Global Rice News

Given that multiple upcoming state elections are on the horizon, it is understandable that the Union government is making efforts to control food inflation. The government wants to avoid inflation becoming a major issue in the election campaigns. However, it is important to analyze how we can control food inflation and who will bear the cost in order to make rational policy decisions.

A prime example of this is the decision to limit the exports of basmati rice by setting a minimum export price (MEP) of $1,200/tonne. Over the past five years, India has been exporting an average of about 4.5 million tonnes (mt) of basmati rice per year. Basmati rice is a premium variety that is consumed by the upper middle class and affluent individuals in India. It is also exported to Gulf countries, some European nations, and the US. The main producers of basmati rice are Punjab and Haryana. The export price generally ranges between $800 to $1,000/tonne. By implementing an MEP of $1,200, the export of basmati rice is effectively restricted. If this MEP continues, it is highly likely that India’s basmati exports will experience a significant decline this year.

The impact of this restriction can already be seen in the mandis (wholesale markets) of Punjab and Haryana, where traders have shown reluctance in buying basmati rice. As a result, the prices for farmers have fallen compared to when exports were fully open. Ultimately, the farmers of Punjab and Haryana are the ones who suffer, while the urban residents with higher incomes benefit. Additionally, it is worth noting that developing export markets takes years of effort, and by maintaining such a high MEP, India is essentially handing over its export markets to Pakistan, which is the only other major competitor in the basmati rice market. Is this a deliberate policy decision? Do our trade policy makers understand the damage they are causing to agricultural exports? It is crucial to revisit and revise the MEP as soon as possible, ideally setting it at $800-850/tonne.

Unfortunately, restrictive export policies are not limited to basmati rice alone. They also apply to broken rice, non-basmati white rice, and parboiled rice through bans or export duties. What is needed is a stable export policy rather than knee-jerk reactions. India is known to be the largest exporter of rice globally, accounting for approximately 40% of global rice exports in 2022-23. Much of the non-basmati rice is exported to various African countries, which were caught off guard when India announced the ban on non-basmati white rice exports. This does not present India as a favorable leader of the Global South. The only saving grace is the provision in the export policy that allows the Indian government to consider requests from certain countries on a case-by-case basis. However, this is not an ideal way to design an export policy.

India’s restrictive export policies extend to other agricultural products such as wheat and onions. For example, there have been wheat export bans and a 40% export duty on onions. With such restrictive policies in place, it is difficult to envision how India can achieve its target of doubling agricultural exports, as set by the Union government. In 2013-14, the final year of the previous government’s tenure, India’s agricultural exports reached $43.27 billion, a significant increase from $8.67 billion in 2004-05 when the government came into power. This represents nearly a five-fold growth in 10 years! If the same momentum had been maintained during the 10 years of the current government, agricultural exports should have reached $200 billion. However, in reality, it may not even reach $50 billion this year. The primary reason for this failure is the restrictive export policies that prioritize domestic consumers at the expense of farmers. This bias towards urban consumers places a significant “implicit tax” on our farmers, which is not the right approach when designing agricultural export policies. Export markets are premium markets and require consistent development and maintenance over the long term.

If domestic consumers need to be supported, it should be done through a targeted domestic income policy that benefits only the vulnerable sections of society. According to the NITI Aayog’s multi-dimensional poverty estimate, the poverty rate in India is around 15%. Additionally, more than 800 million people receive free wheat or rice at a rate of 5kg per person per month. In this context, it is difficult to understand the logic behind imposing an MEP of $1,200/tonne on basmati rice and effectively giving away years of hard work by Indian rice traders to Pakistan. This is simply counterproductive.

Overall, it is important to recognize that agricultural exports also reflect the competitiveness of our agriculture sector compared to the rest of the world. Competitiveness is primarily driven by increased productivity and maximizing output with limited resources. This requires significant investments in agricultural research and development, seeds, irrigation, fertilizers, and improved farming practices, including precision agriculture. Currently, India’s investment in agriculture research and development (R&D), both at the central and state levels, is around 0.5% of the agricultural GDP. This is insufficient and needs to be doubled or even tripled immediately if India wants to become a major player in both agricultural production and exports. Unfortunately, populism often takes precedence, particularly during election periods, leading to additional subsidies for consumers and farmers. Furthermore, many states announce loan waivers, free power, and other forms of assistance.

In summary, there is no shortage of funds being allocated to agriculture or to ensure food security for consumers. However, the way these funds are being spent is not optimal. With such poorly designed policies, it is difficult to achieve maximum results. Policy makers often resort to competitive populism, believing that it will help them win elections. While they may succeed in the short term, they cause significant damage to the overall health and competitiveness of the agricultural sector. A nation’s power is reflected in its ability to innovate, produce, and export competitively priced goods to the world. Can India rise to this challenge?

The author is a distinguished professor at ICRIER. The views expressed in this article are personal.

Source: https://www.financialexpress.com