Take another agricultural commodity, In July India banned the export of non-basmati white rice and also broken rice. Together these account for 45 percent of all rice exports. This upset many of our trading partners, and makes India look like an unreliable supplier. There are some countries in Africa and Asia whose import dependence for rice from India can jeopardise their food security. Was the government concerned about food security? Apparently not. What then could be the reason for banning exports? Prima facie it seems to be about serving the interest of ethanol makers. An estimated 3 million out of 5 to 6 million tonnes of broken rice go to make ethanol. So, the export ban increases that availability for car engines, but this is at the cost of the rice farmer’s profits. Rice prices internationally are at a decadal high and it is a good opportunity to make a handsome profit. But the farmer has always been at the receiving end when it comes to anti-profit measures like export bans on agricultural products.
These recent stories of policy action on tomatoes, onions or rice illustrate why reforms in agriculture are very hard and remain unfinished. Firstly, there is an inherent urban bias, which means that policies give higher priority to the welfare of urban consumers (low food inflation) rather than the farmers’ interest. So, farm policies which reform markets and deregulate in favor of the farmer, can always arbitrarily be reversed or curtailed. Secondly in order to compensate the farmers’ loss caused by price controls, input subsidies continue, such as free water and electricity, cheap fertiliser, or no income tax on agricultural income. This causes enormous and avoidable fiscal stress. Thirdly, there is no exploration of market mechanisms such as forward markets, to substitute the heavy hand of the State. Forward markets are seen as speculation and are alleged to cause volatility of prices. This is an unproven hypothesis. Hence the government continues to depend on heavy interference in the market via procurement, storage and trade of agricultural commodities. In doing so it does not hesitate to use anti-competitive monopoly behavior. Who will take the government to court for anti-competitive, abuse of dominance?