Yes, exporting agricultural products will help increase Indian farm incomes in the long run, but the risk of food scarcity in the context of food inflation remains
Managing Director and CEO, Credit Analysis & Research Ltd
With rising food inflation, increasing domestic food consumption and the government’s inability to add substantially to buffer stocks, agricultural exports are risky
India has made a lot of progress in agriculture since Independence in terms of the growth in output, yields and area under crops. Today, India is one of the world’s largest producers of milk, fruit, cashew nut, coconut and tea. The country is also well known for the production of wheat, vegetables, sugar, fish, tobacco and rice. Trade liberalisation in agriculture was promoted by developing countries with certain specific objectives, which include increasing food production, improving the efficiency of food production, appraising the role of Research & Development (R&D) in agriculture and bettering the economic standing of the farmers.
It is important to note that all trade restrictions in the long run lead to a deterioration of welfare in both the countries imposing such measures as well as the rest of the world. However, in the current situation, where food inflation is one of the biggest economic concerns in the country, agricultural liberalisation is a risky step. The ability to control food prices is one of the main criteria on which people will judge the government’s performance. Although inflation has eased to 8.5 per cent in August from a revised 9.8 per cent in July 2010, India’s food inflation continued to increase by 14.6 per cent in August FY11 over August FY10. The principle factors motivating export restrictions are food security, pricing and quality, large gaps between successive crops, land utilisation, and processing margins.
First, in India, rapid economic growth has significantly increased the purchasing power of the people. After the subprime crisis of 2008, the economy is back on track with average GDP estimated over 8 per cent for FY11. Domestic food consumption has been increasing while the government has not been able to add substantially to buffer stocks. Thus, food security becomes a primary concern. In the present context, export restrictions will counteract the volatility exhibited by the production of major food articles like rice. Also, sudden import surges often divert produce from the domestic markets and might result in sudden food scarcity in the domestic economy. Such import surges might be caused by sharp appreciation of the importer’s currency or devaluation of the exporter’s currency. Supply volatility due to climatic changes in importing countries might also be a reason for import surges.
Second, it has been observed that in the case of various food articles the best quality product that is produced in the country is exported while the mediocre quality product is made available for domestic consumption. This is observed in the case of Alphonso mangoes. Hence, export restrictions will ensure that a sufficient amount and good quality of the product is first made available to the domestic consumer at reasonable prices.
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Third, a large time gap between harvests of successive crops exists in India. For example, wheat is grown only once in a year. Export restrictions in this case are advisable because the country needs to equip itself to meet the consumption needs in the period between the two harvests. Excessive exports might lead to an inadequate build-up of wheat stocks and consequent shortages during the period when augmentation of supply is not possible through harvests.
Fourth, the concern is about how the limited land available for cultivation gets allotted. A country emphasising the capture of wider global markets may tend to divert food-growing land to non-food crops such as flowers or luxury commodities such as cash crops.
Finally, there are many agricultural products that are mainly consumed in their processed form. Horticultural products like tomatoes, pineapples and apples fall in this category, as do non-food products, such as wool and timber. The rationale for restricting exports of these is that by exporting these products in their raw form, a country forgoes the processing margin, which then accrues to the importing countries.
By withholding raw products from the international market, a country can augment its production and enhance income generation, providing better opportunities to its domestic labour force.
It can be concluded that given the economic crisis and the exchange rate imbalances coupled with the high levels of food inflation, agri-exports in the near future do not appear to be advisable.
CEO (Agri), Adani Enterprises Ltd, Adani Wilmar Ltd
Agri-exports will put a lot of money in the hands of rural India. A rise in income will help improve productivity, since farmers would have more money to pay for high-yielding seeds and fertilisers
It is ironical that when the whole world is talking about globalisation and opening up of economies, we, in India, are debating whether agri-exports should be allowed or not. Food-related inflation has given votaries of “protectionism” ammunition and they are going about prescribing an export ban as the panacea for all ills pertaining to food inflation. The prescription, if implemented, would do the country irreparable harm and be worse than the disease.
Protectionist policies have never done any country any good. Just imagine if we had not opened up our automobile sector we would still have been driving fuel-guzzling vintage Ambassadors and Fiats. I shudder to think of the consequences if the “protectionist worm” affects countries like Malaysia and Indonesia and they ban exports of palm oil to India. Vegetable oil prices in India would explode and may even go beyond the reach of our middle classes. Do we want countries to retaliate in similar fashion? The answer is an emphatic “no”.
As a nation we have long denied our farming community the fruit of its labour. The poor farmer should be allowed to sell his produce to the highest bidder — whether for domestic consumption or export. The current world agricultural situation of high commodity prices is a god-sent opportunity to change the rural landscape in India. The Almighty has been meherban on the Indian farmer. On the back of good monsoons our rice, oilseeds, corn and pulses crops have been excellent. Our good harvest is coinciding with drought in Russia and Ukraine, as a result of which world prices are going through the roof. Any attempt to curb exports now would be tantamount to betraying our farming community. Let us not forget that more than 60 per cent of India lives in the villages and India cannot be treated as having “emerged” if the rural economy does not improve.
There is absolutely no justification, economically or rationally, to artificially depress wheat and rice prices in our country. The world is willing to pay the moon to buy our wheat and rice and this opportunity comes once in a lifetime. India is sitting on mountains of rice and wheat stocks – much above buffer stock norms – which should be allowed to be exported rather than rot and get degraded. GDP growth at 8 to 9 per cent is putting a lot of money in the hands of urban consumers. Why should we continue to subsidise the urban consumer at the cost of poor peasants? Is it just because they have a larger and more vociferous voice in our media?
I am a strong advocate of allowing two-way trade without any shackles. If wheat from Australia or Ukraine can be cheaper in southern India as compared to moving it from Punjab and Haryana, it should be allowed. Similarly, we should open exports from western Indian ports to West Asian markets owing to inherent logistical advantages. Unfettered trade would help maintain equilibrium. Our businessmen are smart enough to take advantage of these opportunities.
Banning exports has never done any country any good in the long run. Take the example of pulses. India had a thriving pulses export market catering to Indian expatriates in the US, Europe and West Asia. By banning pulses export, the poor Indian-origin expats were denied their daily daal. This became an opportunity for businessmen in Africa and West Asia. Overnight, the pulses business has shifted to these countries at the expense of Indian businessmen who had assiduously built up these markets.
On the strength of agri-exports we can put a lot of money in the hands of rural India. An increase in incomes would go a long way towards improving productivity since our farmers would have more money to pay for better, high-yielding seeds, fertilisers and so on. It’s a chicken-and-egg situation. Our agricultural yields are woefully low and with more money in rural hands, 4 to 5 per cent agricultural growth can become a reality.
I sincerely hope our policy makers don’t get carried away by jingoistic appeals for banning agri-exports as we would fritter away a lifetime opportunity of improving the rural landscape for which posterity will not forgive us.
The views expressed are personal