RL Stevenson said “man is not truly one, but two”. He could as well be speaking of the soyabean. The soyabean is Nature’s way of packaging a handy mix of fat and protein. Unfortunately, in India, their fortunes rarely go hand in hand. And this has left soyabean with a Dr-Jekyll-and-Mr-Hyde type of personality.
India allows free import of soyabean oil to keep a lid on consumer prices. This ensures that the oil is cheaper or aligned with the international price of soyabean oil. Since the world currently has record supply of soyabeans, and there is plenty of oil available, both the international and domestic prices of soya oil are nothing to write home about.
But the price of oil decides only 20% of a bean’s value. The rest comes from the price of protein or soyameal, fed to milch cows and chickens. With each tonne of crude soyabean oil comes 4.5 tons of soyabean meal. And in India, meal is the bean’s darker side.
India does not allow duty-free import of soyameal. It also bars meal from genetically modified soyabeans, which disqualifies US and South American supply. The demand for protein to feed dairy and poultry animals is growing faster than the supply of local meal. Together, they allow meal to command monopoly prices.
So, while the world market for meal is presently ruling in the range of $366/tonne, Indian meal has become an island of prosperity with twice that price. And this is pulling up beans.
Who gains from this? Farmers are certainly enjoying the party. Being savvy businessmen, they have understood that meal calls the shots, though oil may hog the headlines. As long as the price of meal is high, beans will be profitable. Price signals from futures trading in Mumbai and Chicago tell them exactly what lies ahead. And the bean’s long shelf-life takes away the urgency to immediately sell off the harvest.
Putting two and two together, farmers have adopted a unique just-in-time delivery model that gives them power over the processing industry. They hold on to the harvest for the entire marketing year, and ration bean supply so that prices remain buoyant throughout. Though this means paying the cost of storing the beans for such a long time, the returns are usually worth it.
Take the current scenario. The soyabean marketing season started on October 1, 2014 and will go up to September 30, 2015. Farmers know that the soyabean crushing industry usually uses about 3.25-4 lakh tonnes beans a month. So, each day they are only selling around 10,000 tonnes. This slow pace doesn’t allow mills to stock up on raw material. Instead, they continue scrambling for beans, which keeps prices high.
Will the trickle of supply ever become a flood? The crop estimates for 2014-15 provide no easy answer. They range from 10 million tonnes by industry body SOPA to 9.8 million tonnes by the $A and 8.5 million tonnes by local brokers. But past experience has shown that farmers are motivated to stock or sell beans only by the price signals they get and not absolute crop numbers. Cut off the price signals, and you cut off their life line.
This selling behavior has got the soya industry in a tizzy. They are enjoying high domestic prices of meal but ruing the missed export opportunity. Exports were down 77% in 2014-15 over the previous year due to stiff competition overseas and remain lacklustre. The animal feed industry is miffed by the steep rise in meal prices.
Both are suffering the result of the closed trade policy. As long as local feed industry has no choice, Indian soyabean meal will remain expensive. That in turn will pull up beans. And, therefore, unless there is a global shortage of beans, our soya meal will never be competitive overseas. Farmers are simply making hay while the sun shines.
Free trade is clearly the answer. But in which part in the chain? The animal feed industry wants duty-free import of meal, without any restriction on GM. This is opposed by soya processors, who see it as a kick below the belt. Instead, processors would like free import of soyabean, which makes farmers face more competition, but are afraid of political backlash. They needn’t worry.
Unlike industry, farmers have always been subjected to perfect competition – from fellow farmers in the mandi and foreign farmers through free trade in oil – and acquitted themselves creditably. If the soya industry helps them increase productivity and grow more beans, they will gladly learn. If not, they will shift to another crop. Soyabean’s split personality has taught them how to use the tools of modern markets to gain power and wrest control. The really big question is will industry, and indeed the policy makers, ever know their own mind.