Global Rice News

In many mandis of Punjab-Haryana, traders were hesitant to purchase basmati rice due to limited exports, ultimately leading to lower prices for farmers. This restriction on basmati rice exports is a result of the central government’s attempt to control food inflation ahead of state elections. However, the consequences of this policy should be carefully analyzed to ensure rational decision-making.

Basmati rice is a premium variety consumed by the upper middle class and the wealthy in India. It is also exported to Gulf countries, some European countries, and the US. Punjab and Haryana are the primary producers of basmati rice in the country. The average export price for basmati rice typically ranges between $800 to $1,000 per ton. However, the imposition of a minimum export price (MEP) of $1,200 per ton severely restricts basmati rice exports.

If this MEP continues, it is highly likely that India’s basmati rice exports will experience a significant decline this year. The real losers in this scenario are the farmers of Punjab and Haryana, while the domestic upper income urban class stands to benefit. Additionally, by imposing such a high MEP, India is effectively handing over its export markets to Pakistan, the only other major competitor in the basmati rice market. This raises the question of whether this decision is a conscious policy move.

It is crucial for our trade policymakers to understand the negative impact they are having on agricultural exports. The MEP for basmati rice should be reconsidered and ideally set at a range of $800 to $850 per ton. However, restrictive export policies are not limited to basmati rice alone. They also apply to broken rice, non-basmati white rice, and parboiled rice, through export bans or duties. What we need is a stable export policy that avoids knee-jerk reactions.

India’s position as the largest exporter of rice globally, accounting for about 40% of global exports, is well known. The majority of non-basmati rice is exported to various African countries. However, when India announced a ban on exports of non-basmati white rice, these countries expressed their concerns. This does not create a positive image for India as a leader in the Global South. Although there is a clause in the export policy that allows for consideration of requests from specific countries on a case-by-case basis, this is not an ideal approach to designing an export policy.

Our restrictive export policies also extend to wheat exports and the imposition of a 40% export duty on onions, among other measures. With such limitations, it becomes challenging to envision doubling India’s agricultural exports, a target set by the government. In the last year of the UPA government (2013-14), India’s agri-exports reached $43.27 billion, a five-fold increase from $8.67 billion in 2004-05. If this growth momentum had been maintained during the 10 years of NDA rule, agri-exports should have reached $200 billion. However, in reality, they are not likely to exceed $50 billion in the current year (2023-24).

The failure to achieve these targets can largely be attributed to restrictive exports that favor domestic consumers at the expense of farmers. This bias toward urban consumers imposes a significant “implicit tax” on farmers and is not an appropriate approach to designing agricultural export policies. Export markets are premium markets that require years of development and maintenance.

If support is needed for domestic consumers, it should be done through targeted income policies for vulnerable sections of society. With poverty still affecting around 15% of the population, as per the multi-dimensional poverty line of NITI, and with more than 800 million people receiving free wheat/rice, the logic behind imposing an MEP of $1,200 per ton on basmati rice becomes questionable. This policy effectively hands over years of hard work by Indian rice traders to Pakistan, which is detrimental to our interests.

It is important to recognize that agricultural exports reflect the competitiveness of our agriculture sector compared to the rest of the world and its ability to generate surplus. Increasing productivity and achieving more with less is crucial for enhancing competitiveness. 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 by both the central and state governments combined is only around 0.5% of the agri-GDP, which is insufficient. To become a powerhouse of agricultural production and exports, this investment needs to be doubled, if not tripled.

Unfortunately, populism tends to peak during election times, leading to additional subsidies for consumers and farmers, as well as loan waivers and other forms of assistance from various states. While money is being spent on agriculture and consumers to ensure food security, the way these funds are allocated and utilized is suboptimal. Poorly designed policies cannot yield significant results. Policymakers often resort to competitive populism in the hopes of winning elections through such measures, but this approach does considerable harm to the sector’s health and competitiveness. The true strength of a nation lies in its ability to innovate, produce, and export products to the world at competitive prices. India must rise to this challenge and create policies that enhance its agricultural competitiveness.

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