In the last one month, the government ban on export of wheat And Quantitative restrictions imposed on outbound sugar shipments, The wheat export ban came within days of India’s effort to increase the supply of wheat to the rest of the world. Russia’s invasion of Ukraine, it’s time to persevere high inflation, driven by rising food and fuel prices, and concerns about lower yields due to severe heat waves this year. The government has argued that farmers have not suffered due to the ban as most had already sold their produce this season. In a discussion moderated by Vikas Dhoot, S. Mahendra Devi And Himanshu Consider the effectiveness of these restrictions. Edited excerpt:
What do export restrictions mean to curb inflation and address India’s food security concerns?
Himanshu: I don’t think export ban will help inflation much as the procurement season for wheat crop is more or less over. I don’t think it will bring down prices or help the government do better procurement and preparation for food security.
explained | Ukraine war and global food crisis
My objection to the ban is not the policy of export sanctions per se – about 30 countries have done the same, and countries should have a sovereign right to decide what is the right time to curb exports. My problem is with some sort of ad hocism or complicated policy-making. And this isn’t the first time, which makes it all the more worrying. This has been going on for the past two decades – there are no plans on how to manage the trade policy for agricultural products or even other products. See this: On May 12, an official press release was issued about sending delegations to nine countries to explore opportunities for wheat exports. And then on May 13, exports were banned. That’s not the right way to look at it. Through April, officials went to the US, spoke to President Joe Biden, and the finance and commerce ministers were saying, ‘If not for the WTO [World Trade Organization]We will feed the whole world. And then suddenly within a month, the government says, ‘No, no, we don’t have enough for exports.’ It gives wrong signal to the domestic farmers as well as the traders. This is certainly not good for food security as the damage that should have been done has been done. The government is unable to procure what is needed to manage its food security system.
Did conditions change significantly with the fall in wheat crop estimates between April and May? Or even between May 12 and May 13, when India went from an aspiring wheat exporter to a complete ban on exports to the world?
S. Mahendra Dev: Even before the Ukraine-Russia war, global food prices were rising due to excess liquidity around the world. But the war gave India an opportunity to export more wheat. The global export market is approximately 200 million tonnes, of which 55 million tonnes are generally from Ukraine and Russia. India exported 7 million tonnes in 2021-22, and everyone felt that we have a lot of opportunities this year. Open market prices were ₹2,400 per quintal higher than the MSP [Minimum Support Price] Around ₹2,100. So after a long time the farmers were getting higher prices. The export ban has two effects. This affects the income of the farmers as well as the long term credibility of the export policy. One reason for the ban was production estimates. Even in 2006, production was underestimated and India had to import due to low purchases. It’s the same now: many thought production was estimated at over 111 million tons; Now we can have 99-100 million tonnes. The second reason was purchase. 44 million tonnes were procured last year; Now we are expecting around 19 million tonnes. The third factor was retail inflation, approaching 8% in April, with food products even higher.
The government may have acted for these reasons, but it has hurt farmers’ incomes and the impact on inflation may not be much as global food prices are still high. Instead of an export ban, it could have opted for a minimum export price and offered a bonus of ₹250 to ₹300 to encourage more purchases for food security goals. On sugar, of the global exports of about 64 million tonnes, India was exporting 8 million tonnes last year. Now there is no shortage in sugar production. We are expecting 35 million tonnes. Even with exports, we could have a closing stock of around 6 million tonnes. So, there was no need – the government says this is due to global shortages and high prices in India. It feels that sugar prices should not rise during the festive season and has restricted exports to 10 million tonnes.
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Food and Consumer Affairs Minister Piyush Goyal has said that the local wheat prices have come down by around Rs 5 per kg, so the export ban is indeed working. G7 countries and other countries have urged India to reconsider the ban, though government purchases from the government will be considered.
Himanshu: Global credibility is not as important as India has not been a regular wheat exporter except in the last two-three years when it had surplus stocks. The credibility of the government’s policy is a more serious issue for our biggest stakeholders – millions of farmers who need a stable and coherent policy. It is not provided. As far as domestic price measures are concerned, things get a bit tricky – as for the past few years, farmers have been suffering from slowdown in the economy and low prices at home due to the pandemic. Finally, when they got a chance to get a slightly better income from the produce, the government imposed export restrictions. So, the domestic consequences of the export ban are worrying, as we had options like bonuses for procurement that could help farmers and food security concerns. Instead of banning exports outright, some sort of incentive could have been created, which basically doesn’t help farmers or even consumers as much as the government claims.
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We have to look at it in the context of holistic agriculture policy, not just for exports, but also for incentives and market intervention. We need a more cohesive, coherent, stable and predictable agriculture policy rather than the ad hoc, unreasonable way of pressing the panic button.
India had a good crop of pulses in 2016-17. But then procurement went awry and farmers, who were left high and dry, reduced sowing of pulses from next year onwards. Could we see the same effect on sowing preferences this time around?
Himanshu: This is an important question. Let us take a look at oilseeds, another commodity which has seen a steep rise in prices. We are importing about 60% of our seeds and we should produce more. But as prices have risen, the government has lowered import duties on palm oil, and this will lower the market price for consumers, at the expense of the farmer who will not be able to take advantage of the higher price. So, in a sense, we are punishing the farmer who could have actually shifted production to oilseeds, but could not compete with cheap imports. Therefore, we have a policy that penalizes farmers at the cost of consumers, who always get preference, be it pulses or oilseeds.
Read also | Wheat export ban not against farmers: Piyush Goyal
The 2016 episode with pulses is a good example – when farmers were able to get higher prices, the government dumped imports from Mozambique and other countries, causing prices to plummet. Since then, farmers are shying away from going into pulses production. The risks of entrenched policy can hurt prospects across the spectrum. We moved from self-reliance in edible oils to completely dependent on imports in the early 1990s – and trade policy played a big role in that.
S. Mahendra Dev: Since independence, we have been favoring consumers at the cost of farmers. It will have to be changed. Situation Assessment Survey of 2018-19 shows that farmers have low income from farming with only ₹127 per day. We have to think about farmer families as they also have expenses like health, education and agricultural inputs. For consumers, social security programs can act as a support rather than a reduction in agricultural prices.
Sowing priorities may not change much, as rice and wheat are heavily incentivized and take up about 80% of the entire agricultural sector’s water. But this ad-hocism – one year we export, the next year we ban it – is happening with most commodities from wheat to onions. Diversification is important not only for food security but also for nutritional security as many poor are not able to buy pulses or eggs and meat.
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The government had talked about doubling agricultural income by 2022. How do these moves fit in with that goal?
S. Mahendra Dev: In 2013, farmers were getting ₹6,400 and in 2018-19, it was around ₹7,700 in actual. That is, an increase of 21 per cent in six years or 3.5 per cent annually. To double farm income you need 10% growth per year. There is also a need for non-farm income as farming alone is not enough.
Himanshu: I think everyone knew when the announcement was made that it was impossible – when it hadn’t before, it was unlikely to happen when the economy was in the middle of a recession. Also, the income of farmers depends not only on the prices of production but also on the input cost, which is increasing. So, you may have a strange situation where input prices rise faster than production prices, and farmers actually make losses instead of higher incomes. Despite rising prices in the last six months, I don’t think farmers have benefited much. A large portion of the profits went to traders and speculators, who later pooled stocks to sell at higher prices.
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The whole premise of the three agrarian reform laws, which have now been abandoned, was to give farmers the freedom to sell wherever and whenever they wanted…
Himanshu: I think the last three months have been a good example of the futility of agricultural laws. The government says that farmers have sold wheat at a higher price as the government has been able to lift less than 20 million tonnes, which is less than half of the target. So, farmers clearly had avenues if they wanted to sell it to private players. They managed to sell it without any change in the market infrastructure and without agricultural laws. The problem is when prices are low, when you need the government to step in, and that is the issue of MSP. This is a good example of how a quagmire was built around agricultural laws, with farmers not getting high prices as the only hindrance. But now the government itself is saying that farmers have got higher prices, thereby destroying the entire basis on which the law was made. The problem was not about farmers, it was about the nature of agricultural markets and the vulnerability of farmers.
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S. Mahendra Dev: We are talking about agricultural reforms since 2003. My stand has been this: Leave it to the states. In India, in a big country, you cannot have one system for the whole country, with so many variations in soil, climate. e.t.c. So, each state can see what can be done by the Center instead of enforcing agricultural laws.
Himansh is Associate Professor at the Center for Economic Studies and Planning, School of Social Sciences, JNU; S Mahendra Dev is the Director and Vice Chancellor of Indira Gandhi Institute of Development Research