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Farm distress: Monsoon isn’t the only spoiler

Why the revival of exports matters as much as rains for Indian farmers.

Written by Harish Damodaran | Updated: May 6, 2016 6:32:33 am
farm From this also follows the hope that a good monsoon this time — as predicted by the Met Department and most global weather agencies — would help turn things around

It is generally held that the woes of Indian farmers today have had largely to do with extreme weather events. The southwest monsoon failed in both 2014 and 2015. Besides, we had extensive crop damage from unseasonal rain and hailstorms over large parts of north, west and central India in March 2015.

From this also follows the hope that a good monsoon this time — as predicted by the Met Department and most global weather agencies — would help turn things around. A bumper harvest, which has been eluding farmers for the last two years, should bring smiles back to the beleaguered rural economy.

What this optimistic view overlooks, though, is an equally important factor behind farmer woes in the last two years. That has to do with the crash in global commodity prices, whose immediate impact has been on the country’s agricultural exports.

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During the global commodity boom, which coincided with the previous Congress-led UPA regime’s tenure, India’s farm exports surged almost six-fold from about $ 7.5 billion to $ 43.25 billion between 2003-04 and 2014-15. Higher exports benefited farmers by pushing up domestic crop prices. This happened both due to increased external demand as well as the government per force having to align its minimum support prices (MSP) to global levels.

But the last couple of years, roughly from the time of the Narendra Modi-led NDA government’s taking over, have seen the reverse happening. The end of a decade-long commodity boom has hit Indian farm exports hard. They fell to around $ 39 billion in 2014-15, and further to $ 32.5 billion during the fiscal just ended. That translates into a decline of $ 10.7 billion, or roughly Rs 49,000 crore, if one compares 2015-16 to 2013-14.

To understand what this means to the farmer, take the case of wheat. In 2012-13 and 2013-14, India exported the grain at an average price of $ 310 and $ 275 per tonne respectively. If wheat were to be exported now, it can only be done at $ 175-180 per tonne or Rs 1,164-1,197 per quintal. This price — that, too, at the point of shipment/port of loading, which is higher than at the farmgate — is way below the current MSP of Rs 1,525 per quintal. Even imported wheat landing at Indian ports today would cost $ 200-205 or Rs 1,330-1,363 per quintal, which is again lower than the MSP.

Low global price of wheat, in other words, constrains the government from raising the MSP. The Modi government may not be able to grant much of an increase even next year when Assembly elections are due in Punjab. This is a far cry from the situation during the UPA period, when MSP hikes of Rs 75-100/quintal were a routine annual affair.

But it is not wheat alone. Two years ago, basmati growers were selling Pusa-1121 paddy at Rs 4,000-4,500 per quintal. That was when parboiled rice from this premium basmati variety was fetching $ 1,600 per tonne in West Asian markets. Today, these rates are ruling at Rs 2,000-2,200 per quintal and $ 800 per tonne respectively, even as India’s basmati export earnings have dropped from $ 4.86 billion in 2013-14 to $ 3.48 billion in 2015-16.

Even more spectacular is the story of guar, the seeds from whose harvested pods yield a gum that is used as a vital ingredient in the extraction of oil and gas from rocks. During the height of the US shale boom, spot prices of guarseed hit a record of Rs 30,432 per quintal in Jodhpur on March 21, 2012. In 2012-13, India’s guar-gum exports peaked at $ 3.92 billion. But in the last fiscal, they collapsed to $ 553 million along with world oil prices. With guarseed prices too following suit — they are now trading in Jodhpur at under Rs 3,270 per quintal — so have the fortunes of farmers in western and northern Rajasthan.

As the accompanying table shows, practically every farm commodity registered huge jumps in exports between 2003-04 and 2013-14. More significant, the benefits were reaped by farmers even in distant hinterlands, a good example being maize. A decade back, India hardly exported much maize. However, in 2012-13, the country shipped out nearly five million tonnes of the feed grain worth $ 1.3 billion. Over a fifth of it was accounted for by Bihar: the state’s Kosi-Seemanchal belt emerged from nowhere to be a major supplier to south-east Asian markets such as Indonesia, Malaysia and Vietnam.

A good monsoon will, no doubt, enable farmers to produce more — which they haven’t been in a position to do in the past two years because of successive droughts. But farm incomes depend not just on production, but also on prices. And the outlook there isn’t as encouraging, thanks to factors that are more global than local.

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harish.damodaran@expressindia.com

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