Why in the News?
As per the recent news, the government is implementing a ban on wheat and rice ban.
Background
- This is definitely not the first attempt to ban wheat and rice exports.
- It was once done in 2007-08, in the concern of the global financial crisis.
- Maybe the government will also inflict stocking limits on merchants/traders for a host of commodities, suspend futures trading in food items, and even conduct income tax raids on traders of food.
Why was the ban implemented?
- to 'manage the overall food security of the country
- after unseasonably hot weather affected the wheat crop, sending local prices soaring.
Issues in India’s rice export strategy
- Highest ever volume: India exported the highest-ever volume of 21 million metric tonnes (MMT) of rice in 2021-22 (FY22) in a world market of about 51.3 MMT, which is calculated to be about 41 per cent of worldwide exports.
- Reduced price: Such large volumes of rice exports reduced global prices of rice by about 23 per cent in March (YoY), when all other food grain prices like wheat or maize, were hiking significantly in global markets.
- In fact, in FY22, the per unit value of exports of common rice was just $354/tonne, which was lower than the minimum support price (MSP) of rice.
- Below MSP(Minimum Support Price) buying or leakage from PMGKAY:
- This meant that rice exporters were either buying rice (paddy) from farmers and millers below the MSP or quite a significant part of rice was given free under the PM Garib Kalyan Ann Yojana (PMGKAY) was being syphoned away for exports at prices below MSP.
- Artificial competitive advantage: Free electricity for irrigation in several states, most notably Punjab, and highly subsidised fertilisers, especially urea, generate an artificial competitive advantage for Indian rice in global markets.
- Suggestion: This is the best instance for “optimal export tax” — not a ban — on rice exports.
- If we can not raise the domestic price of urea, which is vastly overdue, we should at least revive a part of the urea subsidy from rice exports by inciting an optimal export tax.
Why the export ban on wheat and rice is not a solution
- A small contribution of cereals to inflation: In May, the consumer price index (CPI) inflation was 7.04 per cent (YoY). The cereals group as a whole contributed only 6.6 per cent to this inflation.
- Within that, wheat, other than through PDS, contributed just 3.11% and non-PDS rice contributed 1.59%.
- By imposing a ban on wheat and rice exports, India can’t domesticate its inflation as more than 95 per cent of CPI inflation is due to other items.
- Interestingly, inflation in vegetables contributed 14.4% to CPI inflation, which is additional than three times the contribution of rice and wheat combined. And within vegetables, tomatoes alone accorded 7.01%.
- What all this depicts is that agri-trade policies need to be more stable and predictable rather than a result of stimulus reactions.
- Irresponsible behaviour: Export bans on food items also depicts irresponsible behaviour at the world level, unless there is some extreme calamity in the country concerned.
- The recently concluded WTO dignitaries meeting, as well as the G-7 meet, expressed greyed areas about food security in unarmed nations.
Way forward
- Systematic value chain and processing facilities:
- In commodities like vegetables, most of which are hugely bio-degradable, we need to build systematic value chains and link these to processing facilities.
- The same goes for onions, which often bring tears to kitchen budgets when prices are hiked.
- A switch to dehydrated onion flakes and onion powder would be the key.
- The domestic food processing industry, especially in bio-degradable products, lacks the curve compared to several Southeast Asian nations.
Conclusion
- If India wants to be a globally responsible contender, it should avoid sudden and abrupt bans and filter them through transparent export taxes to revive its large subsidies on power and fertilisers.
