Business

If the Centre Truly Wants to Boost Agri Exports, Its Minimum Export Price Strategy Needs Rethinking

With farm exports declining and domestic prices below costs of production, it is unclear how the Modi government’s promise of doubling farmers’ incomes will be fulfilled.

Labourers remove dried grass from a rice field on the outskirts of Ahmedabad, India, August 30, 2016. Credit: Reuters/Amit Dave/Files

Labourers remove dried grass from a rice field on the outskirts of Ahmedabad, India, August 30, 2016. Credit: Reuters/Amit Dave/Files

New Delhi: The NDA government has suddenly realised that India’s annual farm exports at $30 billion are far below potential and can be raised up to $100 billion through policy relaxation.

“India’s agri exports potential is as high as $100 billion against a current export of $30 billion. To realise this potential, export of agri commodities will be liberalised,” finance minister Arun Jaitley said while presenting the Union Budget 2018-19 in the Lok Sabha.

Significantly, India’s agriculture exports have been fallen in recent years – from $43.23 billion in 2013-14 to $33.87 billion in 2016-17. On the other hand, farm imports have risen from $15.03 billion in 2013-14 to $25.09 billion in 2016-17, as per available data.

More recently, in December 2017, out of 13 agri commodities being tracked by the commerce ministry, five categories – other cereals, cashew, oil meals, oil seeds, fruits and vegetables – reported negative export growth.

The share of agriculture in India’s total exports too has steadily fallen over the these years – from 13.79% in 2013-14 to 12.26% in 2016-17.

In contrast, India witnessed robust farm export growth between 2003 and 2013. Its farm exports grew from just over $5 billion in 2003 to a record of more than $39 billion in 2013. India became world’s seventh-largest exporter of agricultural products in 2013, overtaking Australia.


Also read: Why MSP at 1.5 Times Cost Is Another Empty Promise for Farmers


No one can argue with the government’s contention that India is punching far below its potential in the agriculture export market. However, the timing of the announcement raises doubts about government’s seriousness about liberalising its agriculture export policy.

The proposal comes at a time when the agrarian distress in the country is running high and the ruling party fears political backlash in the coming general elections. BJP’s relatively poor performance in rural Gujarat in recent polls has exposed BJP’s vulnerability.

India has been banning export of agriculture products, citing food security concerns. Over the last four years, the Centre has imposed a ‘minimum export price’ (MEP) mostly on commodities like onion, wheat, rice, potato and edible oils in the past to discourage exports and augment domestic availability.

India’s agriculture exports in recent years

FY Agriculture exports ($bn)
2017-18 (April-October) 10.17
2016-17 33.87
2015-16 30.1
2014-15 38.6
2013-14 42.8

Source: Commerce Ministry, APEDA

In November 2017, for instance, the Modi government re-imposed an MEP of $850 per tonne on onion to increase domestic supplies and check rising prices after two years. MEP is the minimum rate below which exports are not allowed. It was only two years before that the government had scrapped onion MEP in December 2015.

The decision to slap an MEP on onions in late 2017 was helped by lobbying by the consumer affairs ministry. On February 1, 2018, the onion MEP was once again removed.

Experts say that removal of the MEP is the first step towards tackling the volatility in onion prices. In the Budget, Jaitley also launched an ‘Operation Green’ scheme to address price fluctuations in onions, potato and tomato for the benefit of farmers and consumers. The scheme comes with a budgetary allocation of Rs 500 crore for the fiscal 2018-19.

Farmers load fodder onto a tractor in a field at Kolat Village on the outskirts of Ahmedabad, India January 27, 2018. Credit: Reuters/Amit Dave

Farmers load fodder onto a tractor in a field at Kolat Village on the outskirts of Ahmedabad, India January 27, 2018. Credit: Reuters/Amit Dave

The NDA government’s MEP strategy in other commodities is also puzzling.

The government had imposed MEP of $450 per tonne on potatoes in June 2014 to improve domestic availability. The restriction was removed in February 2015 only after potato prices crashed in the domestic market due to bumper production. “The removal of existing MEP on potato will help farmers in realising better and remunerative prices and would also help the exporters in earning valuable foreign exchange for the country through exports,” said the commerce ministry notification.

Significantly, the government imposed MEP on potatoes in June 2014 to increase availability. However, it did not come to potato growers’ rescue when prices crashed in 2015. In August 2015, farmers in Jalandhar were forced to distribute 500 quintals of potato free to consumers when prices fell to below Rs 200 per quintal from Rs 1,350-1,400 per quintal during the same month preceding year.


Also read: For India’s Farmers, Budget 2018 Is Nothing but a Hoax


Recently, Uttar Pradesh potato farmers dumped their produce to lodge their protest against the state government. Farmers said it takes Rs 8 to produce a kg of potatoes but the potato was selling at Rs 1-2 per kg in early January. The minimum support price for potatoes for this season at Rs 4.87 per kg too is lower than costs of production.

In July 2014, the Modi government had scrapped 5% export incentives available to skimmed milk powder exporters to boost domestic availability and cool prices. In June 2012, the previous government had lifted the ban on SMP exports and included this product under Vishesh Krishi and Gram Udyog Yojana under which exporters can avail 5% duty credit scrip on export value.

Government opposes proposal to notify export restriction on agric products in advance at WTO

The government has even refused to forfeit its right to restrict farm exports without prior notice at the WTO. India has opposed a proposal that, if implemented, will obligate countries to notify well in advance any restriction they may impose on exports of food products, saying the move is not practical and undermines the very intent of imposing export restrictions. The proposal was moved by Singapore just ahead of the crucial WTO ministerial meeting in Buenos Aires last December.

It has also opposed the proposal that a developing country should provide data to justify that it is a net food importer as it reverses the prerequisite for a country to prove it is a net food exporter under the current WTO norms.

The NDA government has promised to double farmers’ incomes by 2022. But with agri exports declining and domestic prices below costs of production, it is unclear how the promise will be fulfilled.

Liked the story? We’re a non-profit. Make a donation and help pay for our journalism.