Date : 31/10/2023

Relevance: GS Paper 3- Economy - Agriculture

Keywords: Minimum export price (MEP), Implicit tax, FPO, Agrimarket, Export Policy

Context-:

• A significant example of India's export policies is the limitation imposed on the export of basmati rice. To control the export of this premium rice variety, the government has established a minimum export price (MEP) of $1,200 per tonne. Over the last five years, India has consistently exported around 4.5 million tonnes of basmati rice annually.
• The Government imposes a minimum export price of $800 per tonne of onion till December 2023.
• Prior to this, the Government suddenly imposed restrictions on wheat export in 2022 during the Russia- Ukraine war.

Unintended Consequences:

Impact on Farmers

• Punjab and Haryana are the primary producers of basmati rice, and wheat, and the imposition of the $1,200/tonne MEP has adversely affected farmers in these regions. In many agricultural markets (mandis) of Punjab and Haryana, traders have been hesitant to purchase basmati rice due to the high export price.
• As a result, farmers have faced lower prices for their produce compared to when exports were more open. This has, unfortunately, left farmers in these states as the ultimate losers in this situation.

Strengthening Competitors

• Beyond the domestic impact, India's restrictive export policies have created opportunities for its competitors. By setting a high MEP for basmati rice, India risks losing its export markets to countries like Pakistan, the primary competitor in basmati rice production.
• This raises questions about whether such a policy is a conscious decision and whether policymakers are fully aware of the damage caused to India's agricultural exports.

A Broader Scope of Export Restrictions

• Rather than overcoming the shortfall in public procurement by increasing the procurement price and buying more, the Government has allowed traders to build up stocks of Rice and wheat.
• The benefits from future sales (domestic or in the export market) are thus likely to go to traders rather than farmers.

Impeding the Goal of Doubling Agri-Exports

• The Indian government has set a target to double agricultural exports, but this objective seems elusive due to the prevailing restrictive export policies.
• In 2013-14, under the UPA government, agricultural exports reached $43.27 billion, marking a substantial increase from $8.67 billion in 2004-05 when they assumed power.
• The current trajectory suggests that India may not even reach $50 billion in agricultural exports by 2023-24.

Urban Consumer Bias and its Impact on Farmers

• The export policies seem to favor domestic consumers over farmers, reflecting an urban consumer bias.
• Such policies inadvertently impose an "implicit tax" on farmers, undermining their livelihoods.
• This approach is not conducive to designing effective agricultural export policies. Export markets are essential for the agriculture sector, and they require consistent development and maintenance over time.

Need for a Balanced Approach

implement targeted domestic income policies:

• To address the needs of domestic consumers, it is important to implement targeted domestic income policies that assist vulnerable sections of society.
• In a country where poverty affects approximately 15% of the population, and over 800 million people receive free wheat and rice, the imposition of a high MEP for basmati rice appears counterproductive and detrimental to the interests of farmers.

Agricultural Competitiveness and Investment

• Competitiveness in agriculture depends on increasing productivity, achieving more with less, and fostering innovations. This necessitates significant investments in agriculture research and development (R&D), quality seeds, irrigation, fertilizers, and improved farming practices, including precision agriculture.
• Currently, India's investment in agricultural R&D hovers at around 0.5% of the agricultural gross domestic product (GDP), which is insufficient to drive growth and competitiveness in the sector.

Balancing Populism and Agriculture

• ○ A more balanced and stable export policy is essential to foster growth and expansion in the agriculture sector. India is currently the world's largest exporter of rice, accounting for approximately 40% of global exports in 2022-23.
• India's agricultural sector faces a challenge where populism during election times often results in increased subsidies for both consumers and farmers.
• These subsidies, including significant food and fertilizer subsidies, loan waivers, and free power, strain the national budget.
• While these measures may yield short-term political benefits, they have long-term implications for the health and competitiveness of the agricultural sector.

Optimizing Agricultural Investments

• To ensure that investments in agriculture yield significant returns and enhance competitiveness, a substantial increase in funding for R&D, modern farming techniques, and infrastructure is essential.
• The current level of investment is inadequate to transform India into a global agricultural powerhouse. Balanced and strategic allocation of resources is imperative to bolster the sector's productivity and international competitiveness.

Way Forward

• Empowering Farmers for Quality Improvement: Farmer empowerment is essential for adhering to export standards and compliances. Engagement with Krishi Vigyan Kendras can disseminate export-focused technology and create awareness among farmers about export opportunities.
• Elevating Infrastructure Status: Grant infrastructure status to agricultural value chains, including warehousing, pack-houses, ripening chambers, and cold storage. This upgrade facilitates better storage and transportation, ensuring the quality of agricultural products.
• Branding Export Clusters: Unorganized marketing and branding support in export clusters (e.g., Nagpur for Oranges) hampers international market entry. Branding can simplify access to global retail chains, promoting cluster-specific products.
• Promoting Niche Indian Products: Leverage traditional wisdom and nutritional value of niche Indian food products, such as indigenous millet variants, fruits, rice, and oilseeds. These unique offerings are attractive choices for export markets.
• Connecting to Global Value Chains: Establish links between Farmer Producer Organizations (FPOs) and global value chains and importers. This connection enhances understanding of quality requirements and assures importers of compliance with standards.
• Facilitating Bilateral Trade and Sectoral Agreements: Secure favorable tariffs for India's agricultural exports through bilateral trade agreements. Address non-tariff barriers like quality and testing protocols and attain fair trade certifications for Indian exports.

Conclusion

India's agricultural export policies, particularly the imposition of minimum export prices, have far-reaching implications for the farming sector, domestic consumers, and India's competitiveness in the global agricultural market. A more balanced and forward-thinking approach is needed to foster growth, empower farmers, and maintain India's status as a key player in the global agricultural arena. To meet the goal of doubling agricultural exports and ensuring food security for all, policymakers must prioritize comprehensive reform and long-term sustainability over short-term populism.

Source: Indian Express