India Spinning Out Of Control

The Indian government has put a 12-month waiver on the 70% import tax imposed on certain types of rice, in an effort to encourage more imports following reports that this years summer-sown rice crop would decline by 15-16 MMT, or around 18%, on last year's output.

The move is just the latest by a desperate government to stave off spiraling food price inflation.

Having already tinkered with regulations on sugar stocks - "to prevent hoarding" - the government finally announced last week, after months of badgering, that they would invite tenders for state-owned wheat stocks. What surprised the market was that, despite supposedly having 30 MMT of wheat in store, the government wanted levels substantially higher than existing domestic prices.

Today, Farm Secretary T. Nanda Kumar, has boldly announced that the country is targeting to produce 82 MMT of wheat in 2010 (planting begins in November). He didn't provide any details on exactly how India would pull off this coup following the country's worst monsoon rains in 37 years this summer.

As food security becomes more of an issue in the world's second most populous country local businesses are eying other countries ambitions abroad.

The Solvent Extractors’ Association (SEA) of India, a body of over 800 edible oil producing companies, is urging the government to follow China's lead and buy land abroad for food production.

They fancy South America where, they say, the cost of land is far cheaper than in India's breadbasket states like Punjab.

After crude oil, edible oil imports are the largest foreign exchange drain in India. Imports of vegetable oils during November 2008 to September 2009 jumped 47% to 79,000 MT from 54,000 MT during the same period a year ago.

The SEA would like the government to "smooth" a USD85 million loan from the Exim Bank of India to facilitate the purchase of an initial tranche of 10,000 hectares of productive land in Paraguay and Uruguay.

The government however don't seem to be listening, preferring to keep their money in their pockets, their grain under lock & key and believe in their own spin on food stocks & production estimates.