Agriculture Export Policy: A Welcome Initiative That Has Miles To Go

Last week, the cabinet cleared the Agricultural Export Policy (AEP), 2018 as part of the government’s policy to double farmers’ income, following which the government said that export of agricultural products will play a pivotal role in this.

Highlights of the policy:

• Diversify the export basket, destinations and boost high value and value added agricultural exports including focus on perishables.
• Promote novel, indigenous, organic, ethnic, traditional and non-traditional agri products exports.
• Provide an institutional mechanism for pursuing market access, tackling barriers and deal with sanitary and phyto-sanitary issues.

The Centre has also decided to try and promote agricultural exports strategically and operationally. Strategically, the government will come out with policy initiatives, infrastructure and logistics support and involve state governments in a big way.

Operationally, it will attract private investments in processing and production, establish a strong regimen and support research and development. A feature of the policy is that all curbs on exports of organic agricultural products, which enjoy a premium in the global market, will go immediately.

Per se, the objectives seem good but have those involved in this exercise learnt their lessons? The officials are now holding the leash tightly on export of non-organic farm products, saying they would come out with details after inter-ministerial discussions.

The problem for Indian agricultural exports is that too many ministries are involved in this. If an agricultural item has to be exported, the Agriculture Ministry usually favours it and the Commerce Ministry, in the normal course, backs it. The Food and Consumer Affairs Ministry is the one that often spoils the party, putting obstacles in the path.

For over two decades, we have been hearing the Congress-led United Progressive Alliance and the Bharatiya Janata Party-led National Democratic Alliance governments talking repeatedly of increasing share of Indian exports in the global market to at least 2 per cent. According to the World Trade Organisation, India’s share in the global export market in 2017 was 1.68 per cent.

India has always been having surplus of one or the other crop. Coffee, for example, is one with nearly two-thirds of the domestic production being exported for decades. But problems for coffee shippers persist. One of the key problems for agricultural exports is that governments, all through, have been found wanting in having a long-term view.

Indian exports have been marred by short-term and ad hoc decisions. For example, India was doing well and even toppled Thailand for a brief while as the top rice exporter. But in 2008, India decided to ban export of non-basmati rice as domestic production was affected by drought.

Should the government of the day then resort to such measures? We also find similar ad hoc decisions with regard to onion exports, when the government comes up with restrictions at times due to spike in the vegetable prices?

Exporters and traders are vocal on these decisions. Such ad hoc decisions have affected and will continue to affect the country’s credibility in the global market. Markets abroad are built through credibility and assurance of continuous supply. When these key aspects of trade are affected, buyers will be hesitant to trade.

Speaking about long term measures for exports, the natural rubber scenario is a classic case. Usually, domestic prices rule higher than global prices. For example, prices of RSS-4 (ribbed smoked sheet) grade are currently quoting at Rs 119 a kg in the local markets. However, its equivalent in the global market RSS-3 is quoted around Rs 97.50.

In such circumstances, no one would want to export. But a few years ago, the domestic prices premium over global prices dropped and the government began to look for avenues to export. Much to its chagrin then, the government found that it had a long way to go, what with the country lagging behind in packaging and other aspects of shipping.

There is scope for export of technically specified rubber. But since the domestic market is short supplied - the major reason for higher local prices - the production goes just to meet the demand within the country.

The case of higher domestic price is not just with natural rubber but with other produce like wheat too. Imports of wheat to southern states is cheaper than transporting domestic wheat from north India to the flour mills in south India. In this regard, the policy’s stress on lowering mandi fees is worthwhile.

Higher local and market taxes imposed by state governments are affecting procurement by the central government for its buffer stocks as well as purchases for export. The Commission For Agricultural Costs and Prices has been vocal on high taxes in Punjab and Haryana increasing procurement cost of the Food Corporation of India (FCI).

These high taxes are also driving private traders away from these states. Punjab, Haryana and Uttar Pradesh impose taxes ranging from 10 per cent to as high as 14.5 per cent. Punjab and Haryana levy 5 per cent value-added tax, 2.5 commission agent, two per cent mandi tax, 2 per cent development cess and 2 per cent purchase tax. In the case of Odisha, a 1 per cent administrative charge is levied as also 1 per cent for drying rice.

These high incidences of tax must end, particularly when the states look up to the Centre to rescue them whenever prices of a particular produce fall below the prescribed minimum support level. In the global market, a margin of one or two per cent makes or breaks a deal. In such circumstances, such high incidences of state taxes are only deterrents.

The AEP also says the Agricultural Produce Marketing Committee (APMC) Acts will be amended by respective states. This is an issue that has been pending since the time of the Atal Bihari Vajpayee government. The Vajpayee government had even dangled a carrot in the form of higher allocation from the funds for horticultural crops but only a few states amended the APMC Act.

On the policy initiative, the government should also look into getting a scientific data of crop production. Currently, there is always a variance in projection of crop production with the government putting out one figures and traders another. A scientific data will help in determining if the domestic production will meet the ever rising demand and whether there will be surplus for exports.

Coffee, natural rubber, soybean, cotton and sugarcane are typical examples on the need for scientific data. Currently, the Indian Sugar Mills Association (ISMA) and the Coffee Board, to some extent, rely on satellite data to project production of sugarcane and coffee. ISMA’s efforts have yielded fruits as it is seen as far more authentic.

The Coffee Board also seems to have addressed concerns raised by the trade on production data. However, natural rubber, cotton and soybean have seen differences in projections by the trade, industry and government. The rubber consuming industry, in particular, disputes data on carryover stocks.

Similarly, the solvent industry and government differ on soybean and cotton production. The industry, trade and government should have a uniform method to arrive at production data that will help everyone, particularly the export community.

The AEP refers to a few other things, including promoting “Brand India”, again an initiative that has not been fully promoted for over a decade and a half. “Brand India” was discussed to push products like tea and spices and has been confined to only these things.

The focus on organic products is welcome with exports fetching $515 million during 2017-18. India is ranked ninth in terms of export of organic products, though it tops this year in terms of number of products it is able to offer to the global market. Probably, India should draw some lessons from Germany, which has fully focussed on promoting organic food exports for years.

Actually, the government need not worry on the operational aspect of promoting agricultural exports. Once Indian products start doing well in the global market, these operational issues will fall in line automatically.

Global players are aware of India’s potential. This is one reason why the cold chain sector has witnessed 11-13 per cent growth in the last five years. According to Crisil, the sector will likely witness 13-15 per cent compounded annual growth in the next five years with its size nearly doubling to Rs 47,200 crore.

The Narendra Modi government has done the right thing by focussing on infrastructure - road, rail and sea - and this is bound to be a bigger advantage sooner or later. Research and development (R&D) needs to be encouraged. It is for the Ministry of Agriculture to impress on the finance and commerce ministries and seek measures to promote R&D.

It is on the policy front that the government needs to get its act right. The policy should consider allowing exports and imports unhindered. This means allow imports of products that could be in short supply and permit exports of items of excess supply.

This policy will include even for food grains like wheat and rice. Of what use is to keep the granaries full of food grains and let them rot than allow for timely release for exports? Currently, food grain stocks with the Centre are much above the required norm and it doesn’t augur well to hold such high stocks.

The Centre’s policy of setting up of steel silos to store food grains seem to have taken a backseat. It was a Vajpayee government initiative to help prevent wastage of food grains, particularly when old stocks keep remaining at the bottom of FCI warehouses and rot.

Even now, it wouldn’t be bad idea if setting up of such silos by village panchayats or farmers is encouraged. It will serve dual purpose. One, it will help preserve grains for a longer period. Two, it can lead to avoid wastage and in turn encourage more exports.

Neighbouring Bangladesh has set up such silos for rice with Indian expertise. Why isn’t that the Indian government proposals are still stuck at request for proposal stage? The country hardly has the capacity to store 10 lakh tonnes of wheat in silos when its production is nearly 100 million tonnes. This is one area where investments have to be encouraged.

Farmers, industry and trade know well how to manage to emerging production-supply scenario. They should be left to manage their business on their own with the Centre stepping in only when farmers are affected or there are sharp differences.

Though belated, the AEP is a welcome initiative. But policy-wise, it has miles to go. And the government would be doing a world of good to Indian agriculture if it can appoint a chief information officer (CIO) in the Ministry of Agriculture. The CIO can bring a world of difference to the farmers’ prospects though technologies such as block chain and artificial intelligence.