Global Rice News

Given that a number of state elections are approaching, it is understandable that the Union government is taking steps to control food inflation. The government aims to prevent inflation from becoming a major issue in the election campaigns. However, it is important to analyze how to control food inflation and who bears the costs in order to formulate rational policies.

One classic example is the restriction on basmati rice exports through the implementation of a minimum export price (MEP) of $1,200/tonne. India has been exporting an average of 4.5 million tonnes of basmati rice per year over the past five years. Basmati rice is a high-quality rice consumed by the upper middle class and wealthy individuals in India. It is exported to Gulf countries, some European nations, and the US. Punjab and Haryana are the primary producers of basmati rice. The export price usually ranges between $800 and $1,000/tonne. By setting an MEP of $1,200, the export of basmati rice is significantly restricted. If this MEP continues, India’s basmati rice exports this year are expected to experience a sharp decline.

Traders in many markets in Punjab and Haryana have been hesitant to buy basmati rice due to these restrictions, which has led to lower prices for farmers compared to when exports were allowed without limitations. Ultimately, the farmers in Punjab and Haryana are the ones who suffer, while the upper-income residents of India benefit. It is important to note that developing export markets takes time, and with such a high MEP, India is essentially ceding its export markets to Pakistan, which is the only other major competitor in basmati rice. This raises questions about whether this restrictive policy is a conscious decision and if trade policy-makers understand the potential harm to agricultural exports. There is a compelling need to review and revise the MEP as soon as possible, ideally setting it at $800-850/tonne.

However, restrictive export policies are not limited to basmati rice. They also affect broken rice, non-basmati white rice, and parboiled rice through complete bans or export duties. What is needed is a stable and well-designed export policy, rather than knee-jerk reactions. India is globally known as the largest exporter of rice, accounting for approximately 40% of global exports in 2022-23. Many African countries rely on India for non-basmati rice, and they faced difficulties when India banned exports of non-basmati white rice. This does not portray India positively as a leader of the Global South. The export policy includes a clause stating that if certain countries write to the Government of India, their requests can be considered on a case-by-case basis. This is not an ideal approach to designing an export policy.

India’s restrictive export policies also extend to wheat exports, imposing a 40% export duty on onions, and more. With such restrictions in place, it becomes challenging to achieve the goal set by the government to double India’s agricultural exports. In 2013-14, during the last year of the previous government, India’s agricultural exports reached $43.27 billion, a significant increase from $8.67 billion in 2004-05. This represents almost a five-fold growth in 10 years. If the same momentum had been maintained during the current government’s tenure, agricultural exports should have reached $200 billion. However, in reality, it is projected to be less than $50 billion this year. The main reason for this failure lies in restrictive exports that prioritize domestic consumers at the expense of farmers, resulting in an implicit tax on farmers. This approach is not conducive to designing effective agri-export policies. Export markets are premium markets that require consistent development and maintenance over time.

If domestic consumers require assistance, it should be through a domestic income policy that specifically targets vulnerable sections of society. With a poverty rate of around 15% according to NITI Aayog’s multi-dimensional poverty estimate, and over 800 million people receiving free wheat/rice, it is perplexing to impose an MEP of $1,200/tonne on basmati rice and effectively hand over years of hard work by Indian rice traders to Pakistan. This is counterproductive.

Overall, it is important to understand that agricultural exports reflect the competitiveness of India’s agriculture sector compared to the rest of the world and its ability to generate surplus. Competitiveness is achieved through increased productivity and getting more output from fewer inputs. This requires significant investments in agriculture R&D, seeds, irrigation, fertilizers, and better farming practices, including precision agriculture. Currently, India’s overall investment in agriculture R&D, both at the central and state levels, is around 0.5% of agri-GDP. This is insufficient and needs to be doubled, if not tripled, for India to become a powerhouse in agriculture production and exports. Unfortunately, with populism being prominent during elections, the focus tends to shift towards providing more subsidies, such as food subsidies for consumers and fertilizer subsidies for farmers. Additionally, several states announce loan waivers, free power, and other doles.

In summary, there is no shortage of funds being spent on agriculture or ensuring food security for consumers. However, the current design of policies is sub-optimal, and it hinders the ability to achieve maximum returns on investment. Engaging in competitive populism may help politicians win elections, but it damages the health and competitiveness of the agriculture sector. The power and potential of a nation are reflected in its ability to innovate, produce, and export competitively priced goods to the world. Can India rise to this challenge?

Source: [Financial Express](https://www.financialexpress.com)