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EDITORIAL ANALYSIS : High Costs of agri-trade bans

 Source: The Indian Express

  • Prelims: Direct and Indirect farm subsidies, MSP, PDS, Export policies, WTO, PM Garib Kalyan Ann Yojana (PMGKY)etc.
  • Mains GS Paper III: Issues related to agriculture trading, direct and indirect farm subsidies, issues related to buffer stocks and food security, export policies etc

ARTICLE HIGHLIGHTS

  • There are reports suggesting that the government is mulling a ban on rice exports to tame inflation.
  • Earlier, on May 13, the government banned wheat exports to check the potential rise in prices in the face of low procurement.
  • It was also done in 2007-08, in the wake of the global financial crisis.
  • The Directorate General of Foreign Trade (DGFT) issues notification regarding banning exports of agricultural products.

 

INSIGHTS ON THE ISSUE

Context

Composition of agri-exports:

 

Current Affairs

 

  • Rice ranks first in agri-exports, with 17.7 million tonnes (mt) valued at $8.8 bn.
  • It is followed by marine products ($6 bn), spices ($4 bn), bovine (buffalo) meat ($3.2 bn), sugar ($2.8 bn), etc
  • Of these, rice and sugar raise concerns about competitiveness and environmental sustainability, as these are water guzzlers and heavily subsidized through cheap/free power for irrigation as well as fertilizers.
  • On top, sugar exports have been further subsidized to clear excessive domestic stocks.
  • This has led many sugar-exporting countries like Australia, Brazil, Thailand, etc, to register a case against India at WTO.

 

Present status of India’s Rice exports:

  • India exported the highest-ever volume of 21 million metric tonnes (MMT) of rice in 2021-22 (FY22) in a global market of about 51.3 MMT, which amounts to about 41 per cent of global exports.
  • In FY22, the unit value of exports of common rice was just $354/tonne, which was lower than the minimum support price (MSP) of rice.
  • Rice exporters were either buying rice (paddy) from farmers and millers below the MSP or that quite a substantial part of rice was given free under the PM Garib Kalyan Ann Yojana (PMGKY) was being siphoned away for exports at prices below MSP.

 

Rice:

  • It is a kharif crop which requires high temperature (above 25°C) and high humidity with annual rainfall above 100 cm.
  • Rice is grown in the plains of north and north-eastern India, coastal areas and the deltaic regions.
  • West Bengal tops the list of rice-producing states followed by Uttar Pradesh and Punjab.
  • Major export countries:
    • Saudi Arabia ($1.1B)
    • Iran ($876M)
    • Iraq ($590M)
    • United Arab Emirates ($392M)
    • Benin ($350M

 

Present status of India’s wheat exports

  • India is the world’s second-biggest wheat producer.
  • Major export countries:
  1. Bangladesh(55.9 percent)
  2. Sri Lanka(7.9 percent)
  3. UAE(6.9 percent)
  4. Indonesia(5.9 percent)
  5. Yemen(5.3 percent)
  6. Philippines(5.1 percent)
  • Export statistics: In the current financial year 2022-2023, the government estimates about 45 lakh metric tonnes of wheat to have been contracted for exports.
  • It has set a goal of exporting 10 million tons of the grain in 2022-23.
  • Wheat production in India is expected to be lower than the earlier estimates.
  • India exported 7 million tonnes(MT) of wheat in 2021-22 which is valued at $2.05 billion.
  • Out of total shipment around 50% of wheat was exported to Bangladesh in the last fiscal year.

 

Wheat

  • The wheat in India is largely a soft/medium hard, medium protein, white bread wheat, almost similar to U.S. hard white wheat.
  • Wheat is a major cereal crop in India and is grown mainly in central and western India is typically hard, with high protein and high gluten content.
  • It is a Rabi Crop sown in October-December and harvested during April-June.
  • Temperature required: Between 23±3°C and for good tillering temperature should range between 16-20°C.
  • Better variety of wheat is produced in areas having cool, moist weather during the major portion of the growing period followed by dry, warm weather to enable the grain to ripen properly.
  • Rainfall: 50 cm to 100 cm.
  • Soil Type: Soils with a clay loam or loam texture, good structure and moderate water holding capacity are ideal for wheat cultivation.
  • Wheat producing states in India: Uttar Pradesh, Punjab, Haryana, Madhya Pradesh, Rajasthan, Bihar and Gujarat.

 

Are the recent steps beneficial:

  • The cereals group as a whole contributed only 6 percent to the cure inflation. Within that, wheat, other than through PDS, contributed just 3.11 per cent and non-PDS rice contributed 1.59 per cent. So, by imposing a ban on wheat and rice exports, India can’t tame its inflation as more than 95 percent of CPI inflation is due to other items.
  • Inflation in vegetables contributed 4 percent to CPI inflation, which is more than three times the contribution of rice and wheat combined. And within vegetables, tomatoes alone contributed 7.01 percent.

 

Current Affairs

 

Issues involved:

  • Creating artificial competition: Free electricity for irrigation in several states, mostly Punjab, and highly subsidized fertilizers, especially urea, create an artificial competitive advantage for Indian rice in global markets.
  • Burden on government: While urea prices in global markets breached $900/tonne in April, Indian farmers pay roughly $72/tonne at existing exchange rates, which is perhaps the cheapest price that any farmer pays in the world, government subsidy on fertilizers will cross approximately Rs 2 lakh crore in FY23.
  • Impact on global image: Export bans on food items also show somewhat irresponsible behaviour at the global level, unless there is some major calamity in the country concerned.
  • Recent WTO and G7 meet: The recently concluded WTO ministerial meeting as well as the G-7 meet expressed concerns about food security in vulnerable nations. Abrupt export bans inflict high costs on poorer nations, and many millions fall below the poverty line as a result of such actions by a few.

 

Reasons for the sudden decision by the Government

  • wheat production this year is feared to be lower than 100 million tonnes (mt) against initial estimates of a record 111.32 mt.
  • Procurement by the Food Corporation of India (FCI) dropped by over 50 percent compared with last year.
  • Wheat prices in the country began to increase in the wake of export demand triggered by the Russia-Ukraine war and soaring inflation.
  • A sharp surge in global wheat prices that could have affected Indian consumers.
  • Fertilizer prices have more than trebled since the Russia-Ukraine war broke out. It will likely lead to lower sowing of wheat across the world and thus, the tight supply situation may continue into 2023.

 

Demand for India’s agricultural products is expected to rise:

  • Wheat prices have been rising internationally on account of supply shortages due to the Russia-Ukraine war. The demand for Indian wheat has increased overseas.
  • More countries are turning to India because of the competitive price, acceptable quality, availability of surplus wheat and geopolitical reasons.
  • While the existing importers are buying more, new markets have emerged for Indian wheat. Exports this fiscal year are expected to be almost 10 million tonnes worth $3 billion.

 

How sustainable are our agricultural exports?

  • Our main concern with the surging rice and sugar exports is on the sustainability front.
  • India is a water-stressed country with per capita water availability of 1,544 cubic-meters in 2011, likely to go down further to 1,140 cubic-meters by 2050.
  • One kg of sugar invariably has a virtual water intake of about 2,000 liters. Exporting 7.5 mt of sugar implies exporting at least 15 bn cubic-meters of water.
  • In case of rice, irrigation requirements for one kg vary from 3,000-5,000 liters, depending upon topography.
  • If we take an average of 4,000 liters, and assume that half of this gets recycled back to groundwater, exporting 7 mt of rice means virtual export of 35.4 bnn cubic-meters of water.
  • Together rice and sugar exports imply India exported over 50 bnn cubic-meters of water.

 

Solutions to make agriculture sustainable:

  • Saving Water with Alternate Wetting Drying (AWD): Alternate Wetting and Drying (AWD) is a water-saving technology that farmers can apply to reduce their irrigation water consumption in rice fields without decreasing its yield.
    • In AWD, irrigation water is applied a few days after the disappearance of the ponded water.
    • Hence, the field gets alternately flooded and non-flooded.
    • The number of days of non-flooded soil between irrigations can vary from 1 to more than 10 days depending on the number of factors such as soil type, weather, and crop growth stage.
  • Direct Seeding of Rice: Direct seeded rice (DSR), probably the oldest method of crop establishment, is gaining popularity because of its low-input demand.
    • It offers certain advantages viz., it saves labour, requires less water, less drudgery, early crop maturity, low production cost, better soil physical conditions for following crops and less methane emission, and provides better option to be the best fit in different cropping systems.

 

 

The Public distribution system (PDS)

●    It is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution.

●    It is a system of management of scarcity through distribution of food grains at affordable prices.

●    PDS is operated under the joint responsibility of the Central and the State Governments.

●    The Central Government, through Food Corporation of India (FCI), has assumed the responsibility for procurement, storage, transportation and bulk allocation of food grains to the State Governments.

●    The operational responsibilities including allocation within the State, identification of eligible families, issue of Ration Cards and supervision of the functioning of Fair Price Shops (FPSs) etc., rest with the State Governments.

●    Under the PDS, presently the commodities namely wheat, rice, sugar and kerosene are being allocated to the States/UTs for distribution.

●    Some States/UTs also distribute additional items of mass consumption through the PDS outlets such as pulses, edible oils, iodized salt, spices, etc.

 

Food Corporation of India (FCI)

●    It is a Public Sector Undertaking, under the Department of Food & Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution.

●    FCI is a statutory body set up in 1965 under the Food Corporations Act 1964.

●    It was established against the backdrop of a major shortage of grains, especially wheat.

●    It has the primary duty to undertake purchase, store, move/transport, distribute and sell food grains and other foodstuffs.

 

Minimum Support Price(MSP)

●    The MSP is the rate at which the government purchases crops from farmers, and is based on a calculation of at least one-and-a-half times the cost of production incurred by the farmers.

●    MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”.

●    Crops under MSP:
The Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops and fair and remunerative price (FRP) for sugarcane.

●    CACP is an attached office of the Ministry of Agriculture and Farmers Welfare.

●    The mandated crops include 14 crops of the kharif season, 6 rabi crops and 2 other commercial crops.

●    In addition, the MSPs of toria and de-husked coconut are fixed on the basis of the MSPs of rapeseed/mustard and copra, respectively.

 

Bhalia Variety of Wheat

●    It is a variety of wheat that received GI certification in 2011.

●    It has high protein content and is sweet in taste.

●    The crop is grown mostly across the Bhal region of Gujarat which includes

●    This variety is grown in rainfed conditions without irrigation.

 

 

 

Way Forward

  • A well functioning PDS can control prices and offer relief to consumers. At the same time, procurement policy can and should offer a reasonable income to farmers.
  • If we can’t raise the domestic price of urea, which is long overdue, we should at least recover a part of the urea subsidy from rice exports by imposing an optimal export tax.
  • The government is optimistic about the long-term export opportunities not only for wheat, but for all cereals including millets and superfoods.
  • If India wants to be a globally responsible player, it should avoid sudden and abrupt bans and, if need be, filter them through transparent export taxes to recover its large subsidies on power and fertilizers.
  • India needs to establish itself in the new markets too and the government should facilitate it.
  • Lessons must be gleaned from the experience 15 years ago when India took about two years to lift its ban on the export of non basmati rice, by which time Thailand and Vietnam had moved in to take full advantage.
  • An export-led strategy also needs to minimize logistics costs by investing in better infrastructure and logistics.
  • Any sustainable strategy for rice and sugar exports must ensure these are produced with much less water by adopting appropriate farming practices such as alternate wetting drying (AWD), direct seeded rice (DSR), drip irrigation, etc.

 

QUESTION FOR PRACTICE

How do subsidies affect the cropping pattern, crop diversity and economy of farmers? What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers?(UPSC 2017)

(250 WORDS, 15 MARKS)