Can agri-exports be made more sustainable?

In the fiscal year 2021-22 (FY22), agri-exports scaled an all-time high of $50.3 billion, registering a growth of 20 per cent over the preceding year. This was made possible largely by rising global commodity prices, but also by the favorable and aggressive export policy of the Ministry of Commerce and its various export promotion agencies like APEDA, MPEDA, and commodity boards. However, from a strategic point of view, an important question that arises is how sustainable is this growth in agri-exports, given India’s resource endowments and the country’s domestic needs? Already, we have seen a sudden ban on wheat exports. To answer this question rationally, let us first look at the composition of agri-exports.

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Among the several agri-commodities exported in FY22, rice ranks first with exports of $9.6 billion in value (with 21.2 million metric tons (MMT) in quantity). It is followed by marine products worth $7.7 billion (1.4 MMT), sugar worth $4.6 billion (10.4 MMT), spices worth $3.9 billion (1.4 MMT) and bovine (buffalo) meat worth $3.3 billion (1.18 MMT) (see figure). Of these, two commodities, rice and sugar, are water guzzlers and serious thought should be given to their global competitiveness and environmental sustainability.

Let’s take the case of rice first. India’s exports of 21 MMT constituted 41 per cent of a global rice market of 51.3 MMT. Interestingly, when most of the other commodity prices were surging in global markets, the price of rice (Thailand supplies 25 per cent) collapsed by about 13 per cent from $484/tonne in April 2021 to $429/tonne in April 2022, largely due to India’s massive exports. This means that India had to export a greater quantity of rice to get the same amount of dollars. Is this in the country’s economic interest? In trade theory, it is a classic case for levying the optimal export tax of 5 to 10 per cent. India should optimally not go beyond 12 to 15 MMT of rice exports, else the marginal revenue from exports will keep falling. And that won’t be in India’s interest.

Another concern in the case of rice is that a substantial part of its global competitiveness comes from highly subsidized water, power and fertilisers that go into its production. It is well known that one kg of rice requires about 3,000 to 5,000 liters of water for irrigation, depending on the topography. Taking an average of about 4,000 litres of water per kg of rice, and assuming that half of this percolates into groundwater, exporting 21MMT of rice would mean the virtual export of 42 billion cubic meters (m3) of water!

Sugar is another water guzzler, whose exports touched 10.4 MMT in FY22. It was backed partly by subsidies (including export subsidy) that crossed the 10 per cent limit mandated by the World Trade Organisation, bringing India into a dispute with other sugar exporting countries at the WTO. India lost the case. But rising global prices of sugar helped the country at that juncture.

However, from a sustainability point of view, we must note that exporting one kg of sugar amounts to roughly exporting 2,000 liters of virtual water. That means in FY22, India exported at least 20 billion m3 of water through sugar exports.

So, by exporting 21 MMT of rice and 10 MMT of sugar in FY22, India exported at least 62 billion cubic meters of virtual water. Much of this water is extracted from groundwater — as is being done in much of the Punjab and Haryana belt (for rice), where the water table is receding by 9.2 meters and 7 meters over the last two decades (2000-19), and in Maharashtra and Uttar Pradesh for sugar. This can lead to a water disaster. Also, remember that rice production systems are among the most important sources of anthropogenic methane emissions, contributing to 17.5 per cent of GHG emissions generated from agriculture (2021). This is all because of the distortionary policies of free power and highly-subsidized fertilisers, especially urea. In the case of common rice, our earlier research shows that power and fertiliser subsides account for roughly 12 to 15 per cent of the value of rice in states like Punjab and Haryana. The best way to tackle this upcoming environmental disaster would be to support farmers smartly, by giving them aggregate input subsidy support on a per hectare basis and freeing up the input prices of fertilisers and power to be determined by market forces and their costs of production.

Innovative farming practices such as alternate wetting drying (AWD), direct seeded rice (DSR) that can save up to 25-30 per cent water and micro-irrigation that can save up to 50 per cent irrigation water, could be game-changing technologies in reducing the crop’s carbon footprint. However, the real solution lies in incentivising the farmers to switch some of the area under rice and sugar cultivation to other, less water-guzzling crops. Haryana has come up with two schemes, Mera Pani, Meri Virasat and Kheti Khaali, Fir Bhi Khushali. Under the first scheme, Rs 7,000/acre incentive is given to farmers to switch from paddy to alternate crops, while under the second scheme farmers get Rs 7,000/acre even if they do not grow any crop during the kharif season.

A closer evaluation of non-basmati rice exports brings out another interesting fact. The unit value of these exports was just $354/tonne, which is below the MSP of rice ($390/tonne). How does that happen? One possibility is that a substantial part of the supplies through the PDS and PM Garib Kalyan Anna Yojana (PMGKAY) are leaking out and swelling rice exports. From a policy angle, it may be high time to introduce the option of direct cash transfers in lieu of almost free grains under the PDS and PMGKAY. This will help plug leakages as well as save costs. The savings can then be used for better diversification of our food systems, better use of scarce water and other practices that lower GHG emissions, and saving on burgeoning food and fertiliser subsidies. Can the Modi government make agri-exports more sustainable? Only time will tell.

(Juneja is Consultant and Gulati is Infosys Chair Professor at ICRIER)


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