West Bengal to go organic; plans to set up bio-villages

THE West Bengal government, which is keen to spread organic cultivation, has resolved to set up one bio-village in each of the 341 blocks in the state in the next two years. The objective behind setting up bio-villages is to create role models for adaptation to organic farming. Already 75 bio-villages have been set up across the state up to 2007-08 since its launch in 2004-05. There was plan to set up another 64 biovillages in 2008-09. In these villages, work is in progress to train farmers on the proper use of bio/botanical pesticides and use of microbes and parasites to wage a biological warfare against prevalent pests and plant diseases.
    "Those villages, which have been selected as bio-villages are blessed with rain-fed irrigation and have achieved a 200% or more cropping intensity. Post-selection, the prime task is to make farmers aware about the adoption of bio-farming through a series of workshops, training and demonstration programmes," said agriculture secretary Sanjeev Chopra.
    The agriculture department has decided to carry out the programme on a shoestring budget. For this, it has submitted a proposal to the finance department, asking for just Rs 1 crore for each year, from 2009-10 to 2011-12. The money has been sought to provide training to farmers and supplying bio-inputs to them at subsidised rates or free of cost.
    As cultivation with organic inputs cannot be initiated overnight in areas that are already inflicted with chemical fertilisers and pesticides, the process starts with the implementation of cultivation with bio-inputs. Here, the thrust is on using bio-fertilisers like vermicompost to reclaim the soil damaged by heavy doses of chemical fertilisers. Similarly, the stress is upon using biopesticides and microbial pesticides to control pest problems that have been multiplied following overuse of inorganic pesticides. Apart from concerns on environment degradation, erosion in soil quality, depletion of natural resources and biodiversity caused by indiscriminate use of chemical fertilisers and pesticides over the years, the thrust on organic farming has been influenced by its intent on helping farmers reduce the cost of cultivation.
    However, a senior official of the agriculture department feels alongwith encouraging cultivation with bio-inputs, separate marketing outlets need to be created to help farmers getting right price for such produces. Shortage of manpower at the government level is another problem to execute the programme, he pointed out. Currently 20 NGOs have been roped in, apart from seeking cooperation from members of panchayats.

Basmati prices jump 40%

THE prices of Pusa 1121 variety, the latest entrant into the elite basmati club, have shot up by about 40% in the domestic market in the past 10 days on increased export demand from the Middle East. The price of Pusa 1121 variety of paddy has surged to Rs 2,500 a quintal in the domestic market from Rs 1,800 a uintal 10 days ago, traders said, adding that the price may translate into as much rise in terms of rice, too. Pusa 1121 was included in the basmati rice category four months ago.
    Export demand has increased from Saudi Arabia and a few European nations though the EU has not yet accepted the variety as basmati rice, traders said. They added that the supply of the aromatic rice from Pakistan, another major producer, has probably exhausted, prompting buyers to turn to
    India, which offers better quality though commands higher price as well.
    It is learnt that rice to the tune of 5-6 containers are being contracted regularly and exporters are getting about $1,050 a tonne and adjusting it with the minimum export price of $1,100 a tonne by including a commission of $50 that they pay to brokers. The rise in demand for pusa 1121 variety has impacted the price of pusa basmati, which is the first hybrid in the aromatic rice category.

Laugh for good health!

 What's the one medicine that works wonders for your health, yet comes free of cost? Laughter that's what! Yes, laughter and happiness do contribute immensely to one's well-being. Keeping that in mind, SAB is bringing out a new show Laughter Yoga on Sundays at 8 am to kickstart a healthy week. Developed by Indian physician Dr Madan Kataria in 1995, 'Laughter Yoga' is beyond entertainment or amusement. It is a healthy exercise routine which combines laughter exercises and Yogic breathing techniques (Pranayama) which brings more oxygen to the body and brain, making one feel more energetic and healthy. In this show Dr Kataria the founder of Laughter Yoga clubs will lead the sessions by which the audience can actually learn Laughter Yoga exercises by watching the show. Laughter Yoga is a revolutionary idea where anyone can laugh for 15-20 minutes without relying on humour, jokes or comedy. It is done in a group as a form of exercise which soon becomes real laughter as the close knit group observes one another. This complete health show also includes a segment on health tips given by Dr Kataria. His experiences will be shared with the viewers which will include useful tips on allopathic medicines, ayurveda, nature cure, healthy food habits and first aid. So get ready to laugh and get fit!

LAUGH OUT LOUD: Dr Madan Kataria with wife Madhuri

Wheat export subsidy unlikely after ban goes

THE Centre is unlikely to provide any worthwhile subsidy on wheat exports once the over-two-year-old ban is lifted even as speculation is rife that the country may extend doleouts for offloading its huge reserves to create storage space for fresh crops.
    The government may instead enhance supply in the domestic market and pass on the benefit of huge stocks to people through its different schemes if it is to offload wheat at a subsidised rate in the international market. "We may not export it at a subsidised rate after the ban is lifted. If the global prices are lower and demand is less, we may sell it in the domestic market and raise allocation under different schemes to ensure that prices are kept in check," a senior government official said. "If we are to extend subsidy to exports why should we not provide the dole-out in the domestic market and benefit our own people," he argued.
    The government did not lift the ban on wheat exports slapped in February 2007 even after building huge stocks as it played safe and did not want a repetition of the situation in 2006 and 2007 when India had to import a total of 73 lakh tonnes at higher prices to meet the domestic demand, according to him.
    Earlier, the US department of agriculture (USDA) had said that India might need to extend an export subsidy as Indian wheat would otherwise be uncompetitive because of the high local support price of Rs 1,080 a quintal. "Lack of storage space may not be much of a problem as stocks can be transferred if necessary to other locations in the country where there is adequate space," the official said. "Only Haryana and Punjab may witness some storage problems but there would be space in other states."
    Last month, food and agriculture minister Sharad Pawar had asked states to lift wheat from buffer stocks as about 136 lakh tonnes of the grain was still lying from the last year's procurement even as it was fully prepared to procure the grain from the new crop starting April. In 2008, the Food Corporation of India had procured a record 226.8 lakh tonnes of wheat.
    The government had also told Parliament last month that the FCI had estimated that an additional capacity for 43.6 lakh tonnes was required in Punjab and 44.8 lakh tonnes in Haryana for storing wheat in the 2009-10 Rabi marketing season.

India oilseeds, soyoil seen up on global cues

MUMBAI, March 26 (Reuters) - India oilseed and soyoil futures may inch up on Thursday, tracking firm Malaysian palm oil and gains in the U.S. grain market, analysts said.

April soybean NSBJ9 on the National Commodity and Derivatives Exchange ended down 0.04 percent at 2,363.5 rupees per 100 kg on Wednesday while April soyoil NSOJ9 fell 0.47 percent to 446.05 rupees per 10 kg and May rapseed rose 0.04 percent to 455.85 rupees per 20 kg.

U.S. soybean and grain futures rose on Thursday as unexpectedly strong U.S. housing and durable goods sales data fueled hopes that a sharp recession in the world's largest economy may be abating. See [ID:nSYD488913]

At 09:42 a.m., the benchmark June palm oil contract KPOc3 on the Bursa Malaysia Derivatives Exchange was up 1.12 percent at 1,994 ringgit a tonne. Indfia

Gains may be capped the government decision to allow zero duty imports of crude soyoil, they added.

The Indian government has issued a formal order to abolish a 20 percent import tax on crude soyoil, a senior government official said on Wednesday. See[ID:nDEL438215].

(Reporting by Rajendra Jadhav; Editing by Ramya Venugopal)

Sugar imports unlikely as prices dip

 INDIA may not need white sugar imports at zero duty and imports of raws may be lower than earlier expected as local prices have fallen, Union food and agriculture minister Sharad Pawar said on Wednesday, pushing futures prices down.
    Soaring local prices ahead of general elections scheduled in April and May had encouraged the government to ease import rules for raw sugar last month. Traders had speculated the government may also scrap the 60% import duty on white sugar, but Mr Pawar said this may not be necessary as prices had fallen.
    Sugar in the spot markets of Maharashtra, the top producer, has retreated 9% from this year's peak of Rs 2,181 per 100 kg on February 3. "If the situation continues, we may not require to import white sugar," Mr Pawar said. Lower prices had also hit raw sugar imports, he said.
    Raw and white sugar futures fell after the minister's comments. "It's no surprise the market is lower," said Nick Hungate, a soft commodities trader with Rabobank in London. Benchmark ICE May raw sugar futures were down 0.2 cent, or 1.7%, at 12.78 cents per pound at 17:00 pm IST, while London May white sugar was down $6.8, or 1.7%, at $391.2 per tonne.
    Mr Pawar said country's sugar output in the year to September would touch 16 million tonnes, above the Indian Sugar Mills Association's expectation of 15.5 million tonnes. He also said sugar stocks at October 1 last year, the start of the current season, were 10 million tonnes, higher than trade body estimates of 8 million tonnes. Mr Pawar said for the next four weeks he would be campaigning for general elections, leaving little room for any major policy initiatives in the farm sector. By the time the new government assumes office in the middle of May, the country would have completed purchases of new season wheat from farmers.
    Analysts say prices have fallen due to a government decision to impose limits on stocks to be held by traders, forcing them to increase supply in the market. SWEET NOTE
In Maharashtra, spot sugar price has retreated 9% from this year's peak of Rs 2,181 per 100 kg on February 3 Sugar output is expected to touch 16 million tonnes, as against ISMA's expectation of 15.5 mt

Scrap metal importers come under govt lens

Commerce Ministry Makes It Mandatory For A Pre-Shipment Inspection Certificate For Importers

THE ministry of commerce has notified that pre-shipment inspection certificates would be required for all imports of shredded scrap metal. Up to now, shredded metal was out of the ambit. But more incidences of metals having 'high radiation levels' in recent months, and the need for tighter security, has prompted the government to come out with such a notification, according to industry experts.
    "The notification that a pre-shipment certificate is mandatory for imports of shredded metal scrap is effective immediately," said Rohit Shah, director of industry body, Bombay Metal Exchange. He added that any company that does not comply with the notification would be penalised. The cost involved in getting the goods assayed amounts to about $30 a container approximately. While this is not a huge additional cost, it would definitely be more time consuming for the importer, Mr Shah said.
    The assaying agencies have already been specified in an earlier circular that had made mandatory pre-shipment inspection for heavy melting scrap, which includes things like broken car parts. In shredded metals, majority of the scrap is of ferrous metals. In total, India imports about 3 million tonne of ferrous scrap annually.
    Zain Nathani, director of Nathani Industrial Services that imports substantial amounts of iron scrap said: "Recent security concerns and a number of incidents where materials were found to be radioactive have prompted this notification." In the case of shredded metals, the likelihood of having ammunition in the material imported is next to zero. But there have been instances where scrap metal was found to be radioactive, Mr Nathani said.
    In October 2008, there was a case of radioactive scrap metal having found its way into elevator buttons installed in lifts in France that was traced back to a western Indian foundry. Reports had stated that at least four Indian firms were involved in the manufacture of the components, but it was unclear where the contaminated scrap originated.
    French firm, Mafelec, had delivered thousands of these lift buttons to the local division of American elevator company, Otis, which then had to call back its production.

Rains brighten hopes of better coffee crop

But Retail Coffee Prices Unlikely To Soften On The Back Of A Possible Rise In Production

 KARNATAKA'S coffee plantations — arguably the coffee heartland accounting for 70% of the India's sectoral output — is optimistic of a good crop during 2009-10 with the key growing regions witnessing a bout of timely rains. Karnataka's production is expected to perk up country's coffee production to roughly 3 lakh tonnes (50-kg bag) compared to 2.8 lakh tonnes in crop year 2008-09.
    This comes at a time when coffee output in major markets like Brazil is expected to see a fall, while the global estimates suggest an almost stagnant crop.
    In 2008-09, country's coffee production slipped to 2.8 lakh tonnes on the back of a pronounced dry spell. The domestic output is heavily skewed towards Robusta — used for blending by global buyers — accounting for nearly 65% of the overall production. India exports nearly 2.3 lakh tonnes of the coffee produced. Growers who spoke to ET confirmed that all the three key coffee growing districts in Karnataka — Chikmagalur, Hassan and Kodagu —have been receiving showers. "The pre-blossom showers came in at the right time and were followed by adequate back-up showers. These rains were one of the best that we have seen perhaps during the last five years," said Ajoy Thipaiah, president of the Karnataka Planters Association (KPA). While Mr Thipaiah refused to comment on the 2009-10 output, the sectoral expectation is of production going up to 2.9 lakh tonnes to 3 lakh tonnes.
    "We have been receiving good rains. All major centres, be it Hanbal or Mudigere, have reported showers. Timely rains are welcome notably after what happened last year," added one grower in Hanbal. The possibility of a higher output in India comes at a time when key coffee growing nations like Brazil are expected to see a significant fall in production. Brazil is expected to produce between 36.9 million and 38.8 million bags (60-kg) indicating a year-onyear fall of over four million bags.
    The London-based International Coffee Organisation (ICO) has estimated that global coffee consumption would be placed around 129.6 million bags (60-kg) in 2009 against 128 million bags in 2008 (it needs to be mentioned here that while the Coffee Board measures output in tonnes, ICO reports production and consumption data on million bag notation).
    Although a higher Indian crop should lead to better realisation for Indian exporters, the trade remains cautious. "Timely pre-blossom showers is welcome news but Indian coffee has been a witness to changing weather patterns. Besides the output we are also concerned about the global economic recession with the instant coffee markets in Russia and Ukraine showing marked slowdown," said an exporter.
    But despite the possibility of higher output, retail coffee prices in India are not expected to see a softening in 2009-2010. "Arabica output in the country is down which has put pressure on availability of beans. We don't see retail coffee (ground) prices moving southwards on the back of a possible rise in output this year," said a ground coffee producer.
BREWING TIME
The pre-blossom showers come in at the right time, boosting morale of coffee growers
Karnataka's production is expected to perk up country's coffee production to roughly 3 lakh tonnes (50-kg bag)
Brazil, a major coffee producing nation, is expected to see a significant fall in production
Brazil's, loss may improve India's export prospect inglobal market in the time of recession

States give thumbs down to subsidised wheat plan

    There was an increase of Re 1.00 a kg to Rs 18.00 a kg in Chennai and by Rs 2.00 a kg to Rs 22.00 a kg in Thiruvananthapuram. However, there was a decline of Re 1 to Rs 16 a kg in Bangalore.    According to the data maintained by the consumer affairs ministry, between September 2008 and February 2009, wheat prices remain stable in major cities such as Delhi (Rs 13 a kg), Lucknow (Rs 11.80 a kg), Ahmedabad (Rs 13 a kg), Mumbai (Rs 15 a kg), Patna (Rs 11 a kg), Guwahati (Rs 13 a kg) and Hyderabad (Rs 14 a kg).     At the same time, he maintained that wheat prices in the country remained stable because of record production and procurement last year. India produced a record 78.57 million tonnes (mt) of wheat in 2007-08 which helped the Centre to procure 22.6 mt, also a record.     Unless there is demand why should flour millers lift the wheat he asked.     The government official wondered why the response was poor when Food Corporation of India (FCI) has been able to sell 11.55 lakh tonnes to bulk consumers like flour millers in states under OMSS during the same period.     Tamil Nadu has lifted 49,483 tonnes out of 50,000 tonnes allotted to it. Other states that have taken delivery include Nagaland (6,500 tonnes), Maharashtra (6,312 tonnes), Assam (4,148 tonnes), Meghalaya and Dadra and Nagar Haveli (1,000 tonnes each).

STATES and Union Territories have lifted less than 70,000 tonnes of wheat under the Central Open Market Sale Scheme (OMSS) even as the Union government wanted to offload over 9 lakh tonnes at subsidised rates to keep prices under check.
    The scheme launched by the Centre last September was allowed to lapse in February because of poor response, a senior government official said.
    The Centre had allocated 9.09 lakh tonnes of wheat on September 17, 2008 under OMSS specifying a fixed quantity to each state at a particular price for supply to retail consumers through state agencies and cooperatives.
    After two months, it allowed states to sell the wheat to small processors as there was a poor response from states. Subsequently, the offtake improved and it was 68,969.18 tonnes till Februaryend, according to the official.

PAU warns Punjab farmers of wheat disease

CHANDIGARH : Scientists at the Punjab Agricultural University in Ludhiana on Tuesday warned farmers that high temperatures and a disease may cut forecast wheat output by about 5 percent in the state.

However the state government said there was no need to cut its crop estimate yet. Punjab is one of India's leading wheat producing state.

Some districts of the state have reported yellow rust in the crop, but areas where recently introduced varieties were planted had not been affected, said H.S. Rewal, head of plant pathology at PAU.

"Yellow rust may reduce wheat yield by 2 percent to 5 percent in the areas where its incidence is higher," he said.

The state government said output should meet its 15.5 million tones estimate unless high temperatures persisted. The state produced 15.7 million tones last year.

Punjab's Director of Agriculture, Balwinder Singh Sidhu, told Reuters that yellow rust had spread in the state, but it may not lower the yield considerably since the crop had almost matured.

"We are hopeful of producing 15.5 million tones wheat this year, but it all depends on the weather over the next 15 days. If there's a sharp rise in the temperatures, productivity of wheat could be impacted," he said.

Farm economist P.S. Rangi, a marketing consultant with the Punjab State Farmers Commission, expected a bigger impact.

"I think overall yield of wheat may be lowered by more than 5 percent as the temperatures have remained higher this time. The farmers should change their seeds to minimise the impact of the diseases," he said.

Chatar Singh, Director of the Chandigarh office of the Indian Meteorological Department, said the average maximum temperature in Punjab was 24.9 degrees Celsius, up from 22.8 degrees a year ago

Sugar output may fall 41%

SUGAR output may slump 41% to 15.5 million tonnes this season starting October 2008, as poor supply of cane has prompted many millers to shut factories.
    "Sugar production is likely to fall to 15.5 million tonnes compared with about 26.4 million tonnes last year due to poor availability of canes," said a senior industry official on condition of anonymity. "The decline in the recovery rate by 0.9-1% is also to be blamed for the slump in output," he added. Recovery refers to the rate of sugar production out of cane.
    At present, recovery rate has declined to about 9% in northern India, including the second largest cane producing state of Uttar Pradesh, he added. Industry bodies like the Indian Sugar Mills Association (Isma) had earlier pegged output at 16 million tonnes. In Maharashtra, the largest sugar producing state, only 55 private mills are running as on February 28, out of 170 odd mills.
    Food and agriculture minister Sharad Pawar had last month said India might produce 16.5 million tonnes of sugar this season. According to the latest government estimate, sugarcane production may go down significantly to 290.45 million tonnes this season from 348.19 million tonnes last year.
India likely to import
3.5 mt of sweetener
LONDON: India has the potential to import up to 3.5 million tonnes of sugar in 2009 if there is a shortfall in the world's largest consumer later this year, said David Sadler, manager of Sucden Financial's sugar department. India is the world's top sugar consumer, and second-highest sugar producer after Brazil. India has swung from net exporter to net importer of sugar this season, traders say. Analysts say weak sugar prices had led to lower plantings in India last year. — Reuters

Economic Uncertainty Could Bring Back Yellow Metal Into Green Zone

Gold down, but may rebound

DESPITE seeing a price correction of close to $100 an ounce (31.10 gm), bullion analysts expect gold to bounce back soon as uncertainty persists in the global economy. The yellow metal is down 9% at $910 per ounce levels from $1,000 level in February. This is due to lacklustre demand in physical markets and investors and hedge funds shifting their focus to equities that have rallied smartly in recent days.
    High gold prices have hit jewellery sales. Gold scrap that is coming to the markets has also affected the imports. Sales are also down in other countries such as the UAE following the crash in property prices and low tourists arrivals.
    Earlier this year, a risk aversion play saw gold gaining substantially as equity markets tanked. Now it is the reverse that is happening, says KN Rahaman, deputy research head at brokerage Way2Wealth. "Profit booking will take place in equities and gold will again move up," he adds. He said that gold will soon touch $940-$950 level and in a months time it is expected to touch $960.
    Following positive US housing index and inflation numbers, the Dow Jones Industrial Average moved up to 7,400 levels from first week of March level of 6,470. From 13,000 levels last year, Dow Jones had substantially fallen and was now witnessing buying. But Amar Singh, research head at Angel Commodities said that it is too early to say that the rally will last as factors like GDP number from India and China are not that good while IMF foreseeing a deeper recession in rich economies.
    "Overall the uptrend in gold remains intact as long as spot gold does not come down below $890. We saw gold touching $1,000 level because of economic uncertainty and gold remains a best bet in such times," Mr Singh added.
    In domestic market, on Wednesday, spot gold is down from Rs 15,700 per 10 gm in February to Rs 15,050 in Mumbai market. On MCX, the April contract on Wednesday at 7.18 PM was down by 1.3% to Rs 14,946 per 10 gm from the previous close. In the local market the appreciation of rupee is further pressurising the prices. On Wednesday rupee appreciated to 51.28 against the previous close at 51.49.
    According to Jayant Manglik from Religare Commodities gold will be under pressure for some time and in a month's time will bounce back.
FACT SHEET
Price of Yellow Metal Has Been Retreated due to lacklustre demand in physical markets
Investors and hedge fund
managers also shift their focus to equities on the back of recent rallies High gold prices have hit jewellery sales across the board

India soybean eases on oilseeds arrival; spot supports

MUMBAI, March 18 (Reuters) - India soybean futures fell on Wednesday on rising arrivals of winter-sown oilseeds like rapeseed, but firm spot and Malaysian palm oil prices limited the losses, analysts said.

A one-year extension of a ban on vegetable oil exports to March 2010 also weighed on the markets. See[ID:nBMA002557]

However, rapeseed futures were almost steady as higher arrivals were offset by firm demand from millers and traders, who are buying to meet their annual requirements and on expectations of a lower-than-expected output in 2008/09.

At 1:45 p.m., April soybean NSBJ9 on the National Commodity and Derivatives Exchange was down 0.34 percent to 2,335 rupees per 100 kg, while June rapeseed NRSM9 steady was at 464.25 rupees per 20 kg.

Soybean spot prices in Nagpur rose 2.4 percent to 21,500 rupees per tonne.

Rapeseed arrivals on Wednesday was steady at 400,000 bags of about 85 kg each in Rajasthan, the largest producer.

India's rapeseed output may be lower at 6 million tonnes compared with earlier estimates of 6.4 million tonnes and the oil content in the seeds may fall because of a warm winter in growing areas, an industry official told Reuters on Monday.

At 1:50 p.m., benchmark June palm oil KPOc3 on the Bursa Malaysia Derivatives Exchange edged up 0.1 percent at 1,924 ringgit a tonne.

Indian Food Price Crisis: Where lies the fault

Publication Date  14/3/2009 11:17:21 AM(IST)

India consists of 100 million hard working farmers who are not having surpluses requires government direction and support to produce enough food with the available land to meet 1100 millions. Indian food security needs to be understood in terms of food availability across the country, regional differences in production, accessibility of food by the poor and hungry people in regards to existing distribution system and buying capacity.  And why India is still a recipient of food assistance when it has already achieved optimum production?  We should stop asking for food assistance from international donors and strengthens our distribution system with an emphasis on more employment generation scheme in rural areas.

The continuing increase in food prices is a mater of great concern and the problem is real one.  During the past nine months, food prices have risen by 50 per cent, threatening global stability. Various international organizations, such as The World Bank, International Monetary Funds, United Nations Food and Agriculture Organization  has warned that rising food prices threatened to wipe out a decade of efforts to combat global security. 

 

 

Social unrest could spread to sub-Saharan African countries where 50 to 60 per cent of household income is spent on food.  The causes are plenty such as droughts, push to use bio fuels made from corn to reduce dependence on fossil fuels, increased demand for meat and dairy products from richer Asian countries and so on.  These explanations highlight external causes but totally ignore the causes rooted in the policy that have led to stagnation of agricultural sectors.

Hunger is caused not by high international food prices, but by local conditions, especially rural poverty linked to agricultural productivity. Indeed the story of Indian agriculture has been a story of ill conceived and quite often inappropriate policies. Besides the weather induced fluctuations, what ails the growth of agriculture sector has been reduced capital investment and plateau of productivity of major crops. Growth of Food grain production has fallen from 3.2 per cent during 80's to 1.1 per cent during 90's. 

 

More importantly, the growth of food grain production remained less than the population growth. Furthermore, the deceleration was much more after 1996-97 and growth rate remained less than one percent.  Hence country started facing severe supply side problem since mid 90'swhich become acute by the turn of century. This happened because the environment around agriculture has dramatically changed but many of the policies have not kept pace with these changes.

 

Sustained agricultural growth is a sine qua non for accelerating the pace of Indian economic growth. But sustained agricultural growth, among other things, requires a constant expansion in its productive capacity, which inter alia implies continuous increase in capital formation in agriculture. Capital formation in agriculture comprises asset creation, directly and indirectly, for augmenting production. 

 

Land reclamation, preventing soil erosion, irrigation and flood control directly add to the existing stock of capital.  Inputs such as equipments, animals, fertilizer, storage, transport and communication all these are important components of capital formation.  Investment on science and technology and training are equally important segments of capital formation which improve the quality and productivity and shift the production frontier.

 

Today, increased investment in agriculture has added relevance in India particularly due to a near exhaustion of the possibility of bringing more land under cultivation, implying thereby that the increase in agricultural production has hereafter to be secured through a sustained acceleration of yield per unit of land.  Again what is equally important is the existing productive capacity as well as every addition to it has to be utilized in the most optimum and efficient manner. Moreover care has to be taken to see that the overall structure of investment in agriculture and periodic changes in it are, among other things, both growths promoting and employment generating.

 

A mere 5.8 per cent share of agriculture in gross capital formation for a country whose 70 per cent population depends upon agriculture and nearly 20 per cent of the GDP comes from agriculture, is nothing less than a crime.

 

No doubt, technology will bring about an improvement in agricultural productivity and competitiveness, but more important is how the technology is driven by market demands? India invests a substantial amount of money in the agricultural sector but a large share goes to subsidies for fertilizer, electricity, water and Minimum Support Price and so on.  The spending on subsidies is about 4 times grater than the spending on investments. Hence agricultural scenario is dominated by features having short term impact rather than lasting and long term.  This needs to be reversed. 

 

A highly regulated market discourages private investment in rural areas.  Since agricultural sector is becoming more responsive to market demands, public-private partnership have an opportunity to play a larger role. This is likely to improve agriculture productivity, competitiveness and supply response and will be critical in responding to the new challenges of the agriculture sector.

 

Commodity exchanges may be answers but once again we need to have competition among multiplayer.  There is no shortage of money, but proper policy framework should have been in place.  The retail investors are a big chunk in these days so allow them to be participants also. Instead of focusing on Cricket and Bollywood, government should divert their attention to undernourished and health needs of people. Every Government of India as well as states Governments, past or present, has to share the blame for the current impasse. Indeed, we are paying the price for neglecting this sector long. Will our policy makers ever confronts to reality or would continue their lackadaisical way.

 

Dr Gursharan Singh Kainth is the Director, GAD Institute of Development Studies, 14 Preet Avenue, Majitha Road, PO Naushera, Amritsar 143 008

Email Id: idsasr@indiatimes.com

OUTSHINING GOLD INVESTMENTS

Gaining Sheen: Silver ready to prove its mettle

SILVER, which in European folklore, is believed to have saved the lives of many people who were attacked by vampires and monsters, now has the power to give investors good returns. And going forward, it is expected to outperform gold in terms of price appreciation.
    In fact, silver had been beating gold till recently. Up to 2008, silver outperformed gold in terms of one, two and three-year compound annual growth rate (CAGR). Last year on March 11, silver registered a three-year CAGR of 131% against 106% CAGR posted by gold.
GOLD-MANIA HITS SILVER PRICE
In the last one year, gold prices have moved up sharply and beaten silver. Since March 11 last year, gold has appreciated by around 18%, while silver prices have corrected by around 12%. This is mainly because of the global financial crisis and weak performance of most of the other investment classes. Investors have been flocking towards gold, as it provides a hedge against uncertainty, which in turn fuelled gold prices to touch new highs.
    Equity markets have become almost half in terms of loss in the index numbers in the last one year. NSE Nifty and BSE Sensex have lost 51% and 46%, respectively, in the same period. Diversified equity mutual funds followed suit. Even best performing mutual funds are down by more than 30%. For instance, as on March 9, Birla Sun Life Dividend Yield Plus — growth and UTI Dividend Yield Fund — growth, registered a negative return of around 31% and 33%. Real estate prices have corrected by an average 25-30%. Concomitantly, the gold prices have gone up by around 17% in the same period.
    Silver prices, though, did not appreciate as much as gold in the last one year due to low industrial demand. They have appreciated by around 35% from the lowest price of the year — Rs 16,168 on November 21, 2008. Gold prices have appreciated by just 22% from November 21 last year.
FUNDAMENTALLY MORE INTACT
Silver has both industrial and investment demand. Also in terms of supply, 60% of the supply of silver comes from copper, lead and zinc mines in the form of byproduct. Silver and gold mines contribute the remaining 40% of the supply. This is one of the reasons that silver price movement reflects both gold and base metals' price movement. The industrial demand for silver has been growing by around 6%. The investment demand for silver is on the rise due to introduction of new investment instruments such as silver exchange traded fund (ETF). Even the silver holdings of several companies, which run silver ETFs, have gone up.
FOLLOW THE LEADER
Commodity experts believe that silver, which has been outperforming gold for long, still has the competence to do that. According to Jayant Manglik, president at Religare Commodities, gold to silver price ratio is at around 72, whereas, the mean ratio is 55 based on the average price from 1970 to 2008. Going forward, the ratio is expected to come to its mean and that will give huge upside to silver prices. Consequently, silver prices will rise much faster than gold prices.
    Silver is regarded as the poor man's gold. A very large chunk of the demand for silver in India comes from the rural parts. A top official from a commodity broking firm says, "High appreciation in prices may force many to spurn gold, specially people from middle-class families. They may prefer silver over gold."
    Praveen Singh, senior research commodity analyst from Sharekhan, says, "As most of the economies are witnessing a surge in the supply of money, the inflation is expected to go up in the near future, which in turn will help increase gold prices. But since silver follows the gold prices, it is also expected to follow the suit. Also, after a period of time when the economy starts reviving, the industrial demand of silver will improve, which will further fuel the silver prices. Moreover, in the initial stage of upward rally in bullion, gold prices move faster but once the rally is fully on track, silver outperforms gold.
RISK INVOLVED
Silver prices are more volatile than gold price. Naveen Mathur, head, Angel Commodities, says, "Among the two, silver is more volatile and riskier." Moreover, any considerable decline in the industrial demand of silver may impact the silver prices adversely.
anand.rawani@timesgroup.com 

Inflation dips, but prices of essentials shoot up

Sugar And Rice Cost Up To 10% More In Two Months

MARIAMMA Alexander, a homemaker, has seriously begun to doubt what she reads in the morning papers. Inflation, she is told, is down to a seven-year low of 2.4%. But when she drops by at the neighbourhood greengrocer or makes a trip to the nearest mall, she isn't amused by what she sees.
    Wheat, rice, milk, vegetables and pulses — all the items she tosses into her cart without so much as a second thought — sport bigger price tags each time she goes shopping. "Inflation is coming down only according to the papers. When you go to buy groceries, prices of almost everything have gone up."
    Inflation peaked last August at 12.5%, before easing to 2.4% at present. This can be seen in the attached table for price indices. While the index for all commodities has gone down compared with last year, that for food articles, pulses and cereals is still higher than the last year. This is because the prices of commodities like sugar and rice have risen between 8% and 10% in the past two months, according to the Mumbai Grain, Rice & Oil Seeds Merchants Association secretary Nilesh Veera.
    "Prices are constantly fluctuating. Once they go up nobody will reduce them easily," she says. Ms Alexander has her list ready to drive the point home: The price of premium variety wheat has gone up to Rs 33 per kg from Rs 27 in the past two months. Parimal rice has gone up to Rs 32 per kg from Rs 30 two months ago. Prices of wheat bread and tea have also risen in the past three to four months.
    The reason for the disconnect between inflation numbers and prices at the retail level could have to do with a complex interplay of factors, ranging from the method of calculation to the number of intermediaries in the supply chain, or even political intervention in terms of maintaining minimum support prices.
    Inflation numbers are compiled by the ministry of commerce and industry after taking into consideration the prices of over 200 items every week, ranging from foodgrains to fuel, and indexing it to the base price of 1993-94. The weekly inflation numbers that are released, are a year-on-year comparison.
    Unlike other countries, the most commonly used measure of inflation in India is based on wholesale prices rather than consumer prices. The wholesale price index or WPI, a constituent of inflation, reflects prices at the wholesale end, whereas the consumer price index (CPI) reflects retail prices. Primary food articles constitute 22% of the WPI while it constitutes more than 50% for CPI. So, CPI led inflation for industrial workers is 10.45%
for the month of January 2009 as compared to 9.70% in December 2008.
    V Shanmugam, chief economist of Multi Commodity Exchange, points out that the disconnect between inflation numbers and ground reality is mainly due to inefficiencies in the supply chain. "There are too many intermediaries in operation. Also, the government is not incentivising supply chain efficiencies."
Prices of pulses, on their part, have remained high as the cost of imports have gone up due to a relatively weaker Indian currency. SP Goenka, secretary, Pulses Importers Association, said private importers are registering losses while state-owned companies are selling only to large traders, who in turn, are passing on the higher prices to consumers.
Lower production of sugar has led to higher prices, and the high minimum support price for rice has resulted in a 10% increase in prices. In the current slowdown, it is not just the consumer who feels the pinch. Retailers, too, are offering attractive deals, often at the cost of their margins.
R Ramasubramanian Nadar, director of Mumbai-based single store format retailer AP Mani & Sons, points out that FMCG manufacturers themselves offer good discounts on procurement, but nearly 50% of the added discounts come from the retailers' profit margins. "Most grocers enjoy an average margin of about 10% and in times like these, we have to dip into our profit margins and play the volume game." However, consumers feel the offers are just to clear inventories and pep up sales. "Many a time, the offers are attractive but the quality may not be guaranteed or the freebies may not serve your purpose," says Ms Alexander.
(With inputs by Pallavi Mulay)
nidhi.sharma1@timesgroup.com 

Biscuits don’t reflect falling wheat prices

Govt's Higher MSP To Farmers Keeps It Up

Mumbai: Even as global prices of wheat — a key ingredient in biscuits to burgers — have fallen to their lowest levels in two months in February 2009, prices of packaged food products dependent on the commodity in India are unlikely to come down.
    According to Amit Jatia, MD & JV partner, McDonald's India-south & west: "Worldwide, wheat prices have definitely come down but not in India as an increase in the minimum support price (MSP) provided by the government to farmers. In fact, there is a small increase in price of wheat flour that we buy. But as a practice, we at McDonald's leverage economies to minimise costs while maximising value to customers.''
    According to Rabobank's monthly report on commodities, global wheat prices are lower by 60%, on a year-onyear basis, because of a rebound in world stocks to comfortable levels caused by record world wheat production.
    However, in India, the government has increased the MSP by Rs 80 per quintal to Rs 1,080. A few state governments too have announced bonuses. Madhya Pradesh, for instance, has announced a bonus of Rs 50 per quintal resulting in higher procurement costs.
    Wheat flour forms close to 2.5% of McDonald's overall purchase in value terms. "It is important to note that wheat flour is bought by our suppliers and not by McDonald's as it is a primary ingredient in the buns,'' said Jatia.
    For a biscuit company like Britannia Industries, wheat contributes over 25% of its total material cost. "Additionally, price of another major commodity—sugar—has increased by approximately 30% in the last six months on account of lower projection for next year. However, prices of oil & fats have reduced as the global demand has declined. Overall, commodity prices continue to be firm/stable and there is no significant reduction,'' said a Britannia spokesperson.
    However, a slowing down in the rate of inflation has certainly helped food companies curtail costs. The McDonald's menu is priced at a level that a large segment of Indian consumers can afford. "The value initiative at McDonald's is allpervasive. Our strategy is to achieve best value by enhancing experience (offering best quality), while keeping prices reasonable. McDonald's Happy Price menu of Rs 20 onwards is a classic example,'' said Jatia.
    The company works closely with its suppliers to increase efficiencies, improve yields and reduce wastages, thereby, reducing costs.
    Companies are also gradually moving the pricing parameter from being directly impacted by commodity price fluctuations to a more dynamic variable. For Britannia, its investment in brand building, product/packaging development, is guided by what the company wants to achieve for its brands & the cost effectiveness of doing so, irrespective of commodity cost.
    Britannia, which has led the market in product and packaging innovation, has commercialised both in-home & out-of-home consumption opportunities, with a focus on increasing biscuit consumption.

Industry reaps cheaper inputs

Up To 50% Drop Lowers Implementation Cost, Making Investment & Buyouts Cheaper

THE prices of major input commodities, including steel, aluminum and crude oil, have almost halved over the last six months, lowering cost of implementation of projects and making it easier for companies to go ahead with their investment plans.
    Industries with high variable costs are also expected to improve their bottomlines on account of the fall in input prices.
    The going is expected to get better with prices of industrial inputs expected to fall further in the coming months and enter the negative territory. According to chief statistician of India Pronab Sen, prices of industrial inputs were likely to drop 3% in a few months. Interestingly, Dr Sen was the first economist who suggested that inflation will turn negative by March-end.
    Speaking to ET, Dr Sen pointed out that with the cost of steel, aluminium and other commodities softening, the cost of implementation of new projects is dropping and the government will be able to achieve targets in infrastructure development with lower outlays.
    "With inflation and input prices coming down rapidly, industries that have high variable costs compared to fixed costs and are in non-cyclical sectors stand to benefit most," Goldman Sachs' Tushar Poddar said in a recent note. Sectors with high variable costs like refineries, steel, non-ferrous metals, consumer durables and fertilisers have more flexibility in reducing cost structures in the short term than those with higher fixed costs like the services sector.
    Many companies that have been sitting on piles of inventory in the last quarter and could not benefit from the drop in commodity prices are looking forward to better results in this quarter. K Ravi Kumar, chairman and managing director of Bhel, which is sitting on an order book of more than Rs 1 lakh crore says, "Margins in third quarter have been lower on account of inventory costs and will pick up this quarter on the back of easing prices of inputs."
    Data released by the government so far has not shown a marked slowdown in investment. The trade data and gross domestic production data suggest that the investments remain healthy, but moderate, even in the face of economic slowdown. Project imports grew a whopping 170% in dollar terms in January, showing that India Inc has not stopped investing despite the downturn and higher cost of capital.
    According to December quarter GDP data released by the Central Statistical Organisation last week, gross fixed capital formation continued to be in excess of 33.4% of GDP at current market prices in October-December 2008.
    The collapse of commodity prices has helped slow the pace of growth of the country's trade deficit, bringing it below $100 billion for April 2008-January 2009. "The fall in prices will obviously adversely impact the commodity-exporting countries while the commodityimporting countries will be in a better position. India stands to gain from the scenario," credit rating agency Crisil principal economist DK Joshi said.
    Indian companies which have been looking at acquisitions have also benefitted from the meltdown. Hyderabadbased infrastructure firm GMR chairman GM Rao said, "Towards Februaryend, we acquired 33.5% in Canada's Homeland Energy Group, the parent firm of Homeland Mining & Energy, for $30 million — $100 million lower than the expected price. While buying Indonesian coal mining company Barasentosa Lestari PT, we had to pay only $80 million, much lower than the negotiated price of $120 million."
    anto.antony@timesgroup.com 

Commodity Funds Back In Vogue

Though the downturn has taken a toll on them, they are showing a comeback. ETIG tries to find out the performance of commodity funds

COMMODITY funds or mutual funds (MFs) that either invest directly in commodities or in those companies that have a commodity-centric business model have been around for a while now. It is worthwhile to see how such funds have performed and whether these can hold promise for investors, who are keen to tap the commodity market.
    ET Intelligence Group conducted an analysis of the performance of MFs including commodity MFs and specia funds (ETFs) to understand as to which funds really stood the tough times and which can actually withstand the times to come.
    There are more than 10 commodityfocused funds that invest in Indian and global commodity-focused companies (equities). With the exception of SBI Magnum Comma Fund – Growth, which has three-year returns record, most funds are either one-year or less than one-year old. Take the case of Reliance Natural Resources Fund, which is just completed one year.
    On an average, for the last one-year and six-month period, though commodity funds have seen a decline in their net asset values (NAVs), the drop was lower than that in the benchmark Nifty. These funds, for the last one-year and six-month period have fallen to an extent of 35.81% and 20.35%, respectively, while the benchmark Nifty has fallen to an extent of 38.03% and 46.82%, respectively, by similar comparison. So, would these funds continue to fare well than the benchmark Nifty?
    An answer to this question lies in the nature, price movements and overall global situation of the market. One needs to understand that most commodities barring gold, which rose to a new peak, have fallen sharply by over 50% in most cases. Further, such a steep fall would be unsustainable in future.
    For instance, the crude oil prices have fallen by more than two-third in a very short time. A further dip from $30-level would be unanticipated. Though it does not provide any information about the upward potential of prices, it does tell us that downward risk is limited.
    Commodity funds provide investors the flexibility since these funds invest across the commodity based businesses. This also spreads the investment risk when compared to the situation where investors have exposure to individual scrips like ONGC, BPCL, or Hindalco.
    Another thing is that though investors can take positions on the commodity bourses, it requires expertise of gauging demand and supply factors for underlying
produce and intricacies of derivatives contract. The positions are also marked-tomarket on a daily basis, which can expose one to unlimited losses.
    It should be noted that investing in commodity funds should be for a long-term as commodity-focused companies would take at least two more quarters to demonstrate the positive impact of the fall in prices of commodities.
    Apart from commodity funds, investors can consider exposure to gold ETFs. But before that, it is important to understand the recent spurt in gold prices. Investors in Europe and North America bought gold coins and bars in the last quarter of the previous year as the collapse of financial giants triggered purchase of gold as a safe haven. This pushed global retail investment up almost 400% to 304.2 tonnes, according to the World Gold Council. Gold now trades at Rs 15,000-level per 10 grams. A further rise from this level sounds difficult but not impossible.
    Given this factor and high volatility in gold spot prices, it makes more sense to go for gold ETFs than for the physical yellow metal. One can buy gold ETF units in small quantities, when the price seems affordable.
    More so, gold ETF units held for more than one year qualify for long-term capital gains at 20%, whereas the holding period in physical form has to be three years to qualify for long-term capital gains. For less than three years, the gains are taxed at 30%. Also, gold held in paper form is not liable for wealth tax. Hence, investment in gold ETF would be sensible option.
    rajesh.naidu@timesgroup.com 

Copper gains on rising cancelled warrants

Devangi Joshi MUMBAI

COPPER, the base metal whose price movements reflect industrial activity, has gained over 12% in a week. However, rather than viewing the gain as a sign of economic revival analysts attributed it to a reaction caused by the metal breaking out of a price range.
    "A breakout of a price range caused some technical buying, which was supported by the change in London Metal Exchange (LME) warehouse statistics," said Harish Gallipeli, research head, Karvy Comtrade.
    The benchmark LME copper price has surpassed a resistance of $3,350 per tonne and is currently trading near the $3,600 level. The domestic price, on the other hand, has managed to break out of the Rs 150-175 per kg range. The depreciating rupee has added its mite to the price.
    A sudden rise in LME cancelled warrants — the number of warrants on materials cancelled for delivery but not necessarily taken out of the exchange warehouses — indicate more stocks are expected to be taken out of warehouses. These warrants rose to 12% of total inventory on Wednesday while total inventory also declined by 4% from its recent peak at 548,400 tonnes.
    According to Debjyoti Chatterjee, VP, commodities research, Mape Admisi Commodities, rising cancelled warrants which grew from 3% to 12% of total inventory in a week's time, have increased speculation that the China State Reserve Bureau (SRB) is buying certain commodities to support its smelters. "Among all the LME warehouses, most of the rise in cancelled warrants is concentrated in South Korean warehouses, supporting the opinion that Chinese buying has caused an overall rise," he added.
    The bounce in prices has been linked to possible measures by Chinese authorities to prevent a higher pace of decline in growth, as experienced in the last few quarters. There are mounting expectations that China is expected to announce another stimulus package in the country's annual legislative meet due to start from Thursday. Also Chinese Investment Corporation is likely to invest $22 billion in miners and producers of commodities like copper in order to soften the adverse effect of steep plunge in these commodity prices.
    "This however does not change the fundamental backdrop which points towards a tame scenario for prices in coming quarters. While higher volatility due to hedge fund activities cannot be ruled out, the underlying trend for industrial commodities is still bearish," said Praveen Singh, research analyst, Sharekhan Commodities.
    devangi.joshi@timesgroup.com 

India chana seen up on firm spot; guar on demand

MUMBAI, March 5 (Reuters) - India chana futures may open up on Thursday tracking a firm spot market that saw improved demand, but higher output estimates may limit gains, analysts said.

Spot demand has increased ahead of the Holi festival, which falls next week.

The federal farm ministry last month said output may rise by 13.7 percent to 6.54 million tonnes in 2008/09 compared with 5.75 million tonnes a year ago.

The April contract NCHJ9 on the National Commodity and Derivatives Exchange (NCDEX) ended at 2,246 rupees per 100 kg in the previous trading session, down 0.31 percent.

GUAR:

Futures may trade higher on some domestic demand from guar mealmakers, analysts said.

April futures contract NGUJ9 last ended 0.12 percent down at 1,609 rupees per 100 kg.

(Reporting by Rajendra Jadhav & Sourav Mishra; Editing by Harish Nambiar)

Why China wants to buy $93 billion worth of gold

BEIJING: Chinese investors beware! Don't get trapped in the glitter of gold. In China, investors have been rushing to gold following the crash of global markets.

But, the investment in gold is also riddled with risk and this is a critical time now where investors should be cautious with their gold investment.

According to analysts, gold can be a very good product for holding its value. But the risks for paper gold and gold futures are nearly 10 times bigger than real gold investment. Buying gold related stocks can also be a risky move.

"Gold is a very solid asset. Buying physical gold does have advantages compared with other investments. Investments in gold-backed financial products and paper gold should be left up to the professionals," says Mark Robinson, a bullion analyst based in Dubai.

According to Robinson, gold investment in China is starting to look like a crowded marketplace. It's being boosted by the rising prices and market demand. And the unpleasant performance of the US stock market, low expectations for the US dollar, as well as investors' concerns over the banking crisis have also pushed up people's need for gold.

Over the past 5 years, when gold investment was booming, more problems tended to appear in the market. Many investors have been hit really hard because they couldn't contain themselves, and continued to pour more money into it.

Meanwhile, China has nearly $2 trillion in surplus reserves. Beijing's piggy bank is overflowing with money. In fact, at nearly $2 trillion, China has the largest foreign reserves of any country in the history of the planet.

Whereas Washington now has nearly $11.4 trillion in debts, not counting the contingent liabilities of the real estate crisis.

With this case scenario, China's currency yuan should have more purchasing power. But that's not the case — the dollar remains stronger.

But, over the next few years China is essentially going to corner the world's gold market.

Beijing knows that the dollar's status as a reserve currency is soon going to be history. Just like the pound sterling lost its status as the world's reserve currency in the early 20th century.

And authorities in Beijing also believe that as China rapidly progresses toward superpower economic status, the yuan should be a world-class, stable medium of exchange.

They envision the yuan as a major international currency some day, with as much (or more) status than the US dollar. That's why they're going to back the yuan with gold.

Plus, there's another reason for Beijing to buy more gold as part of China's piggy bank. China has an estimated $1.3 trillion invested in dollar-denominated investments. They can't get out of the dollar quickly. It would destroy the US economy which would have a direct negative impact on China.

So the smart thing to do: Hedge and diversify existing dollar holdings with gold. China has a mere 0.9% of its reserves in gold (600 tonnes) now. That's the lowest of any industrialised economy. The US has 77.3% of its foreign reserves in gold.

Just to up its reserves to 5% in gold, Beijing would have to purchase $93 billion worth of bullion. That could easily send the yellow metal skyrocketing to more than $2,000 an ounce.

Spice futures shoot up on weak rupee, low arrivals

A WEAKER rupee and lower arrivals pushed up spice futures at the commodity exchange NCDEX. Prices of all categories of spice rose on Monday with turmeric, jeera, and chilli hitting the upper circuit.
    Since India is a major exporter of spices, the rupee's dip to a new low of 51.9 against the dollar improved sentiments in the futures market. Long positions were built in turmeric and jeera — the two popular counters among investors.
    Despite a dip in the opening stock and lower arrivals pulled up turmeric price, which rose to Rs 4,700 a quintal from Rs 3,500 in December. On Monday, the turmeric April contract on NCDEX closed at Rs 4,694, up 3% from the previous close. It also recorded its highest ever turnover at Rs 327 crore on the same day as against an average of over Rs 200 crore. The volumes were the highest among agri commodities.
    According to Alimuhammad Lakdawala, an analyst with Anand Rathi Commodities, turmeric can touch Rs 4,800-mark on NCDEX though the upside will not sustain once arrivals pick up.
    In the case of jeera, the arrivals were low at 17,000 bags as against 20,000 bags in the past week (one bag carries 60 kg). Indian jeera will dominate the international market till May-June, before shipments arrive from Syria and Turkey. The domestic crop is also expected to be lower, adding to the pressure on prices.
    On Monday the jeera March contract closed 4% up, at Rs 11,618 a quintal, recording a turnover of Rs 113 crore as against Rs 70-80 crore.
    However pepper missed the party in the absence of any trigger from international markets. Indian prices are higher than international prices, and once the Vietnam crop arrives, local prices are expected to fall.
    On Monday short-covering pushed up prices as open interest registered a decline. The pepper March contract on NCDEX closed 1%, up at Rs 10,687 a quintal. Even in the spot market, prices have taken a hit and are down at Rs 105 a kg from Rs 122 three weeks ago. Faiyaz Hudani from Kotak Commodity Services says a weak demand will keep the pepper counter bearish.
    nidhi.sharma1@timesgroup.com 

Fall in agri output raises growth concerns

Agriculture Output Declined 2.2% Despite Normal Monsoon & Increase In Area Under Cultivation

DESPITE a normal monsoon and the total area under cultivation going up, the agricultural output posted a 2.2% decline, pulling down the overall GDP growth rate for the quarter ended December 31, 2008.
    Experts attribute this to a decline in the production of commercial crops like oil seeds, cotton and sugarcane and the high base for the corresponding quarter last fiscal. The slump has taken market analysts by surprise as the data available till now betrayed no signs of a fall in agriculture output.
    "The gross crop area had actually recorded an increase," said NCDEX chief economist Madan Sabnavis. Credit rating agency Icra's chief economist Saumitra Chaudhary said the slump was a technical thing. The second advance estimates released by the government on February 12 showed a fall of 1.3% in foodgrain production. These were initial estimates, which get revised, often upwards.
    To make a fair comparison, if second advance estimates of 2008-09 were compared to second advance estimates of 2007-08, foodgrain production was actually up by 2.9% this year. So, possibility of upward revision in output of foodgrain in third and fourth estimates raises hope for better GDP numbers for the sector, said Mr Chaudhary.
    Good monsoon and higher prices of foodgrain had resulted in higher acreage in 2008. Area under rabi crops was up 3.1% till February 13, 2009, compared to the corresponding period last year while rice, a major kharif crop, showed a rise of 1.1% in area under cultivation.
    Experts felt that an increase in the output of horticulture crops, livestock products and fisheries, which accounts a share of 8% in agriculture GDP as a whole, might augur well for overall farm output.
    Suresh Tendulkar, chairman of Economic advisory Council to the prime minister, said there was no possibility of decline in agriculture output during FY09. He anticipated the overall growth in agriculture output little lower than 3% for FY09. Mr Chaudhary, too, felt that agricultural growth will touch 2-2.5% this fiscal year provided the climatic conditions for rabi crops stayed neutral.
    The only concern remained a decline in production of non-foodgrain. Oilseeds, cotton and sugarcane were estimated to record a fall of 13%, 14% and 17%, respectively, this year. If that be so, it could adversely impact the overall growth in agriculture output but might have a very little impact because these commercial crops carry a lower weight of 37% compared to foodgrain while calculating agriculture output as a whole.

the next leg of price rally could be triggered by worldwide currency

While the precious metal has largely withstood an overall plunge in asset prices so far, the next leg of price rally could be triggered by worldwide currency debasement. Devangi Joshi explores

    In January '09, Indiana state senator Greg Walker introduced a bill: "The Indiana Honest Money Act" which proposed to allow citizens the options of making monetary exchanges based on physical gold or silver or equivalent electronic receipts as an alternative to the Federal Reserve notes for all transactions conducted with the state of Indiana.
    Such a single instance in one of the American states does not mean that the entire fiat money system is on the verge of a collapse. However, it does indicate that the paper currencies are losing their vigour due to the developments in financial markets since late 2007, and in turn bringing back gold as the measure of monetary value. This week, ET Intelligence Group brings you an analysis of the situation in the gold market and what it means for the investors.
    2008 was an exceptional year that showed unprecedented price movements for most of the asset classes, with historic highs, as well as lows, being made in the same year. Gold, however, stood out amidst the chaos because while prices rose to their all time highs in March, they managed to show a significant resilience against a fall in prices of other asset. Average international spot prices stood at $872 an ounce in 2008, up 25% from their average in 2007. In the third week of February 2009, the precious metal has continued its momentum with prices making new highs in most currencies, but US dollar.
    The reason for this deviation or outperformance is the value the yellow metal enjoys as a safe haven. This view is substantiated by shifts in correlation gold generally holds with currencies like Euro and British Pound as well as crude oil. As gold is a US dollar denominated asset, it holds a negative correlation with the greenback and hence a positive correlation with major currencies that compete with the US dollar, mainly Euro and to some extent pound. However, since late 2007 this positive correlation is waning with both the latter currencies feeling the heat of the mounting economic troubles in respective regions.
    With crude oil, the yellow metal holds a strong positive correlation because rising crude oil prices cause higher inflation and gold is perceived to be an inflation hedge. However since, mid-2008 this correlation has also started somewhat fading.
    The current global economic scenario is a complete turnaround since mid-2008, with the concerns of inflation being replaced by fears of deflation. The question that comes to one's mind is why the gold prices continue to do well while the inflation is heading down.
    The answer to this question is in the current financial instability that could prevail for long. While the credit is drying, most of the countries across the world have seen a significant rise in their debt obligations. As on January '09, national debt of developed economies like the US and the UK stand at 75% and 48% of their Gross Domestic Product (GDP), respectively. According to market estimates, global bond issuance in 2009 will reach an all time high of more than US$3 trillion—a three-fold rise from 2008. With more frequent announcement of government stimulus packages, the debt to GDP ratios of leading economies are expected to blow up further.
    Adding to this, if the global Central Banks run out of the interest rate adjustment options (as possible in case of the US and the UK), then they would be left with the choice of quantitative easing—an exercise of printing money to buy a variety of securities (mortgage backed securities in this case) with an objective to pour the financial markets with liquidity.
    However, the current spates of reducing key interest rates have already strained the currencies worldwide. Historically, financial crisis have always caused debasement of the currencies. Currency debasement is the term used to indicate the revaluation of the currency due to a decline in its purchasing power.
    As the paper currencies lose their purchasing power, gold prices could rise further as gold is looked as a financial constant that can gauge the real value of currencies. A deteriorating faith of investors in the paper currencies would further brace up gold's status as a refuge in uncertain times.
    The lead chart (see The Golden Egg) compares the performance of major currencies against gold since 1999 with prices indexed to 100. The yellow metal has clearly shown a gain in its purchasing power, while leading currencies like dollar, euro and pound have fallen.
    Looking at the gold total demand in last few years, there has been a clear shift in demand distribution. While fabrication demand is on a decline there has been a significant rise in investment demand. Fabrication demand includes consumption of the metal in jewellery and industrial usage. Investment demand comprises of retail purchase of bars and coins of the bullion and more recently the ETFs (Exchange Traded Funds) and similar products. The Shining Armour
CONSUMPTION in jewellery, which traditionally constituted more than 70% of total demand, has seen a continuous decline since 2005, since gold prices breached the $500 an ounce mark.According to data available from World Gold Council (WGC), in last five years (2003-2008), the jewellery demand has declined by a compounded annual growth (CAGR) of 3%. This decline has been more than offset by the investment demand, which grew at a CAGR of 26% during this period. Bar and coin retail holding, in 2008, has shown a massive growth of nearly 43%, to 637 tonnes, while ETF demand rose by 27%.
    Developments in supply side also indicate that higher prices followed by global financial turmoil have caused a swing in traditional trends. In last five years official sector sale, which include sales from central bank and monetary authorities like IMF, has experienced a decline at a CAGR of 15%. Conversely, due to higher prices, the scrap supply has increased at a CAGR of 4%. Last year, the official sector sale of gold came down by 44% whereas the scrap supply increased by 18%.
    There are also mounting expectations of a rise in central bank buying of gold as the monetary authorities try to regain the lost confidence and add some strength to their balance sheets.
    This could explain why gold prices shot up to $1000 an ounce in third week of February 2009 when the Central bank of Russia announced an addition of $1 billion in gold's share to its total reserves.
    In conclusion, fundamental developments indicate a brighter outlook for gold prices in coming months. Even as gold prices have seen wider swings due to fast changing dynamics and profit booking in last few months, the underlying uptrend seems intact. Considering the firm stance of US dollar, which is backed by cash requirement rather than strong economic conditions, is one hindrance that can restrict the rise of gold prices. There could be instances of a significant retracement towards $910-870 an ounce levels before international prices swiftly breach through a strong resistance range of $990-1030.
    devangi.joshi@timesgroup.com