Why Maize is Become So Expensive?

Why Maize is Become So Expensive?

Since September 2019 maize (corn) prices in India is hiked by nearly 2 folds.
In October 2018 prices of maize was maintained between Rs. 12 to 13 but suddenly it went up by Rs.3 in December 2018 and on January 2019 it reached to Rs.17. The price rise was not sustained and in April it again jumps to Rs.24.
For poultry farmers and feed millers, it is really become a matter of concern because margins on finished products get significantly reduced and it is now become difficult to remain in the business in the long run.
Layer and broiler feed prices rise by nearly 30% in the last 8 months which impact the industry in terms of quantity and quality of production.
Certainly up to 2017, India was count as an exporter of maize (corn) and nearly 14% of produced maize was exported but suddenly in 2018 India starts importing maize.
No doubt importing anything which is easy to produce in a the country could have significant economic percussions.
We have imported 1 lakh ton maize in November 2018 and recently on 19 September 2019 import permission for 4 lakh ton additional maize is also granted.
What is happening in this sector is a matter of deep investigation so that we can understand the whole picture and then accordingly take decisions for investments and poultry business expansion.

Main Question is Why There is Such Increase in Maize Prices?

To understand this question we have to understand certain basic things regarding maize.

First Question is why Maize is so Important?

Maize is the main ingredient of animal feed whether it is poultry or dairy
Maize contributes around 60% inclusion in feed formulations

Reason for such high inclusion are the following:

Maize is the most energy-rich ingredient (3330Kcal ME per Kg): part of high energy feed
Worldwide maize can be easily grown and its productivity is very high
Worldwide it is cheaply available and doesn’t compete with human food directly
High energy dense ration could be formulated which can sustain faster growth
In western countries like US, Latin America & also in china its production is very high
Most of production and nutrition research is done on maize
Animal protein developed through maize feeding is cheapest

World Corn Production

The US is number 1 in maize production followed by china then Latin America.
In 2018-19 US produces nearly 366 million tons of maize and China produces around 257 million tons.
Global maize production prospects are very high which may cause trade imbalance in South Asia.

Maize Dominance in the US and China Feed Industry

Due to the highest maize production in US & China, there the feed industry is usually dominated by maize.
In the latest updates, among all grains, the US used maize to the tune of 96% in 2018-19.
China mainly uses maize in its feed industry but now due to ongoing trade war with the US, some shift in basic feed ingredients could be possible. China begins using feed wheat also.

What is in Europe?

The European feed industry is dominated by 3 grains
Wheat > Maize > Barley
Feed standard based on wheat is quite developed in Europe
In Europe, feed wheat variety is different than used for human consumption
Breeds in Europe are also developed keeping this in mind as wheat has lesser energy
In India, the use of wheat in feed is not popular because of its human consumption

Reason for Wheat Growth Around the World

Global wheat consumption in the current 2016/17 season is forecast to reach a record-high 736mt, showing a growth of 25% in the last 15 years.
This raises the question which outlets the wheat is going into, what the growth of these outlets is, wheat used for feed, which showed decent growth over the past years but might run out of steam in the next few years.
More than two-thirds of global wheat is used for food, 20% is used for livestock feed and another 3% to 5% each for seed, industrial use and other uses

Maize Production in India

India is one of the top 10 maize producers in the world; it contributes around 2-3% of the total maize produced globally.
One of the top-5 maize exporters in the world contributing almost 14% of the total maize exported to different countries
South-East Asia is the biggest market for Indian maize
After rice and wheat, maize is the third most important field crop in India.
Kharif (June-July) is the most important season covering around 80% of the total area of maize in India. This season contributes around 70% of the total Indian maize.
Rabi is the second most important season that covers around 15% of the total area of maize.
The yield for maize crop varies by the region where climatic conditions are different, e.g. Rabi maize produced in Andhra Pradesh and Bihar has a higher yield than what Kharif farmers get elsewhere.
The total cultivated area of maize in India is over 9.0 million ha (2013-14), 10 states in India represent around 80% of the total area of maize grown.
Karnataka (15%) is the largest state for maize cultivation followed by Rajasthan (13%) and Madhya Pradesh (10%).

Irrigated Vs Non-Irrigated Maize

Almost 75% of the total area of maize grown in India is not irrigated, monsoon plays a major role.
If we compare the top ten maize acreage states of India, only Uttar Pradesh irrigates more than 50% of its total maize area.
For the remaining top ten states, the incidence of irrigation is below 35%, except Andhra Pradesh where 38% of the maize area is irrigated.
In states like Rajasthan and Madhya Pradesh which have 13% and 10% of the total Indian maize area respectively, the level of irrigation stands at 3% and 10% only.

Maize Usage in India

Maize is being used in different sectors and activities in India.
The biggest user of maize in India is the poultry industry with 47% of the share followed by direct consumption at 20%.
Other usages include cattle feed (14%) and starch (14%) followed by the food and beverage industry with a 7% share.

Maize Land Holding

The majority of maize farming (60%) is done by marginal farmers who have an acreage of less than 1 hectare.
Individual landholding in India is significantly smaller then the major agri-based countries
Bihar and Uttar Pradesh are states known for small landholdings, and these two states have 20% and 11% of the total number of maize landholdings in India respectively. The majority of these farmers are marginal farmers.

Low Maize Yields

Maize farming in India is important because it has a high export potential and a large population of marginal farmers are dependent on it.
Maize is also important for India as it is a component of the national food security programme.
Currently, Indian growers produce close to 24.2 million tonnes of maize per year from close to 9.0 million hectares of land. India’s yield of maize is approximately 3 tonnes per hectare which put India at 91st place out of 168 maize growing countries.
Countries like the USA, Argentina, Ukraine, China, Brazil and South Africa all have an average yield of more than 5 tons per hectare.
India has a lot of catching up to do; it has to increase its efforts to be close to the global average of around 5 tons
It is important for India to increase yields as large areas of the total available arable land and a high number of its population are dedicated to maize cultivation.
Improvement in yield will help to improve the social and the economic situation for the marginal farmers and bring in an increase in foreign reserves levels for India.

Causes of Low Maize Yields in India

Climate: Agriculture in India is mainly dependent on the monsoon and only 30% of the total land under maize cultivation is irrigated which affects the yield;
Small land holding: The majority of the land is held by marginal farmers with limited resources available, which means the use of modern technology and farm management tools are limited;
GMO seeds: There are strict regulations for GMO maize seeds, which are a key factor for higher yields in countries like USA and China;
Crop protection: There is generally a limited usage and awareness of crop protection technology.
Biotic stress: The maize plant is subjected to critical weed infestations, insects and diseases which significantly reduce overall yield. It is estimated that maize yield is reduced by around 25% because of the impact of biotic stresses.

Crop Protection for Maize in India

The use of crop protection products in India is lower when compared to major agri-based countries. The per capita consumption of pesticides in India is estimated at 0.6 kg/ha compared to 7 kg/ha in the USA and 13 kg/ha in China.
It is estimated that only 35-40% of the total Indian farmland has crop protection products applied to it.
Now maize production and its bottlenecks are now quite clear to us.

Now we have to see the present scenario.

Feed Sector in India

The Indian feed industry is presently growing at a CAGR of 8 per cent.
While the potential feed requirement is huge and stands at around 96 million tonnes, only 20.3 million tonnes were produced during 2012-13.
The feed industry requirements that are met with the compound feed is only 11 per cent for cattle, 14 per cent for aquafeed and 55 per cent for poultry feed.

Sector Wise Growth

The poultry industry has grown at an annual growth rate of 8 per cent from 2002 to around 2013.
Indian dairy sector has also been growing at a rate of 4 per cent annually.
Growth in these sectors has pushed up the demand for compound feed by 50 per cent.
Broiler feed constitutes a major share of animal feed industry consumption (45%) followed by cattle feed (36%), layer (14%) and aqua feed (5%).
Only about 11 per cent of cattle feed, 14 per cent of aqua feed and 55 per cent of poultry feed requirements are met through the compound feed.

What Is Present Situation Of Maize?

Asia’s second-biggest corn grower become its importer. Most supplies are likely to come from Myanmar and Ukraine
Chicken demand is likely to rise by about 5 per cent on the year to 5.1 million tonnes this year, due to a rise in chicken demand associated chicken feed demand increases
Attack of Fall Army Worm in 2018 reduces crop output by 5 to 8%.
Rising maize demand and reducing maize supply creates huge the gap which causes steep rises in prices in last year

Maize import has been increased many folds

India imports 1 million tons maize in November 2019 and recently clears restriction for importing additional 4 lakh tons of maize in 2019-20
This represented nearly 20% of the total maize production in India
It also represents nearly 40% of total maize utilized in the animal feed industry

What is Fall Army Worm?

It’s a crop insect first time seen in 2018 in Karnataka and destroyed large swaths of maize crop
Within in a year it spreads all over India including north east and northern India, as it can fly up to 100Km in 1 night
In 2016, it spreads in half of African continent and destroyed maize farming there
Now it is expected that expenditure to control FAW will increase due to extra inputs like pheromone traps, biological control methods and more pesticides
All these inputs attract high GST charges to the tune of 18% that will surely increase the cost of production
In future, it will be difficult that we again see maize at Rs.13/Kg

Unpredictable Monsoon!

It is important to note that 70% of Indian agriculture is monsoon based
Any discrepancy in monsoon going to impact crops around the India and could bring troubles for the farmers as well as for the country
This year also monsoon arrival was delayed by 2 weeks at central India and June was ended with 33% monsoon deficiency
But now the picture is altogether different as the country stands 5% excess rains (more rains in less time causes more damage)

What now? Maize Puzzle!

According to cogenics due to arrival of new maize in October prices would down slightly but not reach to the previous Rs.13/Kg
But in long term cogenics estimates that this year (2019-20) country maize production 16.1mt for Kharif season, which is 70% of whole year production. In that sense, the country would not see 20mt in year 2019-20.
Government estimates were 19.1mt maize in this season, that is why gov open up imports.
Although imports are good for immediate relief in the long term some sincere efforts has to be made to restore maize the production which is important part of the agriculture sector in India.
One thing is sure that changing climate patterns poses new challenges in the form of diseases and pests and in India animal protein is certainly going to be costly due to increasing input costs. In such conditions, small farmers would see more burnt of this tragedy.
Only large production conglomerates, integrators would survive best.
Small farmers should be integrated themselves and start reducing feed cost by making their own feed and running their own hatchery.

Changing winds

As I said in opening slides that European countries wheat is used for feed and in the last few years of wheat’s trend has risen
Whatever be the reasons for this change but it seems good because solely depending on one the crop is not at all wise for us
Diversity saves us from unwanted and unpredictable future
Also in India we are seen changes due to maize price rises
According to the CLFMA, bulk buyers have procured 300,000 tonnes to 400,000 tonnes of wheat this year
However due to halt in maize supply domestic wheat (& flour) prices rises by approx. 20%. Shifting on wheat would not be easier for Indians.
In short, we can say that in future if we depend upon our domestic maize production then it would be difficult of us to again achieve previous prices of maize i.e. Rs. 13 per Kg.

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