Given how competitive India’s agriculture sector is, it is not surprising commerce minister Suresh Prabhu should be talking about his ministry coming out with a policy for farm sector exports.
Given how competitive India’s agriculture sector is, it is not surprising commerce minister Suresh Prabhu should be talking about his ministry coming out with a policy for farm sector exports. While Prabhu also spoke of the need to ensure the reduction of global protection (mostly subsidies, actually) given to agriculture, his biggest problem will be to get a favourable domestic policy framework approved, and then adhered to. Despite all the talk of being concerned about the welfare of farmers, successive governments over the last 70 years have chosen the interests of consumers over those of farmers when push comes to shove. So, the moment local prices of any food item start rising, most governments, cutting across party lines, have a template response—increase supply by reducing stocking limits for the wholesale trade and ban exports; the slightly more market-savvy governments impose minimum export prices (MEPs) instead of outright bans, but the net impact of slowing exports is the same as far as farmers are concerned. As a result, there is no dependable supply chain that gets created—local players are never sure if they can buy large quantities and store them since the government can crack down on them at any point, and no long-term relationship can be made with overseas buyers as there is no certainty as to when export terms will be changed. Hardly surprising, then, that the agriculture sector should face the kind of crisis it is in today—once there is even a slight excess in supplies, as happens in years of bumper crops, prices collapse completely.
In such a situation, there is really little to be gained by Prabhu announcing an export policy in a vacuum. This has to be accompanied by a complete endorsement by prime minister Narendra Modi, which means a commitment that even if local prices soar through the roof, the government will neither restrict/ban exports and nor will it reduce stocking limits. If this is not done, agriculture will remain in a boom-bust cycle—a drought causes prices to shoot up, which makes farmers sow more of the crop which, in turn, leads to a crash in prices and, the next year, a reduction in the amount sown.
Were a stable agriculture policy to be practised, however, exports could boom. In the case of wheat, exports were banned from February 9, 2007, to September 9, 2011—after the ban was lifted, wheat exports rose to over $5 billion in 2012-13. In the case of rice, thanks to a series of MEP restrictions, according to Icrier’s Shweta Saini and Ashok Gulati, between 2004– 05 and 2007–08, domestic prices were about 80-90% of world reference prices; however, during the ban period, these prices were 70% of world prices (except for the year 2010–11 when international prices fell). Similar analysis has been done for most crops and even milk and meat, and the result is the same—India’s agriculture was globally competitive in most years. In the case of onions which were not just export-competitive in all 10 years, but by a huge margin, MEPs were raised dramatically in 2013-14 and 2014-15 to stop exports. In the case of potatoes, too, except for one year in which they could hold their own against imports, they were very competitive—an MEP of $450 was put between June 2014 and February 2015 to restrict exports. Whether Prabhu can get an unequivocal commitment from the prime minister, however, remains to be seen.