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Subject: Agriculture

  • Centre to amend Warehousing Act

    The Union Food and Public Distribution Ministry has suggested major amendments to the Warehousing (Development and Regulation) Act of 2007.

    Warehousing Act, 2007

    • The GOI has introduced a negotiable warehouse receipt system in the country by enacting the Warehousing (Development and Regulation) Act, 2007 (37 of 2007).
    • It has been made effective with effect from the 25th October, 2010.
    • The Negotiable Warehouse Receipt (NWR) system was formally launched on the 26th April, 2011.

    Why was this Act enacted?

    • To make provisions for the development and regulation of warehouses, negotiability of warehouse receipts, establishment of a Warehousing Development and Regulatory Authority (WDRA) and related matters.
    • The Negotiable Warehouse Receipts (NWRs) issued by the warehouses registered under this Act would help the farmers to seek loans from banks against NWRs.
    • It will avoid distress sale of agricultural produce.

    What is the amendment about?

    • The aim is to help farmers get access to the services of quality warehouses.
    • The amendment is:
    1. To make registration of godowns compulsory
    2. To raise the penalty for various offences and
    3. To do away the jail term as a punishment for the offences
    • Central government will have powers to exempt any class of warehouses from registration with the Authority.
    • At present, registration with the Warehousing Development and Regulation Authority (WDRA) is optional.
    • After the proposed amendment, which is yet to be cleared by the cabinet, registration of all third party warehouses throughout the country, will be undertaken in a phased manner.
    • The Act wants to establish a system of negotiable and non-negotiable warehouse receipt (NWR), which is now in electronic form.

    Issues

    • Farmers pressure groups fears that the amendments are for bringing back certain provisions of the repealed Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act through the backdoors.

     

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  • Centre forms panel for Minimum Support Price (MSP)

    The Centre has finally constituted a committee headed by former Union Agriculture Secretary Sanjay Agrawal here to look into the issues of Minimum Support Price (MSP), as promised to protestant farmers after the repeal of three farm laws.

    Panel on MSP: Terms of reference

    • The panel will consist of representatives of the Central and State governments, farmers, agricultural scientists and agricultural economists.
    • This panel will be constituted:
    1. To promote zero budget-based farming,
    2. To change crop patterns keeping in mind the changing needs of the country
    3. To make MSP more effective and transparent
    • It also says that the committee will discuss methods to strengthen the Agricultural Marketing System as per the changing requirements of the country
    • It would ensure higher value to the farmers through remunerative prices of their produce by taking advantage of the domestic output and export.
    • On natural farming, the committee will make suggestions for programs and schemes for value chain development, protocol validation, and research for future needs.
    • It would support area expansion under the Indian Natural Farming System through publicity and through the involvement and contribution of farmer organizations.

    What is MSP?

    • The MSP assures the farmers of a fixed price for their crops, well above their production costs.
    • MSP, by contrast, is devoid of any legal backing. Access to it, unlike subsidized grains through the PDS, isn’t an entitlement for farmers.
    • They cannot demand it as a matter of right. It is only a government policy that is part of administrative decision-making.
    • The Centre currently fixes MSPs for 23 farm commodities based on the Commission for Agricultural Costs and Prices (CACP) recommendations.

    Fixing of MSPs

    • The CACP considered various factors while recommending the MSP for a commodity, including the cost of cultivation.
    • It also takes into account the supply and demand situation for the commodity; market price trends (domestic and global) and parity vis-à-vis other crops; and implications for consumers (inflation), environment (soil and water use) and terms of trade between agriculture and non-agriculture sectors.

    What changed with the 2018 budget?

    • The Budget for 2018-19 announced that MSPs would henceforth be fixed at 1.5 times of the production costs for crops as a “pre-determined principle”.
    • Simply put, the CACP’s job now was only to estimate production costs for a season and recommend the MSPs by applying the 1.5-times formula.

    How was this production cost arrived at?

    • The CACP projects three kinds of production cost for every crop, both at the state and all-India average levels.
    • ‘A2’ covers all paid-out costs directly incurred by the farmer — in cash and kind — on seeds, fertilizers, pesticides, hired labor, leased-in land, fuel, irrigation, etc.
    • ‘A2+FL’ includes A2 plus an imputed value of unpaid family labor.
    • ‘C2’ is a more comprehensive cost that factors in rentals and interest forgone on owned land and fixed capital assets, on top of A2+FL.

    How much produce can the government procure at MSP?

    • The MSP value of the total production of the 23 crops worked out to around Rs 10.78 lakh crore in 2019-20.
    • Not all this produce, however, is marketed. Farmers retain part of it for self-consumption, the seed for the next season’s sowing, and also for feeding their animals.
    • The marketed surplus ratio for different crops is estimated to range differently for various crops.
    • It ranges from below 50% for ragi and 65-70% for bajra (pearl millet) and jawar (sorghum) to 75% for wheat, 80% for paddy, 85% for sugarcane, 90% for most pulses, and 95%-plus for cotton, soybean, etc.
    • Taking an average of 75% would yield a number of just over Rs 8 lakh crore.
    • This is the MSP value of production that is the marketable surplus — which farmers actually sell.

    Nature of MSP

    • There is currently no statutory backing for these prices, nor any law mandating their enforcement.

    Farmers demand legalization

    • Legal entitlement: There is a demand that MSP based on a C2+50% formula should be made a legal entitlement for all agricultural produce.
    • Private traders’ responsibility: Some says that most of the cost should be borne by private traders, noting that both middlemen and corporate giants are buying commodities at low rates from farmers.
    • Mandatory purchase at MSP: A left-affiliated farm union has suggested a law that simply stipulates that no one — neither the Government nor private players — will be allowed to buy at a rate lower than MSP.
    • Surplus payment by the govt.: Other unions have said that if private buyers fail to purchase their crops, the Government must be prepared to buy out the entire surplus at MSP rates.
    • Expansion of C2: Farm unions are demanding that C2 must also include capital assets and the rentals and interest forgone on owned land as recommended by the National Commission for Farmers.

    Government’s position

    • The PM has announced the formation of a committee to make MSP more transparent, as well as to change crop patterns — often determined by MSP and procurement.
    • The panel will have representatives from farm groups as well as from the State and Central Governments, along with agricultural scientists and economists.

    Issues with legal backing

    • Demand-supply dynamics: Economic theory, as well as experience, indicates that the price level that is not supported by demand and supply cannot be sustained through legal means.
    • States responsibility: The Centre has suggested that the States are free to guarantee MSP rates if they wish, but also offers two failed examples of such a policy:

    [I] Sugar FRP

    • In the sugar sector, private mills are mandated to buy cane from farmers at prices set by the Government.
    • Faced with low sugar prices, high surplus stock, and low liquidity, mills failed to make full payments to farmers, resulting in an accumulation of thousands of crores worth of dues pending for years.

    [II] Withdrawal of traders

    • The other example is a 2018 amendment to the Maharashtra law penalizing traders with hefty fines and jail terms if they bought crops at rates lower than MSP.
    • As open market prices were lower than the (legalized) MSP levels declared by the State, the buyers withdrew from the market and farmers had to suffer.

    Will a legal backing for MSP solve all the ills that plague the Agriculture sector?

    • Only one side of the coin: Actually, no. Remunerative price or MSP is only one part of the problems farmers face.  Farmers face many other issues other than price, which itself is not guaranteed given the influence of politicians and cartels in mandis.
    • Information deficit: They lack information on which crop to grow, when to sow, apply plant nutrients and which pest is attacking their crop.
    • Lack of technology: Farmers are also short of post-harvest technologies to ensure a better shelf life for their produce.
    • Irrigation and storage problem: They do not get adequate facilities to irrigate their lands, with nearly 50 percent of the land being rain-fed and lacking ample warehouses to store their produce at the village level, besides proper roads to connect them to the mandis.
    • Threat of new loopholes: Legal backing for the MSP could also lead to the danger of the trade keeping away from places where the law is implemented vigorously.

    Fiscal cost of making the MSP legally binding

    • The MSP value of the total output of all the 23 notified crops worked out to about Rs 11.9 lakh crore in 2020-21.
    • Taking an average of 75% yields a number – the MSP value of production actually sold by farmers – just under Rs 9 lakh crore.
    • The government is further, as it is, procuring many crops. The MSP value of the 89.42 mt of paddy and 43.34 mt of wheat alone bought during 2020-21 was around Rs 253,275 crore.
    • All in all, then, the MSP is already being enforced, directly or through fiat, on roughly Rs 3.8 lakh crore worth of produce.
    • Providing a legal guarantee for the entire marketable surplus of the 23 MSP crops would mean covering another Rs 5 lakh crore or so.

    Conclusion

    • A growing consensus among economists for guaranteeing minimum “incomes”, as against “prices”, to farmers.
    • That would essentially entail making more direct cash transfers either on a flat per-acre (as in the Telangana government’s Rythu Bandhu scheme) or per-farm household (the Centre’s PM-Kisan) basis.
    • The resource requirement of such interventions will be so huge that no government will be left with resources to help farmers through other means like investment in public infrastructure, irrigation, and other incentives.
    • The danger of over-reliance on MSP is already visible in the state of Punjab. Agriculture has reached an almost static stage there.
    • The state is unable to diversify away from crops like paddy, which is destroying its natural resources and environment, marring long-term prospects of farming.

     

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  • Poverty reduction lessons from China

    Context

    The United Nations latest report, “Population Prospects” forecasts that India will surpass China’s population by 2023, reaching 1.5 billion by 2030 and 1.66 billion by 2050.

    Poverty eradication: Lessons from China

    • China’s story since 1978 is unique – the country has achieved the fastest decline in poverty.
    • Its experiences hold some important lessons for India, especially because in 1978, when China embarked on its economic reforms, its per capita income at $156.4 was way below that of India at $205.7.
    • Today, China is more than six times ahead of India in terms of per capita income – China’s per capita income in 2021 was $12,556, while that of India was $1,933 in 2020.
    • China started its economic reforms in 1978 with a primary focus on agriculture.
    • Contribution of agriculture: It broke away from the commune system and liberated agri-markets from myriad controls.
    • Increase in agri-GDP: As a result, during 1978-84, China’s agri-GDP grew by 7.1 per cent per annum and farmers’ real incomes grew by 14 per cent per annum with the liberalisation of agri-prices.
    • Creation of demand: Enhanced incomes of rural people created a huge demand for industrial products, and also gave political legitimacy for pushing further the reform agenda.
    • The aim of China’s manufacturing through Town and Village Enterprises (TVEs) was basically to meet the surging demand from the hinterlands.
    • Population factor: China introduced the one-child per family policy in September 1980, which lasted till early 2016.
    • It is this strict control on population growth, coupled with booming growth in overall GDP over these years, that led to a rapid increase in per capita incomes.
    • Chinese population growth today is just 0.1 per cent per annum compared to India’s 1.1 per cent per annum.

    Growth story of Indian agriculture

    • Over a 40-year period, 1978-2018, China’s agriculture has grown at 4.5 per cent per annum while India’s agri-GDP growth ever since reforms began in 1991 has hovered at around 3 per cent per annum.
    • Market and price liberalisation in agriculture still remains a major issue, and at the drop of any hint of food price rise, the government clamps down exports, imposes stock limits on traders, suspends futures markets, and pushes other measures that strangle markets.
    • Implicit taxation of farmers: The net result of all this is reflected in the “implicit taxation” of farmers to favour the vocal lobby of consumers, especially the urban middle class.

    Way forward

    •  Population control: The only way is through effective education, especially that of the girl child, open discussion and dialogue about family planning methods and conversations about the benefits of small family size in society.
    • Effective education: As per the National Family Health Survey-5 (2019-21), of all the girls and women above the age of 6 years, only 16.6 per cent were educated for 12 years or more.
    • Based on unit-level data of NFHS5 (2019-21), it is found that women’s education is the most critical determinant of the status of malnutrition amongst children below the age of five.
    • Unless a focused and aggressive campaign is launched to educate the girl child and provide her with more than 12 years of good quality education, India’s performance in terms of the prosperity of its masses, and the human development index may not improve significantly for many more years to come
    • If  government can take up this cause in sync with state governments, this will significantly boost the labour participation rate of women, which is currently at a meagre 25 per cent, and lead to “double engine” growth.
    • Nutrition interventions: The NFHS-5 data shows that more than 35 per cent of our children below the age of five are stunted, which means their earning capacity will remain hampered throughout life. They will remain stuck in a low-level income trap.

    Conclusion

    From a policy perspective, if there is any subsidy that deserves priority, it should be for the education of the girl child. This policy focus can surely bring a rich harvest, politically and economically, for many years to come.

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  • Pradhan Mantri Fasal Bima Yojana (PMFBY)

    Andhra Pradesh has decided to rejoin the crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) from the ongoing kharif season.

    Why in news?

    • Andhra Pradesh was one of six states that have stopped the implementation of the scheme over the last four years.
    • The other five, which remain out, are Bihar, Jharkhand, West Bengal, Jharkhand, and Telangana.

    What is PMFBY?

    • The PMFBY was launched in February 2016. It is being administered by Ministry of Agriculture.
    • It provides a comprehensive insurance cover against failure of the crop thus helping in stabilising the income of the farmers.
    • It is implemented by general insurance companies.

    Its functioning

    • PMFBY insures farmers against all non-preventable natural risks from pre-sowing to post-harvest.
    • Farmers have to pay a maximum of 2 per cent of the total premium of the insured amount for kharif crops, 1.5 per cent for rabi food crops and oilseeds as well as 5 per cent for commercial / horticultural crops.
    • The balance premium is shared by the Union and state governments on a 50:50 basis and on a 90:10 basis in the case of northeastern states.

    Farmers covered

    • All farmers growing notified crops in a notified area during the season who have insurable interest in the crop are eligible.
    • Earlier to Kharif 2020, the enrolment under the scheme was compulsory for following categories of farmers:
    1. Farmers in the notified area who possess a Crop Loan account/KCC account (called as Loanee Farmers) to whom credit limit is sanctioned/renewed for the notified crop during the crop season. and
    2. Such other farmers whom the Government may decide to include from time to time.

    Risks covered under the scheme

    • Comprehensive risk insurance is provided to cover yield losses due to non-preventable risks, such as Natural Fire and Lightning, Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado.
    • Risks due to Flood, Inundation and Landslide, Drought, Dry spells, Pests/ Diseases also will be covered.
    • Post-harvest losses coverage will be available up to a maximum period of 14 days from harvesting for those crops which are kept in “cut & spread” condition to dry in the field.
    • For certain localized problems such as loss/damage resulting from the occurrence of identified localized risks like hailstorm, landslide, and Inundation affecting isolated farms in the notified area would also be covered.

    Why many states has opted out?

    The opting-out states had mentioned several reasons:

    • The scheme should be voluntary.
    • States should be given options to choose the risks covered and the scheme should be universal.
    • State should be given option to use their own database of E-crop, an application used by the state government to collect information about crops.
    • Many state government wanted zero premium for farmers (meaning the entire premium should be paid by the government.
    • The non-payment of the State Share of premium subsidy within the prescribed timelines as defined in the seasonality discipline lea to the disqualification of the State Government.
    • The reason for West Bengal not implementing the PMFBY is purely “political” as it wants to implement the scheme without mentioning Pradhan Mantri in the name.

    How was the scheme structured, and what has changed since?

    • Initially, the scheme was compulsory for loanee farmers; in February 2020, the Centre revised it to make it optional for all farmers.
    • Now states and UTs are free to extend additional subsidy over and above the normal subsidy from their budgets.
    • In February 2020, the Centre decided to restrict its premium subsidy to 30% for unirrigated areas and 25% for irrigated areas (from the existing unlimited). Earlier, there was no upper limit.
    • Food crops (cereals, millets and pulses); oilseeds; and annual commercial / annual horticultural crops are broadly covered under the scheme.

     

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  • Why rice and wheat bans aren’t the answer to inflation

    Context

    There are reports suggesting that the government is mulling a ban on rice exports to tame inflation.

    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.

    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.
    • Reduces 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 millers at 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.
    • Suggestion: This is a perfect case for “optimal export tax” — not a ban — on rice exports.
    • If we can’t raise the domestic price of urea, which is long overdue, we should at least recover a part of the urea subsidy from rice exports by imposing an optimal export tax.

    Why export ban on wheat and rice is not a solution

    • Small contribution of cereals in inflation: In May, the consumer price index (CPI) inflation was 7.04 per cent (YoY). The cereals group as a whole contributed only 6.6 per cent to this inflation.
    • Within that, wheat, other than through PDS, contributed just 3.11 per cent and non-PDS rice contributed 1.59 per cent.
    • So, by imposing a ban on wheat and rice exports, India can’t tame its inflation as more than 95 per cent of CPI inflation is due to other items.
    • Interestingly, inflation in vegetables contributed 14.4 per cent to CPI inflation, which is more than three times the contribution of rice and wheat combined. And within vegetables, tomatoes alone contributed 7.01 per cent.
    • What all this indicates is that agri-trade policies need to be more stable and predictable, rather than a result of knee-jerk reactions.
    • Irresponsible behaviour: Export bans on food items also show somewhat irresponsible behaviour at the global level, unless there is some major calamity in the country concerned.
    • The recently concluded WTO ministerial meeting as well as the G-7 meet expressed concerns about food security in vulnerable nations.

    Way forward

    • Efficient value chain and processing facilities: In commodities like vegetables, most of which are largely perishable, we need to build efficient value chains and link these to processing facilities.
    • The same would go for onions, which often bring tears to kitchen budgets when prices shoot up.
    • A switch to dehydrated onion flakes and onion powder would be the answer.
    • Our food processing industry, especially in perishable products, is way behind the curve compared to several Southeast Asian nations.

    Conclusion

    If India wants to be a globally responsible player, it should avoid sudden and abrupt bans and, if need be, filter them through transparent export taxes to recover its large subsidies on power and fertilisers.

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  • Fertlizer subsidy issue

    Context

    The global prices of urea, DAP, MOP, phosphoric acid, ammonia and LNG have soared by two to two-and-a-half times in the last year

    Resource richness of Indian agriculture

    • No country has as much area under farming as India.
    • Land under cultivation: At 169.3 million hectares (mh) in 2019, its land used for crop cultivation was higher than that of the US (160.4 mh), China (135.7 mh), Russia (123.4 mh) or Brazil (63.5 mh).
    • Ample water: With its perennial Himalayan rivers and average annual rainfall of nearly 1,200 mm – against Russia’s 475 mm, China’s 650 mm and the US’s 750 mm – India has no dearth of land, water and sunshine to sustain vibrant agriculture.
    • But there’s one resource in which the country is short and heavily import-dependent — mineral fertilisers.

    India’s important dependence

    • In 2021-22, India imported 10.16 million tonnes (mt) of urea, 5.86 mt of di-ammonium phosphate (DAP) and 2.91 mt of muriate of potash (MOP).
    • Import value: In value terms, imports of all fertilisers touched an all-time high of $12.77 billion last fiscal.
    • In 2021-22, India also produced 25.07 mt of urea, 4.22 mt of DAP, 8.33 mt of complex fertilisers (containing nitrogen-N, phosphorus-P, potassium-K and sulphur-S in different ratios) and 5.33 mt of single super phosphate (SSP).
    • Import of raw material: The intermediates or raw materials for the manufacture of these fertilisers were substantially imported.
    • Total value of fertiliser imports: The total value of fertiliser imports by India, inclusive of inputs used in domestic production, was a whopping $24.3 billion in 2021-22.

    Two costs involved in import

    • 1] Foreign exchange outgo for import: The first is foreign exchange outgo:
    • Imports are mostly from the following countries:
    • Urea: Imported from China, Oman, UAE and Egypt
    • DAP: Imported from China, Saudi Arabia and Morocco.
    • MOP: Imported from Belarus, Canada, Russia, Israel and Jordan.
    • LNG: Imported from Qatar, US, UAE and Nigeria.
    • Ammonia: Morocco, Jordan, Senegal and Tunisia (phosphoric acid); Saudi Arabia and Qatar.
    • Rock phosphate: Jordan, Morocco, Egypt and Togo.
    • 2] Fiscal cost: The second cost is fiscal.
    • Fertilisers are not only imported but also sold at subsidised prices.
    • The difference is paid as a subsidy by the government.
    • That bill was Rs 1,53,658.11 crore or $20.6 billion in 2021-22 and projected at Rs 2,50,000 crore ($32 billion) this fiscal.
    • Unsustainably high costs: Both costs are unsustainably high to bear for a mineral resource-poor country.

    Suggestions

    1] Reduce consumption of high-analysis fertilisers

    • There is a need to cap or even reduce consumption of high-analysis fertilisers – particularly urea (46 per cent N content), DAP (18 per cent N and 46 per cent P) and MOP (60 per cent).
    • Incorporate urease and inhibition compounds in urea: This can be done by incorporating urease and nitrification inhibition compounds in urea.
    • These are basically chemicals that slow down the rate at which urea is hydrolysed and nitrified (which increases leaching).
    •  By reducing ammonia volatilisation and nitrate leaching, more nitrogen is made available to the crop, enabling farmers to harvest the same yields with a lesser number of urea bags.
    • Liquid nano-urea: Together with products such as liquid “nano urea” –it is possible to achieve a 20 per cent or more drop in urea consumption from the present 34-35 mt levels.
    • Liquid nano-urea with their ultra-small particle size is conducive to easier absorption by the plants than with bulk fertilisers, translating into higher nitrogen use efficiency.

    2] Promote the sale of SSP and complex fertilisers

    • A second route is by promoting sales of SSP (containing 16 per cent P and 11 per cent S) and complex fertilisers such as “20:20:0:13” and “10:26:26”.
    • Restrict DAP use: DAP use should be restricted mainly to paddy and wheat; other crops don’t require fertilisers with 46 per cent P content. 
    • India can also import more rock phosphate to make SSP directly or it can be converted into “weak” phosphoric acid
    • The latter, having only about 29 per cent P (compared to 52-54 per cent in normal “strong” merchant-grade phosphoric acid), is good enough for manufacturing “20:20:0:13”, “10:26:26” and other low-analysis complex fertilisers.

    3] Incorporate MOP into complexes

    • As regards MOP, roughly three-fourths of the imported material is now applied directly and only the balance is sold after incorporating into complexes.
    • It should be the other way around.
    • India, to re-emphasise, needs to wean its farmers away from all high-analysis fertilisers. 

    4] Use of NPKS complexes and indigenous sources

    • The moment to use more NPKS complexes and SSP, is already happening.
    • It requires a concerted push, alongside popularising high nutrient use-efficient water-soluble fertilisers (potassium nitrate, potassium sulphate, calcium nitrate, etc).
    • Exploiting alternative indigenous sources needs to be considered (for example, potash derived from molasses-based distillery spent-wash and from seaweed extract).

    5] Revise nutrient application recommendations

    • Farmers need to know what is a suitable substitute for DAP and which NPK complex or organic manure can bring down their urea application from 2.5 to 1.5 bags per acre.
    • It calls for agriculture departments and universities not just to revisit their existing crop-wise nutrient application recommendations, but disseminating this information to farmers on a campaign mode.

    Conclusion

    The costs associated with the use of fertilisers are unsustainably high to bear for a mineral resource-poor country such as India. We need to act on the measures to reduce our import dependence.

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    Back2Basics: High-analysis fertilisers

    • Fertilizers that have more than 30% total available nutrients are called high analysis fertilizers, whereas those with less than 30% total available nutrients are called low analysis fertilizers.
    • A 15-15-15 is a high analysis fertilizer; a 5-10-10 is a low analysis fertilizer, and a 10-10-10 is right on the borderline.

  • Agreement on Fisheries Subsidies (AFS)

    Context

    The recently concluded twelfth ministerial conference of the World Trade Organisation (WTO) adopted the trade agreement called the Agreement on Fisheries Subsidies (AFS).

    About the AFS

    • WTO negotiations on fisheries subsidies were launched in 2001 at the Doha Ministerial Conference, with a mandate to “clarify and improve” existing WTO disciplines on fisheries subsidies.
    • At the 2017 Buenos Aires Ministerial Conference (MC11), ministers decided on a work programme to conclude the negotiations by aiming to adopt, at the next Ministerial Conference, an agreement on fisheries subsidies which delivers on Sustainable Development Goal 14.6.
    • The recently concluded twelfth ministerial conference of the World Trade Organisation (WTO) adopted a sustainability-driven trade agreement called the Agreement on Fisheries Subsidies (AFS).

    Provisions adopted in the AFS

    • Prohibits three subsidies: Fundamentally, AFS prohibits three kinds of subsidies:
    • First, illegal, unreported, or unregulated (IUU) fishing.
    • Second, fishing of already over-exploited stocks.
    • Third, fishing on unregulated high seas.
    • Two-year transition period for developing countries: As part of special and differential treatment (S&DT), developing countries like India have been given a two-year transition period for phasing out the first two kinds of subsidies within their Exclusive Economic Zone (EEZ).
    • However, the final negotiated outcome, most crucially, lacks the much-needed discipline on subsidies for fishing in other members’ waters and those that contribute to overcapacity and over-fishing (OCOF).
    • Limited AFS: WTO member countries agreed to a limited AFS sans regulations disciplining OCOF subsidies, which have been pushed to the future and are expected to be completed within four years.
    • If negotiations fail, the AFS will stand terminated, as provided in Article 12.
    • Meanwhile, all countries can continue providing most OCOF subsidies, that is, except for fishing on unregulated high seas.

    What are the implications for India?

    • Longer transition period required: India has been demanding that developing countries be given a longer transition period of 25 years to put an end to OCOF subsidies within their EEZ.
    • Economic growth through ocean resources: Given its long coastline of nearly 7,500 kilometres, the blue economy — sustainable use of ocean resources for economic growth — occupies a cardinal place in India’s development trajectory.
    •  India has set a target of exporting marine products worth $14 billion by 2025.
    • Policy space for marine infrastructure: India needs the policy space to invest in developing the marine infrastructure to harness the full potential of the blue economy.
    • Livelihood concerns: Moreover, India needs to protect the livelihood concerns of close to four million marine farmers, the majority of whom are engaged in small-scale, artisanal fishing, which does not pose a great threat to sustainability.
    • However, India’s demand for a longer transition period was not acceptable to many countries who insisted on this period being seven years

    The disparity between Developed countries and Developing countries

    • India rightly contends that WTO disciplines should not be developed in a manner that throttles its emerging sector while richer nations continue to negotiate exemptions for indefinite subsidisation and exclusion of horizontal, non-specific fuel subsidies in the text.
    • Rich countries have historically provided massive subsidies to build capacity for large-scale fishing and fishing in distant waters, thereby contributing the most to depletion.
    • India provided subsidies worth a mere $277 million in 2018, in sharp contrast to the top five subsidisers: China, EU, US, South Korea, and Japan, whose subsidies range from $7,261-$2,860 million respectively.

    Way forward

    • Comprehensive agreement: For the sake of sustainability, countries need to overcome their differences soon and forge a comprehensive agreement with the inclusion of meaningful S&DT, else they risk the indefinite continuation of harmful subsidies by all players.
    • One balancing act could be to consider different ways to effectuate such flexibilities while accommodating the demands in a more targeted manner.
    • Strengthening infrastructure: India could strengthen infrastructure and mechanisms to be able to utilise any future exemptions.

    Conclusion

    For India, the AFS is less-than-perfect, with a potential of no real outcome at the end of four years if the negotiations fail. But negotiations over the global commons are not easy.

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  • Oil palm

    Context

    Supply disruptions during the pandemic and the Russia-Ukraine war have led many nations to think about “self-sufficiency” in critical food items or at least reduce their “excessive dependence” on imports of essential food products.

    Challenges facing global trade

    • The World Trade Organisation’s (WTO) recently concluded12th Ministerial Conference in Geneva, struggled to find answers to some of the complex questions pertaining to global trade.
    • The Ministerial Conference is the top decision-making body of the agency whose basic goal is to ensure that trade flows as smoothly, predictably and freely.
    • Trading rules for dire situations: As far as agriculture, trade and food security are concerned, the challenge is to figure out the most appropriate trading rules in dire situations like pandemics, wars, social/political disruptions or natural disasters.
    • Export bans: Recent examples include Russia’s export ban on wheat and sunflower oil, Ukraine’s ban on exports of food staples, Indonesia’s ban on palm oil exports, Argentina’s ban on beef exports, Turkey, Kyrgyzstan and Kazakhstan’s ban on a variety of grain products, and India’s wheat export ban.
    • Sudden actions such as these exacerbate the pressure on global trade leading to a spike in the prices.

    India’s import dependence for edible oil

    • India imports 55 to 60 per cent of its edible oil requirements.
    • India’s edible oil import bill in 2021-22 (FY22) crossed $19 billion (for more than 14 MMT of imports) (see figure).
    • Palm oil comprises more than 50 per cent of India’s edible oil imports, followed by soybean and sunflower.
    • Atmanirbharta in edible oil: The “excessive dependence” on imports has raised the pitch for “atmanirbharta” in edible oil. 
    • The Prime Minister launched the National Edible Oil Mission-Oil Palm (NEOM-OP) in 2021.

    Self-reliance Vs Self-sufficiency

    • “Self-sufficiency” and “self-reliance” are two different concepts with very different policy implications.
    • What is self-sufficiency? Self-sufficiency would imply replacing all imports of a commodity (say edible oils in India’s case) at any cost (thus raising import duties exorbitantly).
    • What is self-reliance? Self-reliance would continue to embed the principle of “comparative advantage” in the endeavour to reduce dependence on imports.
    • Case of India’s agriculture: The country’s agri-exports in FY22 touched $ 50.3 billion against its agri-imports of $ 32.4 billion.
    • This means that Indian agriculture is largely globally competitive. 
    • But its biggest agri-import item, edible oil, accounts for 59 per cent of India’s agri-import basket.

    Way forward

    • 1] Develop oil palm: Given the way international prices of edible oils have surged in the last year or so (by more than 70 per cent), it may be time for India to ramp up its efforts in developing oil palm.
    • Why oil palm? The Prime Minister launched the National Edible Oil Mission-Oil Palm (NEOM-OP) in 2021.
    • Challenges in traditional oilseed: Achieving atmanirbharta in edible oils through traditional oilseeds such as mustard, groundnuts and soya would require an additional area of about 39 million hectares under oilseeds.
    • Danger to food security: Such a large tract of land will not be available without cutting down the area under key staples (cereals) – this could endanger the country’s food security even more.
    • So, a rational policy option to reduce import dependence in edible oils is to develop oil palm at home and ensure that it gives productivity comparable to that in Indonesia and Malaysia — about four tonnes of oil per hectare, which is more than 10 times mustard can give at existing yields.
    • India has identified 2.8 million hectares of area where oil palm can be grown suitably.
    • So far the objective of NEOM-OP is to bring in at least 1 million hectare under oil palm by 2025-26.
    • 2] Declare oil palm as a plantation crop: The other option is to declare oil palm as a plantation crop and allow the corporate players to own/lease land on a long-term basis to develop their own plantations and processing units.
    • This does not seem plausible in the current socio-political context.

    Challenges

    • Long gestation period: It takes four to six years to come to maturity; during this period, smallholders need to be fully supported.
    • The support (subsidy) could be the opportunity cost of their lands, say profits from paddy cultivation, which is largely the crop oil palm will replace in coastal and upland areas of Andhra, Telangana and Northeast India.
    • Pricing formula: Further, the pricing formula of fresh fruit bunches (FFB) for farmers has to be dovetailed with a likely long-run average landed price of crude palm oil with due flexibility in the import duty structure.
    • Appropriate import duty: One needs to identify trigger points when import duties need to be raised as global prices come down, and when to reduce these duties in case of rising global prices.
    • Oil recovery: Besides this, the processing industry needs to ensure an oil recovery of at least 18 to 20 per cent – that must be built into the pricing formula.

    Conclusion

    Overall, unless India thinks holistically and adopts a long-term vision, the chances of reducing India’s imports of edible oils from 14MMT in FY22 to 7MMT by FY27 look bleak.

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  • Rising global food prices: Causes and Solution

    Context

    This increase in global food prices which manifested itself in the three food price crises since the 1960s offers some pertinent lessons for global food systems and the international community.

    Managing year-to-year volatility Vs. periodic spikes in food prices

    • Year-to-year volatility is easily managed by most countries through changes in their trade and domestic policies.
    • But steep and severe periodic price shocks can lead to some sort of a crisis at the global and national levels.
    • Implications: The crisis can emerge in the form of food shortages, trade disruptions, a rise and spread in hunger and poverty levels, depletion of foreign exchange reserves, a strain on a nation’s fiscal resources, a threat to peace, and even social unrest in some places.

    History of food crises after since adoption of Green Revolution

    • Data from Food and Agriculture Organization of the United Nations, the World Bank/International Monetary Fund show that since the onset and the adoption of Green Revolution technology in the early 1960s, the world has been struck thrice by food price crises.
    • First shock-1973-76: The first shock was experienced during 1973-76 when the food price index (based on prices in U.S. dollars) doubled in nominal terms.
    • Declining trend: For the next two decades, food prices in real terms followed a declining trend and were at their lowest around 2002.
    • After this, nominal as well as the real prices of food began rising.
    • Second crisis-2008: This momentum built up to culminate in the next food price crisis of 2008, which was further intensified by 2011.
    • While the price shock began softening after 2014, food prices did not move back to their pre-2006 level.
    • Third crisis-2020: This time the increase in the food price index happened very quickly and it turned out to be very big – it has taken the food price index to its historically highest level.
    • Cause outside agriculture: All the three food price crises were triggered by factors outside agriculture.
    • They were not caused by any serious shortfall in agriculture production.
    • The interval between crises is reducing: The interval between two consecutive price shocks has narrowed down considerably and the severity of shock is turning stronger.

    What are the causes responsible for the recent food price crisis?

    • 1] Covid-19 and Ukraine crisis: It was triggered by supply disruptions due to COVID-19 and further aggravated by the Russia-Ukraine war.
    • The current food price spike first began in vegetable oils and then expanded to cereals.
    • Higher the global trade higher disruption: The effect of global trade disruption will be higher for commodities that are traded more and vice-versa.
    • 2] Diversion of food for biofuel: Another factor underlying the rising trend and spikes in food prices is the diversion of food for biofuel needs.
    • When crude prices increase beyond a certain level it becomes economical to use oilseeds and grains for biodiesel and ethanol, respectively.
    • The second reason for the use of food crops for biofuel is the mandates to increase the share of renewable energy resources.
    • 3] Increased cost of agrochemicals and fertilisers: Food prices are also expected to go up in the current and next harvest season because of an increase in the prices of fertilizer and other agrochemicals.

    Way forward for India

    • Transmission of international prices to domestic prices can be prevented only if there is no trade.
    • 1] Trade policy changes: This transmission of global prices to the domestic market can be moderated through trade policy and other instruments.
    • When international prices go too low, India has checks on cheap imports to protect the interests of producers; and when international prices go too high, the country liberalises imports and imposes checks on exports to ensure adequate availability and reasonable food prices for domestic consumers.
    • 2] Buffer stock: The policy of having a buffer stock of food staples has also been very helpful in maintaining price stability, especially in the wake of global food crises.
    • 3] Strategic liberalisation: India should continue with a policy of strategic liberalisation, as followed in the past, to balance the interests of producers and consumers.
    • 4] Maintain image as a reliable and credible exporter: The importance of agriculture exports to mop up food and agriculture surplus from the country is increasing.
    • Ongoing trends in domestic demand and supply imply that India will be required to dispose of 15% of its domestic food output in the overseas market by 2030.
    • This underscores the need to maintain India’s image as a reliable and credible exporter.
    • However, it is important to differentiate between the two situations: disturbing normal export and regulating exports exceeding the normal level.

    What are the implications for India?

    • Increased prices in India: Export and import in the agriculture sector constituted 13% of gross value added in agriculture during 2020-21.
    • Therefore, some transmission of an increase in global prices on domestic prices is inevitable.
    • Wheat export ban and implications: The recent ban on wheat exports and restrictions on the export of other food commodities by India need to be seen in the light of an abnormal situation created by spikes in international prices.
    • Some experts see it as a setback to India’s image as a reliable exporter as this move is seen to disrupt (regular) export channels.
    • A closer examination of data reveals that India’s action to ban or restrict food exports is not disrupting its normal exports.
    • India was a very small exporter of wheat, with its share in global wheat trade ranging between 0.1% to 1% during 2015-16 to 2020-21.
    • The international market is looking for around 50 million tonnes of wheat to compensate for the disruption in wheat exports from Russia and Ukraine.
    • If India had not imposed a ban on wheat export, it would have resulted in a severe shortage of wheat within the country.

    Global impact and suggestions

    • As the steam of Green Revolution technology slowed down with the start of the 21st century, food prices began increasing in real terms.
    • New breakthroughs required: The world requires new breakthroughs such as Green Revolution technology, for large-scale adoption in order to enable checks on food prices rising at a faster rate.
    • Increase spending on agri-research: This in turn requires increased spending on agriculture research and development (especially by the public sector and multilateral development agencies).
    • Strengthen global agri-research system: There is a need to strengthen and rejuvenate the global agri-research system under the Consultative Group on International Agricultural Research (CGIAR) which is heading towards disarray.
    • Rethink biofuel protocols: Biofuel protocols have contributed to the global food crisis for the second time in the last 15 years.
    • Diversion of land under food crops and food output for biofuel should be carefully calibrated with implications for food availability.

    Conclusion

    • The last three food price crises were primarily caused due to an increase in energy prices and disruptions in the movement of food across borders.
    • Factors related to climate change are going to be an additional source of supply shocks in the years ahead.
    • Therefore, the global community must plan to have a global buffer stock of food in order to ensure reasonable stability in food prices and supply.

    Back2Basics: Consultative Group on International Agricultural Research (CGIAR)

    • CGIAR (formerly the Consultative Group for International Agricultural Research) is a global partnership that unites international organizations engaged in research about food security.
    • CGIAR research aims to reduce rural poverty, increase food security, improve human health and nutrition, and sustainable management of natural resources.

  • India specific factors that have bearing on inflation trajectory

    Context

    Inflation is turning into a global concern fueled by multiple global factors. However, in India there are a few other triggers that will have a bearing on the inflationary trajectory.

    Global inflation concerns

    • All that could have possibly triggered higher inflation globally has already occurred — multiple waves of the pandemic, supply disruptions, an overdose of policy stimuli, war, sanctions, energy shocks, geopolitical adversity and weather disruptions.

    1] Impact of MSP on inflation

    • The MSP that is fixed by the government for kharif and rabi crops has been one of the key policy instruments.
    • Policymakers in India have often acted with alacrity to protect the interests of farmers over the years.
    • In the last 20 years, the weighted average MSP for kharif crops saw double-digit growth four times — in 2007, 2008, 2012 and 2018.
    • Food inflation shot up to 12 per cent in 2007-08 as against 8 per cent in 2006-07 and 4 per cent in 2005-06.
    • The inflationary surge continued in 2009 as a monsoon failure hit agricultural output hard.
    • Global agricultural commodity prices started to rise in 2010 again and the FAO food price index reached an all-time high in July 2012.
    • One of the key reasons for the increase in food prices was the oil price surge and a rise in demand for biofuel production.
    • The global upside in food prices coincided with a 22 per cent increase in MSP for Kharif crops in India.
    • Following the rise in MSP, food inflation in 2012 increased by 14.6 per cent as against 3.6 per cent the preceding year.
    • In  2018, for the first time, the MSPs for all 23 kharif and rabi crops were fixed at a margin of at least 50 per cent higher than the cost of cultivation.
    • The cost of cultivation (A2 + FL) includes the paid-out cost and cost of imputed family labour.
    • Accordingly, the MSP of kharif crops in 2018 saw an annual increase of about 14 per cent.
    • However, despite the significant rise in MSP, food inflation in 2018-19 was muted at 0.3 per cent.
    • This was because farm input costs were under control and the terms of trade for farmers remained positive.

    2] Impact of GST on inflation

    • Raising the revenue-neutral rate: In the upcoming meeting, there is talk of changes in GST slabs and rates with an eye on raising the revenue-neutral rate from around 11.5 per cent, which is far lower than the 15.5 per cent estimated at the time of the launch of GST.
    • Avoid the shock: However, a GST rate shock to the system is best avoided given the global inflationary backdrop and the fragility of consumer balance sheets.

    3] Influence of weather

    • While the dependence of agricultural output on the quantum of rainfall has reduced, variance in the spatial and temporal distribution of rainfall is emerging as a key risk.
    • A look at 2021 — a normal monsoon year with rainfall at 99 per cent of its long period average — is instructive.
    • The late excess rains delayed the crop cycle and led to crop damage in several parts of the country.
    • Likewise, the spatial distribution of rainfall remained uneven in 2021.
    • Thus, even with normal rainfall in 2021, there were several disruptions to the crop cycle and farm cash flows.

    Conclusion

    The government has taken various steps lately to rein in inflation. However, the RBI will have little freedom in case the GST council decides to accord revenue protection to states via higher GST rates or if the monsoon is not in line with expectations. One hopes these events pan out right, like the MSP hike, when most other things have gone wrong.

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