Presentation to AGRICULTURE MINISTERS CONFERENCE ON AGRICULTURE Hardeep Singh Chairman, CII Taskforce on Agri Marketing

1. Presentation to AGRICULTURE MINISTERS CONFERENCE ON AGRICULTURE Hardeep Singh Chairman, CII Taskforce on Agri Marketing Chairman, Cargill India Private Limited December 21, 2004 : New Delhi

2. Net Interregional Food Flows (grains, rice, oilseeds, meals, oils, feed equivalent of meat) mmt surplus/deficit

3. Net Interregional Food Flows (grains, rice, oilseeds, meals, oils, feed equivalent of meat – 2002/03 crop year est) mmt surplus/deficit

5. Surpluses [Myn Mts] Wheat 3myn Rice 4myn Total Surplus 7myn ts Deficits [Grain Equivlnt] Ts Gr Eq Vegoil 5 34 Pulses 1.8 7 Cotton 0.3 3 Total Grain Equiv 44 India- Agricultural Scenario

6. India – Net Agricultural balance

7. Leverage Country Competitiveness • Competitiveness of Indian Crops • Focus on commodities where India has competitive advantage & import with value of surpluses generated Source : Adapted and updated from NCAER/ Gulati

8. Indian Vegoil Competitiveness Even Worse Off Relative to Palm Oil Equivalence Source : Adapted/ Updated from NCAER/ Gulati

9. Asia – State of Play • Role fo govts in food and ag trade the last 2 decades is declining - China, Indonesia, Japan…. and FSU • centralized procurement systems being replaced by pvt investments. • Privates emerging as co investors in infrastructure • Govts seeing they cannot over manage the commercial environment and create an a transparent arena for the private sector to get involved.

10. Indian Farm Sector – • Small Size • local barter/ low marketable surpluses • Regional overcapitalization of on farm private investment • Major scope for optimization/ incl non ag • Land Lease /Hiring and Dehiring- Issues Farming is largely a way of life…

11. Current Indian Agricultural Scenario Slowdown of sustainable value creating investments in farm sector. Proliferation of indirect subsidies. • MSP is no longer a ‘support’ price. It is a preferred price offered selectively as buyer of first resort • Inequity/ Largesse/ Malpractice/ Waste • Distortions in prices caused by govt intervention… Lack of private investment in agri mktg and trade

12. Indirect Subsidies- Impact • Distorted markets… Dangerously continuing Supply side thought process… • Distorted cropping patterns • Overexploitation of ground water – impact on recharge • Indirect subsidies [Fertilizer etc] are not farm subsidies and lead to uneconomic resource utilization • Foodgrain subsidy has increased dramatically from Rs 2,450 crore in 90-91 to > Rs 25,800 crore in 2004-05

13. Foodgrain Production / Procurement • Wheat + Rice prodn 158mn ts [2003-04] • Govt/ FCI procures 38-40 mn tons [25pct] • Procurement confined to marketable surplus areas • 90 % of wheat from 2 States. 65 % of rice from 3 States… • Farmer own consumption/ barter/ hold back – 50/55pct • Private Trade of surpluses - 20/25pct

14. Rising Support Prices Year on Year …..While world prices dropped • Past accumulation of stocks far in excess of reasonable worst case need or agreed buffer stocking norms.. • And lost opportunity to maximise export value. • Add > Quality deterioration/ Wastage/ Pilferage/ Losses/ Infrastructure load Total annual World Trade – Wheat >100 mn tons / Rice <30 mn tons

15. Farm policy must balance social objectives and economic considerations… • Drive political consensus- sensitize polity to cost and consequences of current policy • Incorporate transition mechanisms to manage change and minimise social/ political fallout

16. Support Price support prices should be operative across a wide range of crops including oilseeds, pulses, maize and cotton, to encourage crop diversification Redefining Govt Intervention 1

17. Redefining Govt Intervention 1 Support (Cont…) • Focus on remote outlying areas where infrastructure trade capability is limited. Operate countrywide • FCI to be a buyer of last resort • FCI price support based procurement for providing farmers with backstop security. • Balance should be left to market forces

18. Procurement Delink food security/ relief linked procurement from support price operations FCI to maintain within range of approved buffer stock for specified products each quarter. Dispose off excess or acquire supplemental quantity by open tender based on crop harvest cycle Buffer Stock norms to be periodically revised Privates should be encouraged to seriously participate in task of procuring, finacing, storing, transporting and marketing grain. Encourage states to review APMC Create a mechanism that supports the private warehouse receipt system Redefining Govt Intervention 2

19. Distribution Grain distribution for public/ welfare/ relief programmes only Monetise BPL / PDS… cash or food stamps instead of grain Increase the allocation of food granted for the food for work programmes, particularly where working on building the agri infrastructure Use widely networked public sector banking system Avoid multiple handling/ pilferage/ waste/ corruption/ infrastructure load/ Inequity Redefining Govt Intervention 3

20. Suggested Transition Mechanisms • Proportional monetary support to negatively impacted states for Rice and Wheat • Linked to agreed, quantified and publicized phased reduction in Rice /wheat procurement • Recommend to states to use as a per hectare direct subsidy • Widely implement support prices on a broad basket of alternate crops • Allay fears of marketability • Drive much needed crop diversification • Politically sustainable/ Socially equitable

21. Major Spin Off Benefits.. • Will align grain markets with alternate crops and gradually with worldwide values • Will reduce cropping distortions • Will improve flow of technology/ genetics • Will attract much needed private investment in grain handling/ infrastructure/ financing • Demand led quality / identity preservation • Trade’ surpluses nationally and internationally before losing value • Will Spur investments in food processing • Will release huge funding for developing farmgate infrastructure and value adding investments • Arrest land degradation…conserve water table Will make farming long term sustainable

22. India …policy environ The way ahead • Invest for productivity– Indirect subsidies are a zero sum game • Embrace production enhancing technologies • Take a long term view on natural trade flows • Protect producers in export competitive segments… and consumers in others!! • Be inclusive to worldwide ag reform process- disciplining subsidy practices.

23. Action Steps • Immediate serious new study on competitive advantage • Get the best brains together… domestic and international…debate and decide.. Create support.. Heighten awareness of consequences- Get politicos, banks, farmer leaders, corporates, to buy in.. and then execute relentlessly.. Integrate investments to align upstream and downstream within selected areas..Trash special interests • Plan should be Politically sustainable/ Socially equitable • Clean up unnecessary constraining legislation.. Immediate! • Plan for transition mechanisms… graded timeline • Get legislation cleaned up of useless controls Deploy the very best talent to monitor and execute plan

24. Capability/ Objectives Identity Preservation Obviate Bagging/ Cost Ease in fumigation Optimize specs/ value ‘Aggregate’ quality Economy in transport and shipping Components Hopper bottom trptn primary movement railcars Silo ‘systems’ at ‘both’ ends Customer interface Farmer Financing Grain Handling investments-need for an integrated approach