Written by Ritika Juneja and Ashok Gulati
In FY22, India’s agricultural exports reached an all-time high of 50.3 billion, an increase of 20% over the previous year. This has been made possible mainly by rising global commodity prices, but also by favorable and aggressive export policies and various export promotion agencies such as the Agricultural and Processed Food Products Export Development Authority, Marine Products Export Development Authority, and Commodity Board. However, a strategic question arises: How sustainable is this growth in agri-exports in terms of India’s resources and its own needs? A sudden ban on wheat exports has already been imposed. To give a logical answer to this, let us first look at the structure of agro-export.
Of the several agricultural products exported in FY22, rice tops the list with exports of $ 9.6 billion (21.2 million metric tons or MMT). This is followed by marine products ($ 7.7 billion / 1.4 mmt), sugar ($ 4.6 billion / 10.4 mmt), spices ($ 3.9 billion / 1.4 mmt), beef ($ 3.3 billion / 1.18 mmt) and much more (see graphic). Between the two products – rice and sugar – water ghazals, and their global competitiveness and environmental sustainability require some serious thought.
India’s rice exports 21 mmt 51.3 mmt constitute 41% of the global rice market. Interestingly, while prices of other commodities were rising in the global market, the price of rice (Thailand with 25% share) fell by about 13%, falling from $ 484 / ton in April 2021 to $ 429 / ton in April 2022, mainly due to India’s massive exports. Due. That means India had to export more rice for the same dollar-amount. Is it in the economic interest of India? In trade theory, this is a classic fit for the optimal export tax of 5-10%. India’s rice exports should not exceed 12-15 mm; Otherwise, marginal revenue from exports will decline.
Another concern in the case of paddy is that a significant portion of its global competition comes from the highly-subsidized water, electricity and fertilizers that go into its production. It is well known that one kg of rice requires about 3,000-5,000 liters of water for irrigation, depending on the topography. Assuming an average of about 4,000 liters of water per kg of rice and assuming that half of it mixes with groundwater, exporting 21 millimeters of rice would result in 42 billion cubic meters (bcm) of virtual water exports!
Sugar is another water gazelle, whose exports reached 10.4 mm in FY22. This was partly backed by subsidies (including export subsidies) that exceeded the 10% threshold, landed India in dispute with other sugar-exporting countries in the WTO, and India lost its case. But rising global sugar prices have also helped. However, from the point of view of sustainability, the export of one kg of sugar amounts to approximately 2,000 liters of virtual water. That means, in FY22, India exported at least 20 bcm of water through sugar exports.
So, through its rice and sugar exports in FY22, India has exported at least 62 bcm of water! And much of it is being extracted from groundwater, as has been done in the Punjab and Haryana belts, where water levels have been declining by 9.2 meters and 7 meters (two states, respectively) in the last two decades (2000-19). And in Maharashtra and Uttar Pradesh for sugar. Also, the rice production system is one of the most important sources of ethnic methane emissions, accounting for 17.5% of GHG emissions from agriculture (2021). This is all due to the distorted policy of free electricity and high-subsidized fertilizers, especially urea. In the case of common rice, our previous research shows that energy and fertilizer subsidies in states like Punjab and Haryana account for about 12-15% of the cost. The best way to deal with this embedded environmental catastrophe is to provide overall input subsidy support to farmers on a per hectare basis and help in a smart way by completely eliminating the input cost of fertilizers and electricity and their production costs.
Innovative farming methods such as alternative soaking dry and directly seeded rice that can save up to 25-30% of conventional water requirements, and small scale irrigation, which can save up to 50% of irrigation water, can also change the game. Reducing carbon footprint. However, the real solution is to encourage farmers to convert some lands under paddy and sugar into other, less water-intensive crops. Haryana has come up with two schemes, ‘Mera Pani, Meri Birsat’ and ‘Kheti Khali, Phir V Khushili’. Under the first, farmers are paid Rs 7,000 per acre for switching from paddy to alternative crops, whereas under the second, farmers get Rs 7,000 per acre even if no crop is harvested during kharif season.
A closer look at non-basmati rice exports reveals another interesting fact. The unit price of these exports was only $ 354 / ton, below MSP ($ 390 per ton). How did that happen? One possibility is that a significant portion of the supply through PDS and PM Poor Welfare Anna Yojana is leaking and rice exports are increasing. In principle, it may be appropriate to introduce direct cash transfers instead of grain. This will help save plug leakage as well as costs, which can be used to better diversify our food system, rationalize the use of scarce water, reduce GHG emissions and reduce growing food and fertilizer subsidies. Will Modi government be able to make agriculture-export more sustainable? Only time will tell!
The authors, respectively, are consultants, and Infosys Chair Professor, ICRIER