ICRIER Research looked at the effects of export restrictions and stocking limits to combat food inflation
The agri sector, Indian farmers, and food inflation have all been negatively impacted by the adverse weather conditions and other geopolitical occurrences.
A record-breaking heat wave in 2022 had an impact on the yield of many important crops.
Additionally, in February of this year, Russia invaded Ukraine. In 2023, things started to become worse. An unusual temperature surge at the start of the year had a negative impact on the onion crops. Concerned farmers hurried to the marker with their harvests as the temperature increase threatened to shorten the shelf life of onions.
Crops were damaged by hailstorms and unseasonal rain
There was a price drop as a result of the abundant crop arrival in mandis. Multiple instances of unseasonal rain and hailstorms that lasted for at least three months began in March. This once again had an impact on important crops, like tomatoes. During the weeks when tomato prices rose, the effect was apparent. Then the monsoon was delayed, which had an impact on the sowing cycle.
Uneven rainfall that followed continued to harm Kharif crop production. There was more terrible news in August. The IMD reports that this August was the driest in 122 years. Although September is seeing some rainfall, experts suggest that it won't help because the maturing window for important crops including soybean, cotton, maize, groundnuts, coriander, coffee, and pulses is past.
Additionally, paddy crops are damaged by severe rain, which also has the potential to lower yields and lower overall production.
Ban on Exports of Food Items from India
In response to these circumstances, the Indian government began to act. The move includes a stocking limit on wheat traders and millers in June 2023, the recent 40% export duty on onions, a prohibition on the export of wheat in May 2022, a ban on the export of broken rice in September 2022, a ban on the sale of wheat flour products, and a ban on the export of non-basmati rice.
In its most recent research, the Indian Council for Research on International Economic Relations examined the impact and negative consequences of these measures, which use stocking limits and export restrictions to combat food inflation.
According to the ICRIER research, the adoption of such policy measures shows a bias in India's food price policy in favour of urban consumers, which is itself a covert transfer of resources from farmers to consumers.
According to the study, "In the financial year FY22, India exported 7.5 MMT of wheat, and with the Russia-Ukraine war beginning in March 2022, the global prices were rising." Given that local prices were rising in line with the global trend, India might have increased exports, which would have benefited farmers.
However, by prohibiting the export of wheat and wheat products (atta), selling 3.4 MMT of wheat on the open market at a loss, and then imposing stocking restrictions on dealers and millers, the market prices were brought down to the level of the MSP stated.
Government ensures interest of Indian Consumers
According to the study, the government's strategy of imposing a stocking limit and a prohibition on exports shows a clear propensity towards the interests of consumers. The policy's stated goal is to act as a floor price for farmers, according to the statement. If market prices are higher, the GOI is expected to engage in market competition and purchase goods for its requirements to support the PDS at market prices.
However, it practically amounts to "dumping" within India by GOI itself when exports are prohibited and GOI unloads its stockpiles below its economic cost with a goal to depressing market prices! The final result is a "implicit tax" on farmers if it also places stocking restrictions on traders and millers.
The strategy reveals a strong "pro-consumer bias" in India's approach to food pricing.
The report suggests using trade policy sparingly to combat inflation while keeping farmers' interests in mind, without eroding their income. The article suggests that "In the short run, prefer free trade to protectionist trade.
To effectively control rising commodity inflation, it is crucial to calibrate trade policies.
It advises that in order to lower prices, import duties on wheat and spices should be lowered, import limitations on the least expensive pulses should be reviewed, and the government should create buffer inventories for unstable crops like tomatoes, onions, and potatoes (TOP).
Processing Industry needs to be Strengthened
According to the study, "The processing industry needs to be strengthened in the medium term. It will also be beneficial to encourage consumers to adopt tomato puree and dehydrated onion as viable alternatives when fresh food is under price pressure. At least 10% of fresh food should be processed in order to reduce inflationary pressure on onions and tomatoes.
Long-term, the article suggests that the government raise its R&D expenditures, keep climate change in mind, invest in novel farming techniques, drought-resistant seed varieties, and expand irrigation coverage.
According to the report, in order to control food inflation, we must update the entire policy framework in light of climate change and accelerate reform in marketing and trade policies, moving away from antiquated export limits and consumer-friendly agriculture price regulations, which frequently come at the expense of farmers.
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