Industry
Mint Primer | The fallout of India’s unpredictable farm trade policy
Summary
- In December 2023, onion exports were banned following a dip in production, to keep retail prices in check. The government has now decided to flip the ban.
To placate onion growers ahead of polls, the Centre has lifted a ban on exports imposed last year. This is a rare occasion for farmers to celebrate, because trade policies often favour consumers. At times they hurt India’s reputation as a reliable supplier too. Mint explains.
Why was the export ban lifted?
In December 2023, onion exports were banned following a dip in production, to keep retail prices in check. Growers from Maharashtra, the top producer, hit the streets in protest, demanding a rollback. An export ban usually causes local prices to dip, hurting farm revenues. After five months, on 4 May, the ban was lifted, subject to a minimum export price (MEP) plus a 40% duty. The Centre reasoned that supplies have improved following a good winter harvest and domestic prices are stable. But the timing is suspect: just ahead of polling in the ongoing general elections in Maharashtra’s onion-growing belt, on 13 and 20 May.
Can this decision be reversed?
That depends on how local retail prices move. Data from the consumer affairs department shows retail onion prices were 56% higher year-on-year on Tuesday, while wholesale prices were 62% higher. Currently, onions can be exported at prices above ₹64 per kg—due to the MEP and export tax in place. This is substantially higher than the domestic retail price of ₹31 per kg. If domestic prices shoot up, either due to higher exports or any losses in the upcoming Kharif crop season, the decision may be reversed. Right now, the hope is that above-normal monsoon rains beginning June will boost local supplies.
Are export restrictions common?
Yes. These are usually enforced to tame local prices. Currently, India has such restrictions on wheat, rice and sugar—all mass consumption items. Also, the Centre has allowed duty-free imports of some pulses and edible oils to keep a lid on prices. This consumer bias hurts farmers who are unable to benefit by supplying to global markets during a price spike.
What explains this pro-consumer bias?
It is not easy to balance consumer and producer interests. Farmers prefer unrestricted trade when global prices are high (wheat and rice in recent years) but not when world prices hit a low (say, when imported oils are cheaper than homegrown ones). The policy focus is to keep food affordable for the masses. Because food items account for a very high share in the retail inflation basket, governments are quick to react to price spikes. But not when local prices plunge and farmers are pushed to dump their produce.
Do such sudden moves have other effect?
A predictable trade policy is key to gaining market share globally. Suddenly restricting supplies can lead to shortfalls in countries dependent on imports. Global buyers then look for a reliable supplier elsewhere. Recently, India’s move to ban rice exports was slammed because of its 40% share of global trade. And Bangladesh is looking for onions from other countries due to frequent Indian curbs. In FY24 (Apr-Feb) the value of India’s farm exports fell 9% y-o-y due to export curbs on various farm items.
