Mint Primer | The fallout of India’s unpredictable farm trade policy

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₹64 per kg—due to the MEP and export tax in place. This is substantially higher than the domestic retail price of ₹31 per kg. If domestic prices shoot up, either due to higher exports or any losses in the upcoming Kharif crop season, the decision may be reversed.

Right now, the hope is that above-normal monsoon rains beginning June will boost local supplies. Yes. These are usually enforced to tame local prices.

Currently, India has such restrictions on wheat, rice and sugar—all mass consumption items. Also, the Centre has allowed duty-free imports of some pulses and edible oils to keep a lid on prices. This consumer bias hurts farmers who are unable to benefit by supplying to global markets during a price spike.

It is not easy to balance consumer and producer interests. Farmers prefer unrestricted trade when global prices are high (wheat and rice in recent years) but not when world prices hit a low (say, when imported oils are cheaper than homegrown ones). The policy focus is to keep food affordable for the masses.

Because food items account for a very high share in the retail inflation basket, governments are quick to react to price spikes. But not when local prices plunge and farmers are pushed to dump their produce. A predictable trade policy is key to gaining market share globally.

Suddenly restricting supplies can lead to shortfalls in countries dependent on imports. Global buyers then look for a reliable supplier elsewhere. Recently, India’s move to ban rice exports was slammed because of its 40% share of global trade.