india export policy: India’s unpredictable export policy can hit farm income, cause an image problem – The Economic Times*******

Clipped from: https://economictimes.indiatimes.com/small-biz/trade/exports/insights/indias-unpredictable-export-policy-can-hit-farm-income-cause-an-image-problem/articleshow/96242057.cms

SynopsisThe measures taken by the government to protect the domestic markets of some agro commodities could soon start hurting the country’s standing as a reliable supplier and affect stakeholders in the districts. Experts want the government to focus on policy stability.

“In global trade, buyer-seller relationships are built over years of mutual trust, which once broken are hard to be reconciled,” says Surendar Singh, Associate Professor at the FORE School of Management. He sees India’s credibility as a supplier of agricultural products getting diluted because of export restrictions on agri products.

“Do you think Ukraine will ever be able to recapture the global market share in wheat it lost due to the war? Not in 10 years at least,” Singh says. Before the Russian invasion, Ukraine was the sixth-largest wheat exporter in the world.

The associate professor, whose areas of interest include international trade and global value chains, says India’s policy stance has been vacillating between export bans, export restrictions, minimum export price and free trade. This line of thinking needs to be reviewed.

The barriers have already depressed the sentiments of exporters and are threatening to even impact growers, experts say.

What are the barriers that have raised the hackles of the stakeholders?

In May 2022, the government restricted the export of raw, refined and white sugar by requiring exporters to seek permission from the Directorate of Sugar. In August 2022, it prohibited the export of maida, wheat, flour, semolina, and wholemeal atta, and in September, the government prohibited the export of broken rice and imposed duty on the export of brown rice and wholly milled rice.

Growing problem in the districts
A research report by the Mumbai-based trade facilitating platform, the MVIRDC WTC, says stakeholders in the agri commodity supply chain in at least 112 districts will be affected because of the restrictions.

Govt’s restrictive measures to hit 112 districts@2x

The report maps the areas that would be hit. It says wheat, meslin flour, maida, semolina and wholemeal atta are produced in 32 districts — including Gorakhpur, Gondia, Delhi-West, Varanasi, and Bikaner. The restriction on export of broken rice will affect at least 40 districts — including Raipur, East Godavari, Nagpur, Karnal and Sonipat. The report says at least 34 raw sugar districts are also feeling the heat. These include Pune, Satara, Solapur, Bagalkote and Bijnor. Apart from these, related products such as refined sugar and white sugar are shipped from 39 districts —

Kachchh

, East Godavari, K Kolhapur, Bagalkote, and Ahmednagar. All these regions are now witnessing dwindling fortunes — for growers, exporters and other stakeholders in this business.

The findings of the report by the Mumbai-based industry body concludes that India’s unpredictable farm export policy is going to affect the export performance of 112 districts.

Of the 11,127 (based on 8-digit HS codes) goods exported from India, 1,401 are agriculture and related commodities, according to the report. These include commodities such as dairy, meat, fish, beverages and other processed goods. These 1,401 commodities are exported from 492 districts: the country has about 780 districts.

What is at stake for exporters and growers?
Traders and exporters are of the opinion that the government’s export restrictions go against the spirit of its own ambitious agri export policy document announced in 2018, in which they were assured of a “transparent and consistent” policy.

These abrupt policy changes are going to pull down export consignments by at least 40%, says Rahil Sheikh, MD of MEIR Commodities India, a Mumbai-based agri commodity trading house. “The government’s switch-on, switch-off approach towards agri policy is giving a severe blow to our working capital, leaving us with no room to grow. Look at inflationary pressure and transport costs — these are at an-all-time highs. We used to get duty remission on sugar, but that has been shelved now. Sugar export was banned last year also,” he says.

Highlighting the plight of the industry, he points out that wheat and rice exports are prohibited. Maize is also likely to be affected as the government is reportedly considering an export barrier here also. These are discouraging signs for growers.

An official at a big export house in UP’s sugar belt says he “clearly sees a 35-45% dip in all major agri exports categories where India is a leading player.” Speaking on condition of anonymity, he adds, “Instead of exporting 11 mt of sugar, we are going to see exports of 5-6 mt. Similarly, in rice, it is going to go down from 20 mt to 1.2-1.4 mt. There will be a dip in value as well as tonne terms because of inflationary and forex pressures.”

sugarcane harvest istock

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India’s sugar exports have been hampered because of policy flip-flops.

Exporters and market observers agree that the government had to impose some barriers on shipments of several agri commodities to address rising or impending shortages in essential primary and processed food commodities in the domestic market. But they decry the unpredictability in farm export policy, which also affects farmers.

“We all want stability and certainty in life. The farmer is no different. He already has to deal with variables such as rainfall. The last thing he needs is another variable,” says Sheikh, adding that such a situation will discourage people from farming.

Export gains are slipping away
Exporters are particularly peeved that they had worked towards increasing their trade coverage based on what the government had said, but now these efforts would be in vain.

The government had recently started pushing agri exports aggressively. It had become more pronounced when the Ukraine-Russia war started as these two countries together account for about 29% of global wheat exports. When the conflict stopped their exports, it gave a huge trade opportunity for Indian agri exporters to fill the void. In April 2022, Prime Minister Narendra Modi had said during an address that India was ready to supply food stock to the world if the World Trade Organisation agreed. There were other encouraging signs. Authorities had promoted new export destinations and encouraged government agencies to come up with fairly successful sales pitches. Based on these factors, exporters claim to have taken steps to capture a larger share of the global market. But those efforts are causing them to bleed now, they say.

A big blow came with the ban on wheat exports.

Singh of FORE School of Management says it is surprising that the government first says India can supply food stock to the world amid the Russia-Ukraine war but within weeks, imposes a ban on wheat export. This does not bode well for a country aiming to be an export powerhouse.

All the efforts might amount to nothing now as the export restrictions on wheat and rice are causing great discomfort to farmers, traders, exporters and importers, says Nitin Bansal, director of Mumbai-based Commodities India Private Ltd. “This ban comes at the time when the world is looking at India becoming a global player in wheat and rice exports,” he says, referring to the opportunity that arose because of the Ukraine-Russia war.

Exporters point out that wheat and rice exports were partially banned and export duty increased with immediate effect, giving them no window to clear the inventory lying at various ports.

Agri exporters want a market-driven policy, with limited government interventions, says Sheikh of MEIR Commodities. The government’s arbitrary and unpredictable rule changes have crushed the long-term plans of many traders, he adds.

wheat stock istock

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India’s aim to become a major wheat exporter also received a setback after domestic prices of the commodity began to climb

Queries sent to the Agricultural and Processed Food Products Export Development Authority (APEDA) — the government’s apex body for agri exporters — and the Ministry of Agriculture remained unanswered till the publishing of this story.

India’s reliability under cloud
The Chairman of MVIRDC WTC, Vijay Kalantri, says such policy restrictions reduce the incentive for farmers to grow these products at a commercial scale required to supply to the global market. These policy changes also hurt the image of India as a reliable supplier of these agri commodities, he adds.

The country is a top producer and exporter of several agri commodities. According to the Food and Agriculture Organization (FAO), India is the second-largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second-largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production, respectively.

In 2021-22, India’s export of agriculture and allied commodities stood at $50 billion. Given that the country’s total exports make up only 1.8% of global imports, it is only natural that industry stakeholders share the government’s optimism of tapping every opportunity to become a global export powerhouse. Hence, the government’s actions do not send the right signals, say stakeholders.

India’s biggest agricultural export is rice; it contributed to 19% of agriculture exports in 2021-22. The other major exports are sugar, spices and buffalo meat — at 9%, 8% and 7%, respectively — according to a research by the Commerce Ministry’s India Brand Equity Foundation.

India’s share in world agricultural exports stood at 2.1% in 2019, from 1.7% in 2010. However, India’s rank in worldwide agricultural exports slipped to 16 in 2019 from 17 in 2010, according to the World Trade Organization (WTO).

In terms of the share of top ten product exports under APEDA basket, there has not been much change in the last decade even as India’s exports reached more countries. The top APEDA exports in share terms in 2020-21 were non-basmati rice (23.22%), basmati rice (19.44%), buffalo meat (15.34%), maize (3.07%) and wheat (2.66%).

The larger picture
On its part, the government had introduced the comprehensive Agriculture Export Policy in December 2018 to grow farm exports from $30 billion to $100 billion. A common view among the exporting fraternity is that the country cannot achieve this ambitious milestone in the face of such instability.

Singh claims it has been empirically established that the domestic prices of agricultural products converge with their global counterparts in the medium to long term. “If the government imposes export restrictions on agriculture products, it should increase the minimum support price of those commodities. This will ensure local wholesale buyers do not depress prices saying export restrictions have led to surplus stocks.”

However, industry observers say that maintaining a balance is not an easy task. It is not possible to serve everyone’s interest. They point to the example of broken rice.

In September, the government had said the domestic rice availability position was comfortable. The “prohibited” status of broken rice had ensured domestic food security, availability of domestic feed for poultry and cattle feed, and kept a check on inflation, it said.

There is a rise in global demand for broken rice. China and Vietnam had become major buyers in the past two years for their poultry industry. African countries were already importing broken rice as a staple food. The demand for broken rice has significantly increased within India also as soya meal and corn became costlier options for poultry feed. Besides, broken rice can be used for ethanol production, and the government has lately increased ethanol blending target from 10% to 20%.

The government claims the export of broken rice rose 43 times in the past 4 years — 21.31 LMT exported in April-August 2022, from 0.51 LMT in the corresponding period of 2018-19. Several countries that never imported broken rice from India tapped into the Indian market to exploit the situation. These developments warranted government intervention to allay domestic food security concerns, say authorities.

The industry body representing rice exporters sees merit in the government’s decision. “The government must have given a lot of thought before imposing export restrictions,” says Vinod Kumaar Kaul, Executive Director, All India Rice Exporters Association (AIREA). “Because apart from food security, the need for alternative fuel is also an emerging task. Broken rice is one key element in the production of ethanol.”

There are cases where government’s interventions are unavoidable. Exporters say even if a pro-market, pro-export policy is not a feasible option, the government should have a stable policy that takes into consideration the interest of all the stakeholders.

Using the example of Bangladesh, former RBI Governor Raghuram Rajan says policy predictably is among the reasons the country was able to become a successful exporter of textiles. Rajan, who is now a professor at the University of Chicago Booth School of Business, made these comments during an interaction with Rahul Gandhi while participating in the politician’s Bharat Jodo Yatra initiative on December 14. “Technology support, finance support and policy certainty are required” for any industry to grow. “You can’t tell them no exports one day and then another day tell them please do export,” adds Rajan.

Edited by Ram Mohan. Illustrations by Mohammad Arshad.

(Originally published on Dec 15, 2022, 10:03 AM IST)

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