Thursday, August 25, 2011


Food exports constitute a significant portion of foreign trade in many agriculture oriented economies, besides contributing substantially to the GDP basket. But many countries are often pulled between opposing forces representing the economic interest and compulsions of not stoking inflation. Food security is intricately linked to the extent of buffer stocks held by the government and the dilemma is to decide how much is enough for such a security. Hike in market prices of staple food grains, popular vegetables, sugar and edible oils can have very serious impact on the political stability of a country and this was amply demonstrated in 2008 in more than 30 developing countries where food riots took a heavy toll. In the case of India, GOI has often been caught on the wrong foot vis-a-vis export policies in the food area, though it is one of the top agri-foods producing countries in the world. The responsibility of managing the food portfolio is indeed a complex task and during the last 64 years after independence the country has been grappling with this problem with no durable success. Here is a take on this vexatious issue.

"The global spike in food inflation could force India to review its food exports policy. The government has gingerly opened rice and wheat exports after food inflation had moderated to less than 8%, but in recent weeks it has accelerated again to nearly 10%. Food prices in India have been mostly insulated from the world due to restrictions on exports and abundant grain stocks. "In terms of food grains, India is relatively insulated from global prices because it doesn't allow exports," said Ashok Gulati, chairman, Commission for Agricultural Costs and Prices. "But this situation can't continue for long. The farmers must be allowed to reap the benefits of higher prices because their costs have gone up," he added advocating the opening up exports in a calibrated manner.So far, the government has only allowed limited export of one million tonne (MT) non-basmati rice, 1.5 MT sugar and an unspecified amount of wheat to prevent any speculative flare-up in prices. Food grain stocks are also at unmanageably high levels. At the beginning of August the country had food stocks of over 61 million tonnes".

Probably GOI can hope to manage exports better once its new "Right to Food" policy is put in place under which more than 70% of the population is to be fed with subsidized food grains, leaving only 30% to the mercy of the market forces. Still even a minor commodity like Onion can cause problem if there is a shortage in the market. Sugar is another politically sensitive commodity and the consumer price is dependent very much on how much free sugar is allowed to be sold by the mills in the open market, after meeting the need of the PDS. If the industry is given the freedom to export as much as they want without any restrictions, domestic consumers will have to pay high prices during any surge in the price of sugar in the international market. The desire to give high prices to the cane growers has to be balanced with the need to control inflation which can raise its ugly head if domestic market price of sugar shoots up consequent to unlimited export.
Unless a clear headed and calibrated stable policy on food exports is evolved, inflation will continue t eat into the hard earned earnings of the common man.

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