The glut of wine globally has affected many Indian farmers. Grape harvesters are now considering the option of either destroying their crop or selling their harvest at a much lower price
Throughout the world, there seems to be a glut of wine. On one side of the globe, in Australia, wine producers have been compelled to destroy nearly 40,000 hectares of vineyards, while in France, winemakers have turned their wines into ethanol. Even India’s wine-making pioneer, Indage Vintners, burnt its fingers when it tapped Australian and South African vineyards, leaving them severely leveraged.
Back home, the scenario is grim for Indian grape harvesters. A number of farmers are looking at destroying their crop, and a few are looking at selling their harvest at a much lower price than the market price.
“The supply and demand for grapes is the issue. The supply for grapes is abundant but there is no demand for them among winemakers,” says Violet D’souza, co-owner and managing director, Indus Wines.
Maharashtra’s grape cultivation has been steadily rising 10% every year, with currently over 3,000 acres under grape cultivation and making the State the largest contributor to the Rs 300-crore winery industry in the country.
Grape farmers are still awaiting their payments for their supplies to wineries last year. But what is even worse for these farmers this year is the fact that there are no buyers to buy their grapes. Wineries are not ready to buy the grapes due to the recession.
Many farmers have started selling their grapes to wineries on a credit basis in the hope of getting some cash in the future. Others have started selling their grapes at a price lower than the market price. “They are ready to do it because there are no takers and also they can’t be sold in the open market. The only ones, who can take their wines, are processors but they are not willing to do it,” says Nerraj Agarwal, head of agriculture, Sula Wines.
According to Ms D’souza, many farmers have given up hopes and are considering destroying their acres of land and cultivating new crops. “Nearly 40% to 50% of farmers have given up on their vineyards and switched over to other agriculture produce,” she said. Farmers are switching over from wine variety grapes to table variety grapes.
Farmers who have not signed any contracts with companies are the ones enduring the pains of the current scenario. “The very serious farmers will sustain and keep it going and the others might destroy their grapes,” said Ms D’souza.
Considering the circumstances Indage Vintners is facing, the only notable brand making its presence is Sula, which has been coming out with cheap and affordable wines. However, even Sula is suffering, according to a producer in the region whom Sula has approached to buy their grapes.
With the current state of affairs, state intervention seems to be a likely solution. “I have been told that some associations and farmers are planning to take these issues to the State government,” said a senior official from a major wine-making company.
That being said, this seems to be an error made by the government itself. Seduced by the promise of lucrative returns, mixed with glamour and agriculture, and added to the fact that some political heavyweights are involved in the industry, the government gave out incentives lavishly to the sector.
With concessions like zero excise duty, no stamp duty & registration fees, and concessional rates for land, the sector was expected to grow. The Maharashtra Industrial Development Corporation (MIDC) was appointed by the State as an agency to develop winery parks in Sangli and Nashik.
Retailing for wine became a lot easier when wine and beer licences were made available both for individual retailers and supermarkets. Then, just ahead of the State Assembly elections, the Congress-NCP government became more generous by reducing value added tax (VAT) to 4% from 25% on wine last October.
Out of the 58 wineries in the State, more than half have either shut down or stopped producing wine due to the glut in the market. In the last week of November when Moneylife had contacted Sula Wines, the winery still had over 40%-50% of its wine lying unsold in its tanks, while Indus Wines has around 90% of its wine still in its inventory. (http://www.moneylife.in/article/4/2543.html). The market for wine before 2007 was growing at 28%. Ever since 2008, the market has come down by 30%.
With the government set to garner more revenues than expected from the 3G and BWA auction and its disinvestment programme, it may be able to rein in the fiscal deficit to 5.5%, a level not seen after FY07
The robust response to the Indian government's plan to auction the 3G spectrum and broadband wireless access (BWA) and disinvestment is likely to help the government to rein in the rising fiscal deficit. India commenced the auction for 3G and BWA on 9th April and set itself a target of Rs35,000 crore as the spectrum licensing fees. On Wednesday, the provisional all-India 3G bid price reached Rs11,047 crore, an increase of 213% over the base price of Rs3,500 crore at the end of the 128th round. With no excess demand in any of the total 22 circles and the activity level set to reach 100% in round 132, the auction may end on Thursday itself. With the provisional figures, the government is set to garner a minimum of Rs45,000 crore as against its target of Rs35,000 crore. This is just from the 3G auction. With the 3G auction bid crossing Rs11,000 crore, the government may receive about Rs15,000 crore from the auction for BWA, which will begin in two days after the close of the 3G auction. In short, the government may earn about Rs60,000 crore from the 3G and BWA auctions alone.
Similarly, the government can earn about Rs40,000 crore by selling its stake in 10 more units this year including Indian Oil Corp (IOC), MMTC Ltd, Coal India Ltd, Steel Authority of India Ltd (SAIL), Rashtriya Ispat Nigam Ltd (RINL) and Shipping Corp of India Ltd (SCI).
According to a PTI report, Sidhartha Pradhan, joint secretary in the disinvestment ministry, had said, "Engineers India is likely to be disinvested in June; Coal India in August; Hindustan Copper in August-September; SAIL in September and Power Grid in November this year."
This would be followed by disinvestment in IOC and Manganese Ore India Ltd in December, RINL in January 2011, MMTC Ltd in February and SCI in March next year, he added.
The government expects to earn Rs40,000 crore by selling its stake in the State-run companies. During FY10, the government earned Rs25,000 crore by divesting its stake in Oil India Ltd, iron ore miner NMDC Ltd, Rural Electrification Corp Ltd (REC) and power producer NTPC Ltd.
Together, the government may earn Rs1 lakh crore, from the 3G+BWA auction and disinvestment. For FY11, the government needs to borrow about Rs4.57 lakh crore from the domestic markets to fund the fiscal deficit at a time when the credit needs from the private sector are rising.
During FY10, India's fiscal deficit that measures excess expenditure of the government over its revenues rose to 6.7% of gross domestic product (GDP). This was mainly due to the stimulus provided by the government to reduce the impact of the global slowdown. India has already started withdrawing the stimulus by increasing excise duty and duties on fuels.
Prime minister Dr Manmohan Singh, while speaking at the platinum jubilee celebrations of the Reserve Bank of India (RBI) in Mumbai had said, “We allowed a large increase in the fiscal deficit in the past two years as we responded to the global economic crisis. This must now be reversed. We are therefore, firmly committed to bring the economy back to a fiscally sustainable path. This involves a reduction in the fiscal deficit to 5.5% in 2010-11 from 6.8% of GDP in 2009-10 with a further reduction in the next two years reaching 4.1% in 2012-13.”
Dharmakirti Joshi, chief economist, CRISIL said," Divestment and 3G revenues are one time gain. To bring lasting fiscal benefits, the government will have to initiate steps such as decontrol of fuel prices, gradually withdraw stimulus and implement general sales tax (GST) as soon as possible."
Earlier, ratings agency Standard & Poor’s, while revising India’s outlook to ‘stable’ from ‘negative’, had said that the revision reflects its view that the country’s fiscal position could now begin to recover and the economy will remain on a strong path. S&P also affirmed 'BBB-' long term and 'A-3' short-term sovereign credit ratings on India. The ratings continue to be constrained by the high government debt burden and deficit, and India's weak fiscal profile, the ratings agency said.
“For the moment, the rub of the green seems to be going the government’s way: The ongoing 3G+BWA telecom auctions indicate that the government should be able to garner about Rs8,000 crore to Rs10,000 crore more than its target of Rs35,000 crore, which would help alleviate some of the resource crunch. Also, the IMD has forecast that the monsoon will be normal, helping tame food inflation which at present is at 17%,” said Enam Securities Pvt Ltd, in a note.
Inflation has remained a major concern for the RBI. The central bank, in its annual monetary policy review, hiked the repo, reverse repo and cash reserve ratio (CRR) by 25 basis points each. By increasing the key rates and CRR, the RBI has reinforced its stance of containing inflation and anchoring inflationary expectations.
"If government gets the resources from 3G and divestment as expected, fiscal deficit and hence government borrowings will remain within target. This will lower the pressure on government bond yields and make RBI's task of smoothly conducting government program easier," Mr Joshi added.
With the government set to garner more revenues than expected from the 3G and BWA auction and its disinvestment programme, it may be able to rein in the fiscal deficit to 5.5%, a level not seen after FY07.
We may witness a minor rally on domestic bourses
The market was down to its two-month low as the Greece debt crisis sent jitters among investors. The Sensex ended at 16,987, down 100 points (0.6%) and the Nifty ended at 5,090, down 34 points (0.6%). The bourses were down in the early session on weak global cues. However, they staged a strong recovery in the afternoon session. At the late trading session the market slid to pare some of its gains posted in afternoon trading.
Asian stocks was down on Thursday on concerns that the Greek deficit crisis may spread through Europe after Moody's Investors Service placed its credit rating for Portugal on a review for a possible downgrade. Key benchmark indices in Hong Kong, Indonesia, Japan, South Korea, Singapore and Taiwan fell by 0.5% to 3.27%. The Shanghai Composite lost 4.11%.
US stocks were down on Wednesday on concerns that the Greece debt crisis could spread to bigger European economies. However, generally positive data on the US private sector job market and the economy's services sector limited the slide. The Dow was down 58 points (0.54%) to 10,868. The S&P 500 fell 7.7 points (0.6%) to 1,167. The Nasdaq Composite lost 22 points (0.9%) to 2,402.
Fed Chairman Ben Bernanke will speak today at the Chicago Fed's 46th annual conference on bank structure and competition. The US weekly jobless claims data and April sales reports from chain stores is also due today. The European Central Bank is likely to hold interest rates at existing levels. European laws prevent ECB to buy government bonds directly from the government; however, it can buy second-hand bonds from the banks.
The wholesale price index is expected to fall 6%-7% within three months, the finance ministry's chief economic adviser said on Thursday. India’s annual wholesale inflation rose to 9.9% in March, compared with the 9.89% rise in February and 1.2% a year ago. The food price index rose 16.04% in the 12 months to 24th April, slower than an annual rise of 16.61% in the previous week, government data showed on Thursday. The fuel price index rose an annual 12.69%, same as the week ago.
Wheat stocks have increased more than seven times the target; however, the ban on wheat exports is still on. Wheat stocks on 1st May were at 30.8 million tonnes (MT). The government has decided to give 3MT of subsidised grains in aid to states for the next six months.
Foreign institutional investors were net buyers purchasing stocks worth Rs1,589 crore. Domestic institutional investors also bought stocks of Rs691 crore. The rupee rebounded from its low on possible dollar selling by the Reserve Bank of India (RBI).
JSL (up 1.6%) plans to set up a 1320MW (660x2) super critical power plant at Luni, Orissa. D-Link (up 8.3%) has launched a green managed switch—the D-Link Green 24 port managed gigabit switch. EIH (up 1%) plans to acquire 45.85% equity in Amex Investment, through its international hotel joint venture company, EIH Holdings Ltd British Virgin Islands for $45 million.
IRB Infrastructure Developers (down 1.5%) has said that it has emerged as the preferred bidder for the design, build, finance and operation of the six-laning of the Tumkur- Chitradurga section from 75km to 189km of NH 4 in Karnataka. The project is on a premium basis with a concession period of 26 years. The company has to pay a premium of Rs140.40 crore for the project to the National Highways Authority of India (NHAI) in the first year.