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Subject: Agriculture

  • Inflation in India

    Context

    Recently, the RBI raised the repo rate by 40 basis points (bps) and the cash reserve ratio (CRR) by 50 bps with a view to tame inflation.

    How effective would be the rate hike in taming the inflation?

    • High inflation is always an implicit tax on the poor and those who keep their savings in banks.
    • Will the increases in the repo rate and CRR control inflation, especially food inflation?
    • The RBI has been behind the curve by at least by 4-to 5 months, and its optimism in controlling inflation in the earlier meetings of the Monetary Policy Committee was somewhat misplaced.
    • The reason for this is that food prices globally are scaling new peaks as per the FAO’s food price index.
    • The disruptions caused by the pandemic and now the Russia-Ukraine war are contributing to this escalation in food prices.
    • India cannot remain insulated from this phenomenon.

    Opportunities and challenges for India

    • Record wheat export: For the first time in the history of Indian agriculture, cereal exports have already crossed a record high of 31 million metric tonnes (MMT) at $13 billion (FY22), and the same cereal wonder may be repeated this fiscal (FY23).
    • Among cereals, wheat exports have witnessed an unprecedented growth of more than 273 per cent, jumping nearly fourfold from $0.56 billion (or 2 MMT) in FY21 to $2.1 billion (or 7.8 MMT) in FY22.
    • Rice exports have crossed 20 MMT in FY22 in a global market of 50 MMT.
    • Some of the concerns on the wheat front are genuine, and we need to realise that climate change is already knocking on our doors.
    • With every one degree Celsius rise in temperatures, wheat yields are likely to suffer by about 5 MMT, as per earlier IPCC reports.
    • This calls for massive investments in agri-R&D to find heat-resistant varieties of wheat and also create models for “climate-smart” agriculture. We are way behind the curve on this.

    Need for rationalising food subsidy

    • India distribute free food to 800 million Indians, with a food subsidy bill that is likely to cross Rs 2.8 lakh crore this fiscal out of the Centre’s net tax revenue of about Rs 20 lakh crore in FY23.
    • Reducing coverage: What needs to be done targeting only those below the poverty line for free or subsidised food and charging a reasonable price, say 90 per cent of MSP, from those who are above the poverty line.
    • Giving an option to beneficiaries to receive cash in their Jan Dhan accounts (equivalent to MSP plus 20 per cent) in lieu of grains can be considered.
    • This is permitted under NFSA and by doing so, he can save on the burgeoning food subsidy bill.

    Conclusion

    Indian farmers need access to global markets to augment their incomes, and the government must facilitate Indian farmers to develop more efficient export value chains by minimising marketing costs and investing in efficient logistics for exports.

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  • What are India’s plans to avert a Wheat Crisis?

    On May 4, the government lowered its wheat production estimates by 5.7% to 105 million tonnes (MT) from the projected 111.32 MT for the crop year ending June.

    Decline in wheat production

    • India is the second largest producer of wheat in the world, with China being the top producer and Russia the third largest — Ukraine is the world’s eighth largest producer of wheat.
    • After five straight years of a bumper wheat output, India has had to revise downwards its estimated production.
    • Unprecedented heatwaves across the north, west and central parts of the country, and March and April being the hottest in over 100 years, have caused substantial loss to the yield.
    • Researchers attributed the lower estimates to “early summer” affecting the crop yields in States, especially Punjab, Haryana and Uttar Pradesh.

    Why is there a decline in govt procurement?

    • Ukrainian war: Private traders have been prompted to buy more wheat from farmers as the price of wheat at the international level has shot up due to Ukrainian war.
    • Higher prices: A large quantity of wheat was being bought by traders at a higher rate than the minimum support price (MSP).
    • Hoarding by farmers and traders: Also, farmers are holding on to some quantity of wheat, expecting higher prices for their produce in the near future.

    How will this impact the public distribution of grain?

    • Wheat procurement is undertaken by the state-owned Food Corporation of India (FCI) and other agencies at MSP to meet the requirements under the Public Distribution System (PDS).
    • Other running welfare schemes is the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) introduced during the pandemic.
    • The government has revised the grain allocation under PMGKAY for May to September 2022.
    • According to the new guidelines, the FCI will fill the gap left by wheat with an increased allocation of rice.
    • Pointing out that from next year, fortified rice will be distributed to the entire Public Distribution System (PDS).

    Will domestic wheat prices be hit?

    • As government wheat procurement has dipped, concerns are being raised about the stability of prices in the country.
    • The availability of grain for internal consumption, many agri-experts argue should be a priority.
    • The government has dismissed concerns about both prices and stocks, asserting that India is in a comfortable situation with the overall availability of grains.
    • India has enough stocks to meet the minimum requirement for next one year for meeting the requirement of welfare schemes.

    How is the global supply situation shaping up?

    • In order to meet the gap created by reduced Russian and Ukrainian exports, importers are turning to alternative markets.
    • Wheat-producing countries like India are looking to increase exports.

    Will farmers benefit?

    • Farmers will certainly benefit from the scenario as they are being offered a price above the MSP.
    • Amid the Russia-Ukraine crisis, new markets in countries like Israel, Egypt, Tanzania and Mozambique have opened up for India.
    • However, if private traders continue to buy above MSP, eventually that could stoke inflation.
    • More private buying of wheat will help India expand the agri-export basket to new countries, riding the current crisis situation.
    • This trade relationship will stay even when the global crisis is over, which means farmers will get about 10%-15% extra price as market prices are ruling above MSP.

    What about export plans?

    • After Egypt, Turkey has also given approval for the import of Indian wheat.
    • India has been eyeing deals with new export markets in European Union countries too.
    • Despite the crop loss and revision of the output estimate, the Centre maintained that no curbs would be placed on wheat exports and that it was facilitating traders.

     

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  • What is Direct Seeding of Rice (DSR)?

    The Punjab government recently announced Rs 1,500 incentive per acre for farmers opting for Direct Seeding of Rice (DSR), which is known for saving water.

    What is DSR technique?

    • In transplanting, farmers prepare nurseries where the paddy seeds are first sown and raised into young plants.
    • These seedlings are then uprooted and replanted 25-35 days later in the main field.
    • Paddy seedlings are transplanted on fields that are “puddled” or tilled in standing water using tractor-drawn disc harrows.
    • In DSR, there is no nursery preparation or transplantation. The seeds are instead directly drilled into the field by a tractor-powered machine.

    How much water is required to grow one kg rice?

    • Paddy is non-shelled rice that farmers grow and sell in mandis and then after milling paddy rice is prepared.
    • According to the studies, around 3,600 litres to 4,125 litres of water is required to grow one kg rice depending upon the paddy variety.
    • Long duration varieties consume more water.
    • In Punjab, 32% area is under the long duration (around 158 days) paddy varieties, and the rest comes under paddy varieties that take 120 to 140 days to grow.
    • So, on an average 3,900 to 4,000 litres water is required to grow one kg rice in the state.

    How much water is used in Punjab every year to grow rice?

    • In 2020-21, Centre procured 203 lakh tonnes of paddy from Punjab.
    • After milling, this procured paddy resulted in 135.98 lakh tonnes of rice.
    • Since studies put average water required to produce one kg rice at 4,000 litres, so in one year – based on last year’s estimate – Punjab needed 5,400 billion litres of water to produce 135 lakh tonnes rice.

    How much water can DSR help save?

    • DSR technique can help save 15% to 20% water.
    • In some cases, water saving can reach 22% to 23%.
    • With DSR, 15-18 irrigation rounds are required against 25 to 27 irrigation rounds in traditional method.
    • Since area under rice in Punjab is almost stagnant, DSR can save 810 to 1,080 billion litres water every year if entire rice crop is brought under the technique.

    Are there any other benefits of DSR tech?

    • DSR can solve labour shortage problem because as like the traditional method it does not require a paddy nursery and transplantation of 30 days old paddy nursery into the main puddled field.
    • With DSR, paddy seeds are sown directly with machine.
    • DSR offers avenues for ground water recharge as it prevent the development of hard crust just beneath the plough layer due to puddled transplanting.
    • It matures 7-10 days earlier than puddle transplanted crop, therefore giving more time for management of paddy straw.
    • Research trials indicated that yield, after DSR, are one to two quintals per acre higher than puddled transplanted rice.

    Getting optimum results

    • Experts said that with DSR technique, which is called ‘tar-wattar DSR’ (good soil moisture), farmers must sow paddy only after pre-sowing (rauni) irrigation and not in dry fields.
    • Further, the field should be laser levelled.
    • They said that spraying of herbicide must be done simultaneously along with sowing, and the first irrigation, which is done at 21 days after sowing.

    Limitations of the DSR

    • Suitability of soil is the most important factor as farmers must not sow it in the light-textured soil.
    • This technique is suitable for medium to heavy textured soils including sandy loam, loam, clay loam, and silt loam which accounts for around 80% area of the state.
    • It should not be cultivated in sandy and loamy sand as these soils suffer from severe iron deficiency, and there is higher weed problem in it.
    • Also, avoid direct seeding of rice in fields which are under crops others than rice (like cotton, maize, sugarcane) in previous years as DSR in these soils is likely to suffer more from iron deficiency and weed problems.

     

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  • India must seize the trade opportunity opening now

    Context

    Slower global growth, an adverse geopolitical environment, the shadow of recurring waves of the pandemic and prolonged supply chain issues are likely to weigh on export growth this year.

    Trade growth in 2021 and uncertainties in 2022

    • The year 2021 was a record one for trade despite the pandemic.
    • In terms of volumes, merchandise trade rose 9.8 per cent, while in dollar terms, it grew 26 per cent.
    • The value of commercial services trade was also up 15 per cent.
    • India has had a good export run in line with global trends, witnessing record goods exports of $419 billion, while touching $250 billion in services exports.
    • However, global growth forecasts have now been pared down.
    • Slower global growth, an adverse geopolitical environment, the shadow of recurring waves of the pandemic and prolonged supply chain issues are likely to weigh on export growth this year.

    Taping into opportunities

    • Ukraine and Sri Lanka are major exporters of agricultural products and the vacuum created by their limited presence in global trade will open up agricultural export opportunities for India.
    • This will not only spur overall exports but will also help to support the recovery of the agrarian economy through higher realisations.
    • Tea and wheat: As many as 25 African countries import more than one-third of their wheat from Russia and Ukraine and for 15 of them, the share exceeds 50 per cent.
    • Sri Lanka is also a major player in the global tea market and produces around 300 million kg annually.
    • Almost 98 per cent of its annual production is exported.
    • India, the second-largest producer of tea with an annual production of 900 million kg, is in a good position to exploit the opportunity and fill the gap.
    • Textile: Apart from tea and wheat, newer export opportunities have arisen for textiles.
    • Sri Lanka exports $5.42 billion worth of garments and prolonged power cuts in the island nation will hurt its production and export capacity.

    Suggestions

    • 1] Work on non-tariff barriers: One, work on non-tariff barriers for agricultural trade with a special focus on harmonising the sanitary and phytosanitary (SPS) requirements.
    • 2] Autonomy in tea sector: To support tea exports, traditional tea boards are seeking a greater role and autonomy for optimising the development, promotion, and research in the sector.
    • Quicker implementation of the proposed Tea Promotion and Development Act is of utmost importance.
    • 3] Integration with global supply chains: India must double down on its integration with global supply chains.The commerce ministry has negotiated a slew of trade deals.
    • 4] Reduce tariff rates for intermediate inputs: Tariff rates for intermediate inputs should be reduced to either zero or should be negligible for India to become an attractive location for assembly activities.
    • 5] Realignment of specialisation patterns: India must persist with the creation of an enabling ecosystem that realigns its specialisation patterns towards labour-intensive processes and product lines.
    • The labour market reforms must be taken to their logical conclusion.
    • 6] Pro-active FDI policy: A continuous and pro-active FDI policy is also critical as foreign capital and technology are key enablers for entry into global production networks even as local firms play a role as subcontractors and suppliers of intermediate inputs to MNEs.
    • 7]Power supply and logistical bottlenecks: Lastly, exports could suffer if basic issues such as availability of power and logistical bottlenecks keep rearing their ugly heads.
    • The Economic Survey 2019 had recommended that low levels of service link costs (costs related to transportation, communication, and other tasks involved in coordinating the activity etc) are prerequisites to strengthen their participation in GVCs.
    • This should not be neglected.

    Conclusion

    If India were to tap export opportunities in developed markets, it must act on the suggestions above.

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  • PDS has had a spectacular run. That may not last

    Context

    2020-21 was one of Indian agriculture’s finest moments, as memorable as 1967-68 that inaugurated the Green Revolution. Agriculture was the only sector to grow 3.3 per cent in 2020-21, even as the economy overall contracted by 4.8 per cent.

    Increase in grain offtake under PDS

    • NFSA along with PMGKAY has led to a massive jump in grain offtake through the PDS.
    •  More importantly, this increase has largely taken place in the poorer states.
    • UP, Bihar and Jharkhand together accounted for 21.6 per cent of national grain offtake in 2012-13, which was pre-NFSA.
    • Sales of rice and wheat under various government schemes totalled 92.9 million tonnes (mt) in 2020-21 and 105.6 mt in 2021-22.
    • This was as against an average offtake of 62.5 mt during the first seven years after the implementation of the National Food Security Act (NFSA) in 2013-14 and 48.4 mt in the seven years preceding the legislation.

    Provisions under NFSA

    • The NFSA legally entitles up to 75 per cent of India’s rural and 50 per cent of the urban population — translating into some 813.5 million people — to receive 5 kg of grain per person per month at highly subsidised rates of Rs 2/kg for wheat and Rs 3/kg for rice.
    • In the wake of the Covid-induced economic disruptions, a new Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) scheme was launched giving NFSA beneficiaries an extra 5 kg grain per person per month free of cost.
    • PMGKAY was implemented for eight months (April-November) in 2020-21 and 11 months (May-March) of 2021-22.

    PDS reforms in states

    • Only a handful of states — Kerala, Tamil Nadu and Andhra Pradesh — had well-functioning PDS till the early 2000s.
    • In the late-2000s, Chhattisgarh initiated reforms to curb diversion/leakages by entrusting the running of fair price shops to cooperatives and local bodies (as against private licensees), making timely allocation and supplying grain directly to PDS outlets (bypassing middle-level distribution agencies), and using IT to track dispatches right from procurement centres to points of sale.
    • Chhattisgarh’s example was emulated by Odisha, followed by Madhya Pradesh and West Bengal — all by 2015-16.
    • The three poorest states are the latest entrants to the list.
    • The accompanying charts show the offtake of rice and wheat both at the all-India level and for the three poorest states as per the NITI Aayog’s National Multidimensional Poverty Index — Bihar, Jharkhand and Uttar Pradesh (UP).
    • UP particularly has seen its grain offtake soar from 9.5 mt to 17.3 mt in the last two years.
    • Out of the 17.3 mt (10.7 mt wheat and 6.6 mt rice) distributed in 2021-22, 7.8 mt comprised free grains under PMGKAY.
    • The PDS, indeed, turned out to be the only effective social safety net during the pandemic.
    • Some states went beyond rice and wheat.

    Challenges

    •  The expansion of the PDS, especially post-NFSA, was underwritten by the superabundance of rice and wheat in government granaries.
    • Official wheat procurement is likely to halve this time from last year’s record 43.3 mt, because of a poor crop singed by the abnormal spike in March temperatures.
    • Rice stocks are far more comfortable, though the precarious supply situation in fertilisers raises questions about the prospects for the coming kharif season.
    • Looking ahead, the Food Corporation of India’s stocks can probably sustain the pre-2020-21 annual offtake levels of 60-65 mt – enough for NFSA, but certainly not schemes such as PMGKAY.

    Conclusion

    The PDS was originally meant to protect ordinary people from extraordinary price rises. Whether it can do that at a time of renewed global inflation remains to be seen.

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  • Centre enhances Subsidy for Non-Urea Fertilizers

    With urea and fertilizer prices shooting up in the wake of Russia’s invasion of Ukraine, the Union Cabinet approved an enhancement in subsidies on non-urea fertilisers for the upcoming Kharif crop, to ₹60,939 crore.

    What is the news?

    • The government fixes the retail price of urea and subsidises producers based on the difference between costs and the fixed selling price.
    • It pays a subsidy to non-urea fertiliser makers on the basis of nutrient-based rates.
    • The increase in the prices of Di-ammonium phosphate (DAP) and its raw material is in the range of about 80%.

    Fertilizer Subsidy in India

    • Subsidy as a concept originated during the Green Revolution of the 1970s-80s.
    • Fertiliser subsidy is purchasing by the farmer at a price below MRP (Maximum Retail Price), that is, below the usual demand-and-supply-rate, or regular production and import cost.

    How is the subsidy paid and who gets it?

    • The subsidy goes to fertiliser companies, although its ultimate beneficiary is the farmer who pays MRPs less than the market-determined rates.
    • From March 2018, a new so-called direct benefit transfer (DBT) system was introduced, wherein subsidy payment to the companies would happen only after actual sales to farmers by retailers.
    • With the DBT system, each retailer — there is over 2.3 lakh of them across India — now has a point-of-sale (PoS) machine linked to the Department of Fertilizers’ e-Urvarak DBT portal.

    How does this system work?

    • A popular example of how this system works is that of the neem coated urea fertiliser.
    • Its MRP (Maximum Retail Price) is fixed by the government at Rs. 5922.22 per tonne.
    • The average cost of domestic production is at Rs 17,000 per tonne. The difference is footed by the centre in the form of subsidy.
    • This fertiliser has high Nitrogen content and is cheaper than usual fertilizers.
    • While this may be perceived as a good thing, excess of Nitrogen can disrupt the NPK (Nitrogen, Phosphorus and Potassium) balance in the soil.

    What about non-urea fertilizers?

    • The non-urea fertiliser is decontrolled or fixed by the companies.
    • The non- urea fertilizers are further divided into two parts, DAP (Diammonium Phosphate) and MOP (Muriate of Phosphate).
    • The government pays a flat per tonne subsidy to maintain the nutrition content of the soil, and ensure other fertilizers are economical to use.

    Issues with such subsidies

    • A flawed subsidy policy is harmful not just for the farmer, but to the environment as well.
    • Indian soil has low Nitrogen use efficiency, which is the main constituent of Urea.
    • Consequently, excess usage contaminates groundwater.
    • The bulk of urea applied to the soil is lost as NH3 (Ammonia) and Nitrogen Oxides. The WHO has prescribed limits been breached by Punjab, Haryana and Rajasthan.
    • For human beings, “blue baby syndrome” is a common side ailment caused by Nitrate contaminated water.

    Try answering this PYQ:

    Q.What are the advantages of fertigation in agriculture? (CSP 2020)

    1.Controlling the alkalinity of irrigation water is possible.
    2. Efficient application of Rock Phosphate and all other phosphatic fertilizers is possible.
    3. Increased availability of nutrients to plants is possible.
    4. Reduction in the leaching of chemical nutrients is possible.

    Select the correct answer using the code given below:
    (a) 1, 2 and 3 only

    (b) 1,2 and 4 only

    (c) 1,3 and 4 only

    (d) 2, 3 and 4 only

     

    [wpdiscuz-feedback id=”pxjt2tbo29″ question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

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  • How the Central and State governments procure Wheat?

    Wheat procurement is now underway in various states of the country.

    Wheat Procurement in India

    • The main purpose of procuring for the central pool is ensuring the MSP as well as the country’s food security by making food available to the weaker sections at affordable prices.
    • The Centre procures wheat by paying the minimum support price (MSP) announced for the crop.
    • The States do it under two systems:
    1. The centralised one, also called the non-decentralised procurement system (non-DCP) and
    2. The decentralised one, also called DCP

    (1) Non-DCP

    • Under this system, the Food Corporation of India (FCI) directly or through state government agencies procure wheat from the purchase centres established across the states based on various parameters like moisture, lustre, broken/shrivelled etc.
    • In Punjab and Haryana, farmers sell their crop to the central agency or state agencies through Arhtiyas (commission agents).
    • The wheat procured by the state agencies is handed over to the FCI for storage or for transportation to the consuming states.
    • The FCI, which is the central nodal agency for wheat procurement, pays the cost of procured wheat to the state agencies.

    (2) DCP

    • The decentralised system was brought in the late 1990s to promote local procurement and save the transportation cost and time.
    • The state government or its agencies procure, store and distribute wheat against the Centre’s allocation for targeted PDS and other weaker sections etc. with the state.
    • The excess stocks procured by the state and its agencies are handed over to the FCI for the central pool.
    • The expenditure incurred by the state government on the procurement, storage and distribution of stocks under the decentralised system are reimbursed by the Centre.

    Role of Arhtiyas

    • Apart from paying the MSP, the Centre also reimburses the arhtiyas’ commission, administrative charges, mandi labour charges, transportation charges, custody and maintenance charges, interest charges, the gunny bag cost and statutory taxes.
    • The cost of excess stocks handed over to the FCI is reimbursed to the state government or agencies as per the Centre’s policies.
    • Procurement agencies ensure that the stocks brought to mandis are purchased as per the specifications fixed by the government and farmers are not compelled to sell their crop below the MSP.
    • But if a farmer gets a better price from private players, he can sell to them.

    From how many states is wheat procured for the central pool?

    • There are 15 states on the procurement list for the central pool, but the contributions from seven of the states are negligible.
    • Only Punjab, Haryana, Madhya Pradesh, Uttar Pradesh and Rajasthan are the main contributors to the central pool.
    • Bihar also contributed to some extent in the last season.

    How much wheat is procured for the central pool by the FCI every year?

    • According to the records of the FCI, from 2011 to 2021, procurement for the central pool was between 25-40 per cent of the total wheat production.
    • The procurement has doubled in the past one decade as 22.5 million tonnes of wheat was procured in 2011 and 43.3 million in 2021.
    • The current season of procurement is going on.

    What is the procurement scale against the total production of wheat in India?

    • In 2011 the total production of wheat was 88 million tonnes while it was around 109 million tonnes in 2021.
    • And the government’s procurement was 26 per cent and around 40 per cent in 2011 and 2021 respectively.
    • The procured grain is used for export purposes, the public distribution system and maintaining a particular stock for an emergency period.
    • The remaining 60 per cent of the production goes to the bakery industry and other wheat-related businesses.
    • Farmers also keep some of this wheat for their self-consumption.

    What is the share of wheat contribution of various states to the central pool?

    • Barring 2020, Punjab has been the number one wheat contributor to the central pool.
    • The state has increased its contribution from 102.09 lakh tonnes in 2011 to 132. 22 lakh tonnes in 2021.
    • Haryana has also increased its contribution from 63.47 lakh tonnes to around 84.93 lakh tonnes in the same period.
    • Madhya Pradesh’s contribution was 35.38 lakh tonnes in 2011, which jumped to the highest among all states—129.42 lakh tonnes—in 2020 and was 128.16 lakh tonnes last year.
    • Uttar Pradesh’s contribution increased from 16.45 lakh tonnes to 56.41 lakh tonnes, and Rajasthan’s contribution rose from 4.76 lakh tonnes to 23.40 lakh tonnes in the same period.

    Note: Punjab (despite its small size compared to MP, UP) is also the leading wheat producer state in India.

    Back2Basics: Minimum Support Price (MSP)

    • MSP is a form of market intervention by the GoI to insure agricultural producers against any sharp fall in farm prices.
    • The MSP are announced at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).
    • MSP is price fixed to protect the producer – farmers – against excessive fall in price during bumper production years.
    • In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, govt. agencies purchase the entire quantity offered by the farmers at the announced minimum price.
    • The minimum support prices are a guarantee price for their produce from the Government.
    • The major objectives are to support the farmers from distress sales and to procure food grains for public distribution.

    Methods of calculation

    • In formulating the level of MSP and other non-price measures, the CACP takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities.
    • The CACP makes use of both micro-level data and aggregates at the level of district, state and the country.
    • Other factors include cost of production, changes in input prices, input-output price parity, trends in market prices, demand and supply, inter-crop price parity, effect on industrial cost structure, effect on cost of living, effect on general price level, international price situation, parity between prices paid and prices received by the farmers and effect on issue prices and implications for subsidy.

    Procurement agencies

    • Food Corporation of India (FCI) is the designated central nodal agency for price support operations for cereals, pulses and oilseeds.
    • Cotton Corporation of India (CCI) is the central nodal agency for undertaking price support operations for Cotton.

     

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  • Indonesia’s Palm Oil Crisis

    The world’s largest producer and exporter of palm oil, Indonesia, is facing domestic shortages, leading to price controls and export curbs.

    What is the news?

    • It’s rare for any country that is the largest producer and exporter of a product to experience domestic shortages of the same product.
    • Consumers are unable to access or paying through the nose for a commodity in which their country is the preeminent producer and exporter.

    What is Oil Palm?

    • Palm oil is an edible vegetable oil derived from the mesocarp of the fruit of the oil palms.
    • The oil is used in food manufacturing, in beauty products, and as biofuel.

    Palm oil production in Indonesia

    • Its palm oil production for 2021-22 (October-September) at 45.5 million tonnes (mt).
    • That’s almost 60% of the total global output and way ahead of the next bigger producer: Malaysia (18.7 mt).
    • It is also the world’s No. 1 exporter of the commodity, at 29 mt, followed by Malaysia (16.22 mt).

    Do you know?

    14,000 IDR is less than $1 or Rs 74! See the extent of depreciation one currency can undergo!

    Have you ever heard of the Zimbabwean hyperinflation of 2009? One literally had to pay a heap of cash to buy a piece of bread!

    Why in headlines?

    • Indonesia has seen domestic prices of branded cooking oil spiral, from around 14,000 Indonesian rupiah (IDR) to 22,000 IDR per litre between March 2021 and March 2022.
    • Much recently, the government imposed a ceiling on retail prices at 14,000 IDR.
    • This led to the product disappearing from supermarket shelves, amid reports of hoarding and consumers standing in long queues for hours to get a pack or two.

    India’s imports of palm oil (in lakh tonnes)

    Plausible factors

    (1) Ongoing War

    • The possible reason has to do supply disruptions — manmade and natural — in other cooking oils, especially sunflower and soyabean.
    • Ukraine and Russia together account for nearly 80% of the global trade in sunflower oil, quite comparable to the 90% share of Indonesia and Malaysia in palm.
    • Russia’s invasion of Ukraine has resulted in port closures and exporters avoiding Black Sea shipping routes.
    • Sanctions against Russia have further curtailed trade in sunflower oil, the world’s third most exported vegetable oil after palm and soybean.

    (2) Diversion for Bio-Fuels

    • Another factor is linked to petroleum, more specifically the use of palm oil as a bio-fuel.
    • The Indonesian government has, since 2020, made 30% blending of diesel with palm oil mandatory as part of a plan to slash fossil fuel imports.
    • Palm oil getting increasingly diverted for bio-diesel is leaving less quantity available, both for the domestic cooking oil and export market.

    Impact on India

    • India is the world’s biggest vegetable oils importer.
    • Out of its annual imports of 14-15 mt, the lion’s share is of palm oil (8-9 mt), followed by soyabean (3-3.5 mt) and sunflower (2.5).
    • Indonesia has been India’s top supplier of palm oil, though it was overtaken by Malaysia in 2021-22 (see above table).
    • The restrictions on exports, even in the form of levy, take into cognizance Indonesia’s higher population (27.5 crores, against Malaysia’s 3.25 crore) as well as its ambitious biofuel program.
    • To that extent, the world – more so, the bigger importer India – will have to get used to lower supplies from Indonesia.

     

    Answer this PYQ from CSP 2019:

     

    Q.Among the agricultural commodities imported by India, which one of the following accounts for the highest imports in terms of value in the last five years?

    (a) Spices

    (b) Fresh fruits

    (c) Pulses

    (d) Vegetable oils

     

    [wpdiscuz-feedback id=”x9wprtcv5c” question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

     

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  • India to export Wheat

    Russia and Ukraine account for about 25% of the world’s wheat exports. However, Russia’s invasion of Ukraine and the subsequent Western sanctions against Moscow have curtailed wheat supplies drastically.

    India eyeing the global wheat basket

    • As a result of War, many countries which were sourcing wheat mainly from these two nations are now in a dire need of alternatives.
    • India, the largest wheat producer after China, is reported to be eyeing the void.
    • The government plans to allow increased exports to cash in on the higher price of wheat in the international market.
    • With harvesting season (March to May) coinciding with the supply crunch, a bumper crop is also expected again this year.

    Global wheat scenario

    • While Russia and Ukraine exported 183 million tonnes (MT) and 91 MT of wheat, respectively, between 2017 and 2021, India exported just a fraction of its output, or just 12.6 MT, in the period.
    • Five other countries accounted for the bulk of wheat exports in this period, including the European Union (157 MT), the U.S. (125 MT), Canada (112 MT) and Australia (83 MT).
    • India, which had the second-highest wheat supply (including production, existing stocks and imports) in this period at 613 million tonnes, exported only 2% of this, with about 80% used for domestic consumption, and the rest stored.

    Impact of the war

    • Many countries in Africa, West Asia and Southeast Asia rely heavily on Russian and Ukrainian wheat.
    • Egypt, the biggest importer of wheat, sources 93% of its needs from the East European neighbors. Indonesia, the second-largest importer, has a 30% dependence on these two nations.
    • African nations such as Sudan (60% reliance), Tanzania (64%), Libya (53%), Tunisia (52%), and West Asian countries including Lebanon (77% dependency), Yemen (50%) and the UAE (42%) are also highly dependent on supplies from the two neighbors now at war.

    India’s focus markets

    • India is now focussing on exporting wheat to many nations such as Egypt, Turkey, Nigeria, Algeria, West Asia, Indonesia, Vietnam, Sri Lanka, Bangladesh, Thailand, the Philippines, Morocco and Tanzania.
    • To give impetus to the export promotion of wheat as well as to bring focus on the challenges and bottlenecks faced in production and export, APEDA has created a task group.

    Legal hurdles over Wheat Exports

    • If India decides to export wheat from its stocks, some developed nations may raise objections at the World Trade Organisation.
    • Already, in March, India was accused of exporting rice from its stocks.
    • India had replied that its rice exports were not from stocks set aside under the public stockholding programs.

    India’s consideration

    • The Supreme Court in the Right to Food case, observed that the peace clause adopted in WTO’s Bali Ministerial in 2014 does not prevent India from exporting foodgrains.
    • With the buffer stocks at hand, India should increase its wheat exports in order to stabilise global prices to the extent that it can.
    • It is also important because the countries that were dependent on Russia and Ukraine for their wheat are looking for an alternative source.

    Way ahead

    • There is a need to prioritise local prices and ensure adequate supplies for domestic consumption before deciding on the quantum of exports.
    • Ensuring the stability of prices in India and availability of grain for internal consumption should be of utmost priority to the Indian government
    • The government should plan this move in such a way that it does not impact local consumption.
    • A bumper crop of wheat is expected, so the government can procure enough for its distribution and buffer needs.
    • Further, as of now, there are no export restrictions, so farmers can also get the advantage of higher prices by selling the surplus to private traders for exports.

     

    Try this PYQ from CSP 2019:

    Q. Among the agricultural commodities imported by India, which one of the following accounts for the highest imports in terms of value in the last five years?

    (a) Spices

    (b) Fresh fruits

    (c) Pulses

    (d) Vegetable oils

     

    [wpdiscuz-feedback id=”ff150g1lak” question=”Please leave a feedback on this” opened=”1″]Answer is subjective to the year. But still you can give it a try.[/wpdiscuz-feedback]

     

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  • Self reliance in Agriculture

    Context

    For the Amrit Kaal (next 25 years) that the government has announced, we need to be self-reliant not just in missiles (defence equipment) but also in meals (food).

    What does self-reliance in food mean?

    • Its true meaning lies in specialising in commodities in which we have a comparative advantage, export them, and import those in which we don’t have a significant comparative advantage.
    • Self-reliance in food does not mean that we have to produce everything ourselves at home, irrespective of the cost.
    • If some protection is needed for new areas to develop (infant industry argument), that may be okay.
    • But one should not aspire to be self-sufficient behind high tariff walls.

    Importance of agri-R&D

    • What is it that gives a country an edge over others in attaining comparative advantage?
    • There is ample literature to show that agri-R&D raises total factor productivity and makes agriculture more competitive globally.
    • If India wants to be fully self-reliant in food, it is generally agreed that it must invest at least 1 per cent of its agri-GDP in agri-R&D.
    • The Economic Survey (2021-22) explicitly highlighted the correlation between spending on agri-R&D and agricultural growth.
    • Low expenditure on agri-R&D: But the budgets of both the Union government and the states put together reveal that this expenditure on agri-R&D and education hovers around 0.6 per cent of agri-GDP.
    • This is way below the minimum cut off point of 1 per cent and government policy must urgently work towards raising this substantially.
    • There are some global and local companies like Bayer, Syngenta, MAHYCO, Jain Irrigation, and Mahindra and Mahindra that spend a considerable amount of their turnover on R&D programmes and developing high-tech inputs.
    • The USP of these companies is that they develop technology that increases productivity while addressing the current challenges of limited net sown area, depleting water resources, vulnerability to climate change, and the need to produce nutrient-rich food.

    Way forward

    • Role of private sector: The private sector need to come forward and help India attain supremacy in agri-R&D and innovation systems and a hub for exports and agri-technology.
    • Increase expenditure on Agri-R&D and education: The need of the hour is to focus on increasing expenditure on ARE and other development projects, which can aid in the sustainable growth of the agriculture sector.
    • India’s budget allocations in the agri-food space should thrive on creating “more from less”.
    • There is a need to work on building long-term sustainable solutions that have an aggressive approach to implementing relevant policies and developing new ones.
    • India’s current budgetary allocation strategy and trends need to be reoriented to ensure that there is more room for R&D expenditure by the government.
    • Incentivise private companies for R&D: In addition to this, the government should come out with policies that incentivise private companies to expand their R&D programmes and invest more financial resources on development projects, which have the potential to overcome the challenges of the current agrarian setup of India.

    Conclusion

    If India wants to be fully self-reliant in food, it must focus on agri-R&D and increase allocation in the Budget.

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