The double-whammy from India’s falling farm exports

The country’s farm exports touched all-time highs of $50.2 billion in 2021-22 (April-March) and $53.2 billion in 2022-23, reversing a declining trend from 2013-14 to 2020-21. 2021-22 and 2022-23 significantly also saw record imports of $32.4 billion and $35.7 billion respectively (chart). The current fiscal, in a sense, marks a return to normal with both exports and imports registering contraction.

Farm import and export data.

The impact of global prices

India’s farm trade, especially exports, is strongly correlated with world prices.

The UN Food and Agriculture Organization’s (FAO) Food Price Index (FPI) rose from an average of 96.5 points in 2019-20 and 102.5 points in 2020-21 to 133 points in 2021-22 and 139.5 points in 2022-23. In the current fiscal (from April till October 2023), the FPI has averaged 123.2 points.

India’s agricultural exports have tended to follow movements in the FPI, which is a weighted average of the international prices of a basket of food commodities over a base period value, taken at 100 for 2014-16. Thus, they fell from $43.3 billion in 2013-14 to $35.6 billion in 2019-20 along with the FPI (from 119.1 to 96.5 points), and rose thereafter with the index soaring to unprecedented levels in 2022-23.

With world prices since coming down, the value of both exports and imports of farm commodities from and into India are set to decline in 2023-24. This comes even as supply disruptions from the Russia-Ukraine war have eased. In its latest supply and demand brief, the FAO has projected global ending cereal stocks for 2023-24 at an all-time-high of 881.1 million tonnes (mt) and the stocks-to-use ratio at 30.7%, “a comfortable supply situation from a historical perspective”. The FAO’s vegetable oils price index, at 120 points for October 2023, is also down from a year-ago level of 151.3 points and the 251.8 points peak of March 2022.

The impact of export curbs

Easing global prices apart, a second reason for falling farm exports has to do with government bans or restrictions on shipments, in response to domestic availability and inflation concerns.

In May 2022, the Modi government banned exports of wheat from the country. In September 2022, exports of broken rice were prohibited and a 20% duty levied on all white (non-parboiled) non-basmati grain shipments. In July 2023, exports of white non-basmati rice were banned altogether. Henceforth, only exports of parboiled non-basmati and basmati rice were allowed.

In August 2023, a 20% duty was clamped on exports of parboiled non-basmati rice too, while basmati shipments were subjected to minimum export price (MEP) curbs. The MEP was fixed at $1,200 per tonne – below which no consignments would be granted registration-cum-allocation certificates for exports – before being reduced to $950 in late-October.

Besides wheat and rice, the Modi government, in May 2022, moved sugar exports from the “free” to “restricted” category and capped the total quantity of the sweetener that could go out during any year. Since May 2023, exports have stopped completely, with no fresh quotas for shipments being issued.

The effects of these measures can be seen in table 1. In 2021-22, India exported an all-time-high 7.24 mt of wheat valued at $2.1 billion. In 2022-23, exports of rice (non-basmati plus basmati) rose to a record 22.35 mt worth a whopping $11.1 billion. In the current fiscal (April-September), wheat exports have plunged to negligible levels, while also posting a 15.9% year-on-year decline for non-basmati rice. Sugar exports have similarly more than halved, after fetching $4.6 billion and $5.8 billion in 2021-22 and 2022-23 respectively.

Source: Department of Commerce.

Double whammy

Declining international prices not only lower the cost competitiveness of the country’s agricultural exports, but also make its farmers more vulnerable to imports. This is being witnessed in cotton and edible oils.

The benchmark global Cotlook ‘A’ Index price for cotton is currently quoting at 91.80 cents per pound, compared to a high of 173.45 cents attained on May 5, 2022. The price crash has led to India’s cotton exports not only plummeting, from $2.8 billion in 2021-22 to $781.4 million in 2022-23, but also imports surging 2.5 times from $559.6 million to $1.4 billion (table 2). This transformation from a net exporter to net importer is reflected in the prices of kapas (raw un-ginned cotton): These are ruling at Rs 7,000-7,100 per quintal in Gujarat’s Rajkot market now, as against Rs 9,000-9,100 a year ago and Rs 12,000-plus in May 2022.

Import items data.

The value of India’s edible oil imports more than doubled from $9.7 billion to $20.8 billion between 2019-20 and 2022-23. This was primarily due to skyrocketing global prices, particularly post the war in Ukraine. Prices have since collapsed, but imports of crude palm, soyabean and sunflower oil are still coming in at a low 5.5% duty.

Soyabean is trading at Rs 4,700-4,800 per quintal in the mandis of Madhya Pradesh, compared with Rs 5,300-5,400 at this time last year. However, the Modi government’s focus on controlling food inflation ahead of national elections – and privileging the interests of consumers over producers – means that imports of edible oil and pulses will continue unhindered, alongside restrictions on exports of cereals, sugar and even onion.

For farmers, that would be a double whammy.