Mint Primer | Will farm trade policy tweaks lift farmer incomes?

Last week, India initiated multiple changes in farm trade policies across crops like oilseeds, onion and basmati rice. Coupled with ample rains, this is likely to boost rural incomes in the kharif harvest season beginning October, and revive consumer demand. Mint explains.

What are the trade policy changes?

Last week, India removed the minimum export price (MEP) of $950 per ton on premium basmati rice. The move—timed to the upcoming polls in Haryana, a major growing state—follows cooling local prices and the prospect of a plentiful kharif harvest beginning October. The government also removed the MEP of $550 per ton on onions and cut export duty from 40% earlier to 20%. It also hiked import duties on all crude and refined edible oils to 27.5% and 36%, respectively, to guard the interest of oilseed farmers. This will pacify soybean farmers protesting against the recent crash in wholesale prices.

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How will this impact farm incomes?

Data on kharif sowing shows that this year, farmers have planted a larger area with rice and oilseeds compared to the five-year-average. Due to ample rains this monsoon, production of these crops is expected to be robust. The easing of export restrictions will help basmati growers earn a better price. Soybean prices are also expected to recover from the current lows due to the significant hike in import duties—and benefit farmers from Maharashtra which goes to polls later this year. If there are no major crop losses due to excess rains, farm incomes will improve. This will also lift rural wages and consumer demand.

What about food prices for consumers?

Food price inflation was a modest 5.7% in August, against 9.9% a year ago. In the coming months, prices of cereals may dip, alongside vegetables like potatoes and tomatoes, due to higher expected output. Onion prices may cool as new crop arrives in October. However, inflation in oilseeds, which was in negative territory for months, could rise due to higher import duties.

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Will this affect agri imports and exports?

India has been the largest exporter of rice globally. But after curbs were imposed in 2022 and 2023, exports fell from 21.2mt in FY22 to 16.3mt in FY24. As export curbs on non-basmati varieties are still in place, gains in export volumes will be muted. The hike in import tax is likely to reduce India’s cooking oil import bill which was a staggering ₹1.4 trillion in 2022-23. This will also encourage farmers to plant more oilseeds like sunflower and mustard in the coming winter crop season and reduce the chronic dependence on imports.

Can these policy decisions be reversed?

Export and import policy decisions aim to balance the interests of farmers and consumers. Restricting exports is an implicit tax on farmers, while import taxes can raise retail prices. Farmers often complain that the government is more sensitive to consumer prices than prices at the farm gate. Whether these policy changes will continue will depend on the trajectory of retail prices. A record kharif harvest and low food prices may even prompt the government to ease existing curbs on non-basmati rice and sugar.

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