Date : 01/09/2023

Relevance – GS Paper 3 – Indian Economy – Agriculture

Keywords – MSP, El-nino, Benchmark Price, Trade dynamics

Context –

In an effort to stabilize domestic rice prices and ensure food security within the country, the Indian government has taken a series of measures affecting rice exports. India, as a major global rice exporter with a 45% market share, has witnessed significant changes in rice production and trade dynamics recently.

Rice Production Estimates and Kharif Sowing:

According to the third Advanced Estimate from the Department of Agriculture and Farmers Welfare, rice production during the Rabi season of 2022-2023 declined by 13.8% compared to the previous season. This decline, resulting in 158.95 lakh tonnes, raises concerns over domestic rice availability. Kharif sowing data show a positive trend, with rice sown on 384.05 lakh hectares as of August 25, an increase from the same period last year. However, certain regions like Tamil Nadu face delayed sowing due to monsoon shortfalls, potentially affecting crop yields.

Rice Exports and Market Share:

India's role as the largest rice exporter globally, contributing 45% to the world rice market, underscores its significance in international trade. Despite recent export restrictions, rice exports in April-May 2023 exhibited a growth of 21.1% compared to the previous fiscal year. Notably, both Basmati and non-Basmati rice exports witnessed positive trends, with Basmati rice seeing a 10.86% increase and non-Basmati rice shipments growing by 7.5%. However, these positive export trends coincide with governmental measures aimed at controlling rice exports.

Impact on Farmers and Government Policy:

In the context of rising rice prices and potential implications for farmers, the Indian government has implemented measures to address these concerns. Minimum Support Prices (MSP) for rice have been raised, ensuring that the prices farmers receive for their paddy exceed the MSP. This safeguards farmers' incomes and prevents steep price surges in the market. Additionally, restrictions on exports serve to stabilize rice prices domestically and maintain consistent availability. As a result, the combination of MSP adjustments and export controls provides a balanced approach to protect both farmers and consumers.

Exporter Perspectives -

Exporters in India, despite export restrictions, view the international demand for Indian rice as strong and competitive. The imposition of a 20% export duty on par-boiled rice hasn't deterred the market's attractiveness. Some suggest reevaluating export policies, proposing that rice classifications based on specialty and geographical indications could provide more nuanced management strategies. However, Basmati rice exporters express concerns about limited demand impacting farmers negatively. As global rice markets evolve, India's role as a significant exporter is expected to persist, with the prospect of market trends influencing policy decisions.

Recent Actions by the Indian Government on Rice Exports:

• As part of its efforts to stabilize domestic rice prices and uphold food security within the country, the Indian government has undertaken several measures regarding rice exports:

• Prohibited the export of white rice.
• Imposed a 20% export duty on par-boiled rice until October 15.
• Allowed the export of Basmati rice for contracts valued at $1,200 per tonne or higher.

Export of Broken Rice:

• The export of broken rice has been restricted since the previous September. Nevertheless, there is a provision for its export based on government-granted permission to countries seeking to address their food security requirements. Such allowances are made in response to specific requests from other governments.

Increase in Minimum Support Price (MSP):

• To safeguard the interests of farmers, the Indian government has raised the Minimum Support Price (MSP) for rice. Consequently, the price at which rice millers procure paddy now surpasses the MSP. This measure ensures that farmers will not experience a decline in prices for their produce.

Basis for Government's Actions:

Impact of Monsoon and El Nino:

• The government's recent decisions are rooted in the potential challenges posed by factors such as deficient monsoon rainfall, particularly in states like Uttar Pradesh, Bihar, Jharkhand, and Gangetic West Bengal. This deficiency could lead to a significant reduction in India's rice production. The anticipated impact of El Nino further compounds concerns, potentially affecting the arrival of new season crops.

Depletion of Rice Stocks:

• While the rice stockpile stands at a comfortable 40.99 million tonnes (mt), there is a cautious approach due to the possibility of these stocks diminishing if the kharif harvest falls below expectations. The government's apprehension is intensified by the necessity to maintain the free-foodgrains scheme (Pradhan Mantri Garib Kalyan Anna Yojana) amid political pressures.

Anticipated Outcomes:

Stabilizing Rice Prices:

• The restrictions on rice exports are intended to mitigate the likelihood of sharp price increases within the market. By controlling exports, the government aims to maintain a stable pricing environment for rice.

Enhanced Returns for Farmers:

• With the government establishing a higher benchmark price, farmers stand to benefit from improved prices for their produce. This adjustment in benchmark prices offers a positive outcome for farmers' economic well-being.

Securing Availability and Price Stability for Consumers:

• Though a slight uptick in rice prices is observable in the current context for domestic consumers, the longer-term perspective holds promise. The export limitations work in tandem with other measures to ensure a consistent supply of rice and prevent unwarranted price escalation, thereby maintaining stability in the market.

Conclusion:

The Indian government's recent measures to regulate rice exports reflect its commitment to maintaining domestic food security and stabilizing rice prices. Despite challenges in rice production due to factors such as monsoon shortfalls, India's position as a major global rice exporter remains strong. While export restrictions have been implemented, they coexist with increased Minimum Support Prices for farmers and measures to balance domestic supply and demand. Exporters acknowledge the competitive value of Indian rice in the international market, suggesting potential areas for refining export policies. As market dynamics unfold, the influence of these measures on Indian farmers, exporters, and the broader rice market will become more apparent.

Source – The Hindu