlike an initial audit fees averaged $25 per hectare for large plantation companies in case of RSPO, the small holder farmers in Indonesia would find ISPO to be less expensive and even subsidized.

The country is eyeing a pie of the giant EU (European Union) market.

Domino effect

If the Palm Oil Labeling Bill is signed into law, there is little doubt that it would have a domino effect, prompting other countries to follow suit.

“Last year, just 9% of world palm oil production amounting to 4.2 million tonnes was RSPO-certified. A majority – 54% of this total (2.3 million tons) – came from Malaysian plantations. Indonesia produced 1.47 million tons for a 35% market share, but it will inevitably become the major source of certified palm oil worldwide providing it can get the critical EU endorsement.” says worldcrops.com.

(Players like Nestle and McDonald’s already use only RSPO certified palm oil)

If that be the case, we can see the Malaysian Palm Oil companies getting sidelined in the race. And it seems they are acutely aware of it:

“In 2010 the (Malaysian) government estimated that approximately 58 percent of the total national land area remained forested, and that its official policy is to keep 50 percent of the country forested in perpetuity. Therefore, time and land availability is quickly running out for the palm oil industry.

The Malaysian industry indicates that owing to these constraints national palm oil area will likely peak at roughly 5.6 million hectares by 2020, meaning there is only about 750,000 hectares left for future expansion. At current annual growth rates of 180,000 hectares per year, that leaves Malaysian planters with about 6 years before they run out of land.” A USDA report says.

Will these measures prove to be adequate is a question that should be left to time. Or, should Malaysia too take initiative in floating its own version of ISPO/RSPO?

Whichever, “follow Indonesia or perish” seems to be the reality facing the Malaysian palm oil industry right away.

As published in: http://www.commodityonline.com/news/Follow-Indonesia-or-perish-Reality-facing-Malaysian-palm-oil-industry-41248-2-1.html