Dipak Kurmi
(The writer can be reached at dipaknewslive@gmail.com.)
The federal government has declared its intention to acquire an additional two hundred thousand metric tonnes of onions this year. Consequently, the buffer stock goal for the current year has been raised to five hundred thousand metric tonnes, marking a shift from the earlier aim of three hundred thousand metric tonnes. Notably, this proclamation follows just one day after the implementation of a 40 percent export duty. In simple terms, the government has bolstered the local onion supply by effectively restricting exports. This strategy has led to a sharp decline in prices, allowing the government to acquire larger quantities of onions at a lower cost for its buffer stock. Does this action raise concerns about interference with the natural market mechanism? Could it be interpreted as a tactic to pressure onion farmers into selling their produce to the government at reduced prices? One might even argue that this constitutes an abuse of authoritative power. These actions have not escaped criticism, even from a respected former agriculture minister. This minister’s objections to the export tax are rooted in the belief that it will inevitably inflict harm on farmers. It’s worth noting that this minister hails from a state responsible for supplying a third of the nation’s total onion production. Despite the protests by farmers against the export tax, their efforts have, so far, yielded little result.
Farmers have grown accustomed to facing such capricious interventions within the agricultural product market. The current onion inflation rate, which stands at 19 percent this week, has triggered concerns for the government. This is true even though onions constitute only a fraction of household expenses. However, the volatility in onion prices has the potential to deeply affect politicians and has even led to the downfall of governments in the past. Let’s not forget the proposed farm laws that were introduced in Parliament in September 2020. Among the trio of laws, one aimed to completely liberate prices, eliminate stocking constraints, and remove the arbitrary bans on imports and exports. Interestingly, during that very week when these farm laws were being presented, a number of trucks en route to Bangladesh were halted at the border. Their cargo consisted of exported onions. Evidently, the notion of farmers benefiting from the upswing in onion prices was not welcomed. These actions, characterized by the halting of exports on one side and the simultaneous push for agricultural market deregulation on the other, project a contradictory and insincere message.
Perhaps the current imposition of an export tax on onions can be seen as a precautionary step, particularly in light of the recent distressing surge in tomato prices. The National Cooperative Consumer Federation of India (NCCF) and the National Cooperative Marketing Federation of India (NAFED) have already amassed a stockpile of over 1.5 million metric tonnes of tomatoes. These tomatoes are being sold at subsidized rates due to their exorbitant price escalation to Rs 200 per kilo. The question arises: where do these subsidies originate? Additionally, India has engaged in the importation of unspecified quantities of tomatoes from Nepal, and possibly other nations as well, as a means to quell the flames of inflation. The ongoing retail inflation currently stands at 7.5 percent, surpassing the Reserve Bank of India’s tolerance threshold of 6 percent. As such, tomatoes have emerged as one of the primary contributors to inflation. It’s important to note that while vegetable price inflation tends to be seasonal and famously unpredictable, it disproportionately dominates media attention.
In July, India enacted a ban on the export of non-basmati white rice and broken rice, constituting a collective 45 percent of all rice exports. This decision has raised concerns among our trading partners and cast doubt on India’s reliability as a supplier. Certain nations in Africa and Asia, heavily reliant on rice imports from India, now face potential threats to their food security due to this action. Despite appearances, the government’s motive does not appear to be food security. What, then, could be the underlying reason for this export prohibition? At first glance, it seems to align with the interests of ethanol producers. An estimated 3 million out of the total 5 to 6 million metric tonnes of broken rice are channelled into ethanol production. Consequently, this export ban amplifies the supply available for fueling car engines, but it does so at the expense of rice farmers’ earnings. On a global scale, rice prices are currently at their highest in a decade, offering a lucrative opportunity for substantial profits. Unfortunately, the history of the agricultural sector reveals that farmers have consistently borne the brunt of anti-profit measures like bans on agricultural product exports.
The recent accounts of policy interventions regarding tomatoes, onions, and rice underscore the persistent difficulty and incompleteness of agricultural reforms. Primarily, there exists an inherent urban bias in policies, leading to a prioritization of urban consumer welfare (ensuring low food inflation) over the interests of farmers. Consequently, any agricultural policies that aim to reform markets and favour farmers are susceptible to arbitrary reversals or limitations. Secondly, in order to offset the losses incurred by farmers due to price controls, ongoing input subsidies such as free water and electricity, affordable fertilizers, and exemption from agricultural income tax persist. Unfortunately, this practice generates substantial and avoidable fiscal strain. Thirdly, the exploration of alternative market mechanisms like forward markets, which could potentially replace the heavy involvement of the government, remains unexplored. Forward markets are often dismissed as speculative and accused of contributing to price volatility. However, this assumption lacks empirical evidence. As a result, the government persists in heavily intervening in the market through the procurement, storage, and trading of agricultural goods. In this process, it sometimes resorts to anti-competitive monopoly practices. The question arises: who will hold the government accountable for its abuse of dominance through anti-competitive actions?
Agriculture remains ensnared by a complex web of constraints, encompassing price controls, storage limitations, arbitrary restrictions on imports and exports, and frequently shifting policies. Despite it technically being a state-level concern, there’s substantial interference from both the central government and state authorities. Consequently, farmers often find themselves reliant on heavy and distorting subsidies. These subsidies not only trigger fiscal challenges, manifesting as loan waivers, non-performing assets, and fiscal deficits, but also contribute to environmental crises. Notably, the excessive utilisation of chemically subsidised fertilizers has led to soil degradation and salinity issues in Punjab, among other regions.
Adding to the intricacies, approximately half of the farmers are excluded from subsidies due to their status as landless or tenant farmers—individuals who lack a direct connection to the land they cultivate. The intricate threads woven into agricultural policy have left us entangled, with the prospect of disentanglement proving exceedingly challenging. What’s urgently required are extensive reforms aimed at enhancing market functionality, reducing state intrusion, and granting farmers’ greater agency to engage in the market process and reap its benefits.