Agricultural Sector and Marketing Reforms – eNAM, Model APMC Act, Eco Survey Reco, etc.

India’s Rice Exports and food Insecurity

ExportsContext

  • On August 8, India banned the exports of broken rice and imposed a 20 per cent duty on the exports of various grades of rice amid high cereal inflation and uncertainties with respect to domestic supply.

Background

  • This is surely not the first time an attempt is being made to ban wheat and rice exports.
  • It was also done in 2007-08, in the wake of the global financial crisis.
  • Perhaps government will also impose stocking limits on traders for a host of commodities, suspend futures trading in food items, and even conduct income tax raids on traders of food.

Exports

What is the current status of rice in India?

  • World’s largest rice exporter: India has exported more than 20 MT of rice worth a record $9. 6 billion to more than 150 countries in 2021-22.It has been the world’s largest rice exporter of the grain in the last decade and has a share of around 44% global trade.
  • Likely to fall in production: India’s rice production is likely to decline by 6 per cent t to 104.99 million tonnes in the kharif season due to a fall in paddy acreage amidst rainfall deficit in key producing states, including Jharkhand, Madhya Pradesh and West Bengal.
  • Kharif season: Sowing in the kharif season begins with the onset of the southwest monsoon from June and harvesting from October onwards .About 85 per cent of India’s total production comes from this season.
  • Deficient rainfall: West Bengal, the biggest rice producer amongst states, has received deficient rainfall in 15 of its 23 districts, raising the likelihood of crop loss. Uttar Pradesh, the second biggest producer of rice has received 42% less rainfall than benchmark. The rainfall deficiency in the other eastern states Bihar (-34%) and Jharkhand (-48%).
  • Depleting stocks: There are concerns about rice stocks with the Food Corporation of India (FCI) depleting to a 10-year low level by April, 2023 year, if the free ration scheme is extended to the second half of the financial year. The government may have to impose some curbs on rice exports though minimum export price or an export tax if the scheme is extended.

Why India’s rice export ban is cause for worry?

  • Thin world rice market and the impact on prices: Given that 90 per cent of production is consumed domestically, As a result, any small change in exports and imports has an enormous impact on prices, especially if it leads to panic buying of food grains by rich countries.
  • Limited Import option: The stakes are higher as it is India’s largest agricultural crop. Unlike with wheat, the options for import in rice due to any production shortfall are limited, when India’s own share in the global trade of the cereal is more than 40%.
  • Affect the credibility: The export uncertainties will affect the credibility of Indian exporters, create a disincentive for future exports, and will enable buyers to shift towards other major rice-exporting countries.
  • Affect a section of farmers: Though Indian farmers in general lack market access, and hence do not take advantage of high market prices, the fall in prices may adversely affect a section of farmers who hope to get a better price for their produce through exports. The exporters who face the burden of the unfeasibility of exports may pass it on to farmers in the form of lower prices during procurement.
  • Affect low-income and low middle-income Countries: India’s export restrictions will adversely affect several low-income and low-middle-income countries like Bangladesh, Senegal, Nepal and Benin, which are among the largest importers of Indian rice.
  • Domestic prices and to safeguard food security: Frequent changes in export policies undoubtedly have long-term ramifications on domestic prices

Exports

What are the Issues in India’s rice export strategy?

  • Highest ever volume: India exported the highest-ever volume of 21 million metric tonnes (MMT) of rice in 2021-22 (FY22) in a global market of about 51.3 MMT, which amounts to about 41 per cent of global exports.
  • Reduced price: Such large volumes of rice exports brought down global prices of rice by about 23 per cent in March (YoY), when all other cereal prices, be it wheat or maize, were going up substantially in global markets. In fact, in FY22, the unit value of exports of common rice was just $354/tonne, which was lower than the minimum support price (MSP) of rice.
  • Below MSP buying or leakage from PMGKAY: This meant that rice exporters were either buying rice (paddy) from farmers and millersat below the MSP or that quite a substantial part of rice was given free under the PM Garib Kalyan Ann Yojana (PMGKAY) was being siphoned away for exports at prices below MSP.
  • Artificial competitive advantage: Free electricity for irrigation in several states, most notably Punjab, and highly subsidised fertilisers, especially urea, create an artificial competitive advantage for Indian rice in global markets.

Problems with India’s rice cultivation

  • Lower yield: India’s rice yield is lower than the world average. However, India’s yield is better than Thailand and Pakistan but worse than Vietnam, China and the US.
  • Higher cost of cultivation and price support: The cost of cultivation in India is also increasing, and hence there will be a need for a higher MSP to make production remunerative. This will exacerbate the pressure to re-think its price-support-backed food security mechanism.
  • Water-intensive nature: India’s rice production likely to fall amidst the shortfall of rainfall in major rice producing states and increasing salinity of soil because of over usage of water. The water-intensive nature of rice cultivation, along with frequent export restrictions will adversely affect the long-run sustainability of rice production. In India, around 49 per cent of rice cultivation depends on groundwater which is depleting rapidly.

ExportsWhat is the link between Rice cultivation and groundwater depletion?

  • Ground water depletion: In India, around 49 per cent of rice cultivation depends on groundwater which is depleting rapidly.
  • Food and Agriculture Organization (FAO) data: As per the latest data available from the Food and Agriculture Organization (FAO), agricultural water withdrawal as a percentage of total available renewable water resources has increased from 26.7 per cent in 1993 to 36 per cent in 2022.
  • Virtual water trade (VWT): Rice exports are leading to an indirect export of water to other countries a phenomenon known as virtual water trade (VWT). The relative per capita water availability in India is lower than a majority of its major importing countries. The other major exporters of rice, such as Thailand and Vietnam, also have better per capita water availability in comparison to India.
  • Renewable water resources: Out of 133 countries in which India has positive net rice exports, only 39 countries have relatively lower per capita renewable water resources. Out of these 39 countries, 12 countries are high-income countries with the ability to buy food at a higher price.

Conclusion

  • Depletion of groundwater resources and rising cost of cultivation may threaten rice production in the future. Adequate water saving measures in the form of widespread adoption of water saving practices like System of Rice Intensification (SRI) need to be taken to keep input requirements, costs and production sustainable.

Mains question

Q.As many developing countries depend on Indian rice, rice export restrictions have raised food security concerns in the global market. In this context discuss the causes and effects of India’s restrictions on rice export.

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