Another U-turn on farm policy
The ban on wheat exports will hurt farmers. Provide adequate MSP for the kharif season
From talking about feeding the world if the World Trade Organization allowed Indian exports to banning wheat exports with immediate effect to check domestic prices, India’s agricultural trade policy has done its usual volte face once again. What led to the decision is not difficult to pinpoint. Global markets for wheat have suffered a massive supply shock due to the Russia-Ukraine war. A double whammy of fertiliser shortages and a severe premature heatwave has badly hit the wheat crop yield in India and production is likely to end up being significantly lower than projections. While many experts saw this coming, official acknowledgement was delayed, pointing to either hubris or a lack of due diligence.
A cocktail of international and domestic supply shocks has led to a spike in prices. Headline consumer price index reached an eight-year high in April. There is good reason to believe that the jump in wholesale prices of wheat will be even greater when the Wholesale Price Index is released on May 17. Higher market prices have led to a drop in government procurement of wheat, and stocks are running significantly low compared to the recent past. Allowing wheat exports would have generated more tailwinds for food inflation. Low procurement would have also made it difficult for the government to run its food security programmes smoothly. Is the export ban decision unambiguously beneficial for everyone? Far from it. India’s wheat farmers have seen a sharp rise in their cost of cultivation due to rising input costs and drop in yields. The latter has diminished net returns. By short-circuiting their attempts to exploit a strong export market, the government has once again sacrificed them at the altar of inflation management. Agricultural and trade policy never displays such urgency when prices crash, and farmers can’t recover costs. The policy contradictions outlined here aren’t unfolding for the first time. Banning exports in the aftermath of a surge in domestic prices has been the standard government response.
Is there a long-term solution to this problem? Two principles must be accepted. If farmers are not allowed to exploit windfall market gains, then the government must not hold back in providing an adequate price cushion through hikes in Minimum Support Prices (MSPs). The government will have to show this commitment when it announces MSPs for the kharif season. India also needs to overhaul its official crop information systems on an urgent basis. If the leadership had timely information about the shortfall in wheat output, this policy embarrassment could have been avoided.