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Ban on farm exports not lifted fully: Farmers will pay for a badly timed decision

The ban on farm exports has not been lifted fully, despite forecasts of a bumper crop. Globally, the price of wheat has begun to fall.

, ET Bureau|
Updated: Jul 31, 2011, 03.54 AM IST
Ban on farm exports not lifted fully: Farmers will pay for a badly timed decision
It is slated to be a bumper year for Indian agriculture. Production of key crops such as wheat, coarse cereals and cotton will hit all-time records in 2010-11.

But what is good news for the customer is not necessarily great news for the farmer. High crop output and excess supply in a good year such as this one, can lead to a crash in prices and shrink farm incomes.

To mitigate this, the government has been considering lifting a four-year ban on wheat exports. It has already partially lifted a three-year ban on rice exports. The aim is to allow farmers to sell their crops in the overseas commodities market, rather than letting them rot in government godowns.

However, experts say that the decision to lift the ban, which is being contemplated for three months, may come too late. Says Ashok Gulati, chairman of the Committee for Agriculture Costs and Prices (CACP) chairman: “The government should have opened wheat exports three months ago.

Now that international prices have dropped by $50, Indian wheat isn’t competitive enough and so can’t be exported.” This will cause huge losses to Indian farmers who are selling wheat at less than the minimum support price (the price government pay farmers for their crop) in many states. Ironically, agriculture minister Sharad Pawar has stated that the ban on wheat experts has been revoked.

On the sidelines of a function organised by the Indian Council of Agriculture Research on July 15, he said : “Yes, there is no ban, wheat exports are allowed.”

But even a fortnight later, this Friday, food minister KV Thomas scotched any such hope saying he wants “the wheat produced by our farmers to be distributed here first”. Clearly, getting lucrative prices for the bumper wheat crop has become a political football. Even as policymakers procrastinate, international wheat prices have dropped by roughly 1% in the past seven days.

Repeated delays...

The problem is not restricted to wheat. Bad decision making has affected potential farmer incomes from other commodities like rice, sugar and cotton. In March this year, the government gave the go-ahead for 5 lakh metric ton of sugar exports after stalling the decision for almost three months. The government’s delay reduced the benefits for sugar exporters as international prices of sugar had fallen from record highs that prevailed a month before the decision was taken.

Not only was the move late, it was also overcautious. According to officials at the sugar mills’ association, the total sugar output including carry over stock was 272 lakh ton in 2010-11. The domestic consumption was around 220 lakh ton. However, only 20 lakh ton was allowed to be exported under various schemes. “The surplus is being stored and the quality is deteriorating. At the same time, global prices are higher than domestic prices by Rs 500 a quintal and still going up. Sugar exporters are unable to fully benefit from the high global prices ,” says a member of the association. The situation is the same with cotton.

Ban on farm exports not lifted fully: Farmers will pay for a badly timed decision
Says Dhiren Seth, president of Cotton Association of India: “In June, 10 lakh bales of cotton were released for exports. This was late as global prices had already begun to fall. However, prices in the international markets are still 10-15% higher than domestic prices. So more cotton should be freed up for exports before global prices fall further.” Just like with sugar, the move was too overcautious.

“Cotton witnessed a record production of 34 million bales last year. Domestic consumption was around 23 million bales, so a lot more could have been exported” says Gulati. But there is one commodity for which the government seems to have timed exports right: non-basmati rice. In mid-July, it announced exports of 1 million ton of non-basmati rice . Global prices are expected to rise now following speculation of a price hike in Thailand, the world’s largest rice exporter.

However, according to Vijay Sethia, the president of All India Rice Exporters Association, the minimum export price of $400 a ton is $100 less than the price of producing a ton of rice. So the farmers will suffer, not benefit from the exports. According to him, the global prices of the same quality of rice range from $525-$625 a ton — $120-$225 higher than the prices in India.
At high cost to farmers

According to agricultural experts, had it not been for the government’s too-little too-late strategy on lifting export bans, farmers would have sold at least 2-3 million more units of output and earned 10-15% more than domestic prices.

This dithering in policymaking has cost wheat producers around Rs 326 crore, rice producers Rs 600 crore, cotton farmers `163 crore and sugar farmers Rs 544 crore. Ramesh Chand, professor at the National Centre for Agricultural Economics and Policy (NCAP) says another big loss is due to wastage of grains in bad storage conditions. India has a storage capacity for 41 million ton for food grains while the total stock has been around 65 million. Analysts at Angel Brokers, a commodity trading firm, say postponing policy decisions also leads to additional price fluctuations.

Ban on farm exports not lifted fully: Farmers will pay for a badly timed decision
For instance, when the first announcement for allowing 5 lakh tons of sugar was made in December, sugar prices rose by around 4%. When the approval came in March, prices rose by 1.5-2% again. After the final notification in April, prices once again increased by 0.5-1%.

But Chand does not agree to putting a cost to the loss from delays in lifting export ban as one side’s loss is another’s gain: “Though farmers lose out, customers gain and a glut in the market benefits industry which usually ends up paying lower prices for agricultural inputs,” he says.

Is there any solution to this problem? Policymakers don’t think so. “First imposing the ban on trade and then lifting it takes too long. But this is nothing new: it has been happening for the past 20 years because agricultural commodities play an important role in politics,” says Abhijit Sen, member of the Planning Commission. Gulati says the problem is exacerbated as the government is risk averse and unable to read the future properly.

The agriculture ministry does not agree. Says PK Basu, secretary, agriculture ministry: “The government has to be overcautious in taking decisions on export bans as it is related to the issue of domestic food security. The decision making is a difficult process and takes time because the government has to balance many issues regarding PDS and industry. It is wrong to say these decisions are ‘delayed’. I agree the the timing for lifting export bans has been wrong for certain commodities. But the government can’t control all parameters that affect prices.”

What about hurting farmer’s interests? The issue remains unresolved. “The government is killing incentives for farmers by subsidising industry at their cost in commodity after commodity. This is not the right way to achieve the target 4% growth in agriculture” says Gulati.
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