Market Liberalizations in India

by Teresa Acklin
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Policy changes pave way for maize imports, feed industry expansion.

   The government of India recently has taken several actions that will open the door to maize imports and could encourage expansion in the country's feed industry.

   The government earlier this year liberalized its maize import policies, allowing private sector feed manufacturers to import maize without a license. The second action lifted monetary restrictions on capital investments by private poultry feed manufacturers, facilitating potential expansion in that industry.

   The liberalization of maize import policies could lead to annual maize imports of 200,000 to 300,000 tonnes over the next three to five years, analysts estimate. The last time India imported maize was in 1987-88 and 1988-89, when a total of 500,000 tonnes was imported on concessional terms following a severe drought, according to the U.S. agricultural attache in New Delhi.

   Before the liberalization, imports were limited to “feed grade” maize and had to be channeled through government agencies to protect domestic producers. Both requirements resulted in what was, in effect, an import ban.

   With the change, the private sector may import maize for use in the feed and poultry sectors without a license. Imports are subject to “actual user condition,” which means the maize must be used in the feed sector, and letters of credit for imports must be registered with a government-run company that will monitor imports.

   While the remaining conditions mean imports are not completely open, the change represents significant liberalization. The action follows several years of efforts by India's poultry industry and U.S. maize exporting interests to open the market for imports.

Growing Feed Demand

   Since 1990, India's annual maize production has hovered between 9 million and 10 million tonnes. Planted area has increased by about 3%, with variable, but largely unchanged yields.

   At the same time, demand from the poultry, starch, and to a lesser extent dairy sectors has put increasing pressure on local supplies and prices. While domestic maize is still used primarily for food, increasing amounts have been bid away for feed use, with maize consumption for feed increasing to 3.5 million tonnes in 1996-97 from 2.2 million just six years ago.

   But growth in feed use has been hampered because large feed and poultry producers have faced difficulties locating adequate maize supplies during the months leading up to harvest. At those times, wholesale prices have often climbed to the equivalent of U.S.$150 to U.S.$157 a tonne. Access to imported maize could help lower feed costs, which make up 80% of poultry production costs.

   India's broiler industry has experienced several years of rapid growth, although growth slowed somewhat in the past year. Nonetheless, with annual per capita poultry consumption at a very low 0.6 kilograms, future growth potential is promising.

   Milk production has grown rapidly in recent years as demand for milk and milk prices have increased. Some companies see the dairy industry as also holding significant promise in the feed sector.

   India's total compound feed production currently is estimated at 5 million to 6 million tonnes in the "organized sector," which is dominated by a handful of companies using modern processing facilities. India also has hundreds if not thousands of small feed producers.

   India's recent budget "de-reserved" the poultry feed sector from the Small Scale Industry (S.S.I.) requirement. The S.S.I. requirement limited a company's capital investment to a fixed rupee amount, equivalent to about U.S.$280,000. De-reservation of the poultry feed sector lifts what had been an impediment to growth in the poultry industry.

Maize Import Prospects

   The poultry industry has begun to explore the possibility of imports, which could expand to 200,000 to 300,000 tonnes annually over the next three to five years. That number could climb even higher if domestic maize production falters in a particular year.

   A number of factors ultimately will be key in determining actual import volumes. For one, feed producers typically will look for imported maize that can be landed at Indian ports for less than the price of domestic maize. This would probably mean no more than U.S.$135 to U.S.$140 per tonne, C. & F.

   Vessel size and freight costs will be an issue, as many feed users are not likely to be able to accommodate 50,000 tonnes of maize at one time. Consequently, importers may seek smaller vessels with subsequently higher freight costs, or importers will have to work together to import one large cargo.

   Discharging large vessels requires extensive lighterage or mid-stream discharge at all but one Indian port. The one port with bulk unloading facilities usually uses the facilities for non-grain products — although this has changed with recent wheat imports — which could add to discharge costs.

   The “end-user condition” may make it difficult for traders to get involved in importing except as agents of end users. As a result, exporters will have to work with feed manufacturers who may not be fully familiar with international trading practices.

   Phytosanitary issues should not be a major problem because the imports will not be for human consumption.