Agricultural export restrictions are ineffective: CUTS

October 30, 2008, Jaipur
Fast growing developing countries like India characterised by burgeoning food demand often impose export restrictions on agricultural produce to provide food security and facilitate supplies to domestic consumers at low prices. These measures often turn out to be ineffective for the initiating economy and downright harmful for the rest of the world. In the short run exporters in restricting countries might curb supplies through hoarding and greater reliance on futures contracts. In the long run they might decide to shift to other crops. In both cases the intentions of the restricting authorities might be frustrated.

These are the findings of a study by CUTS. Not only do export restrictions not do any good for initiating countries, says the study, their effect on consumer welfare in importing countries might be disastrous. A case in point is rice. In 2007 India impacted the world market heavily with export embargoes on rice to meet galloping domestic demand and provide a modicum of food security. In 2007 the average world price of rice was around 330 US dollars per tonne. As the effect of these restrictions played out fully rice prices rose steeply – Philippines bought its first import consignment in 2008 at 700 US dollars per tonne and found the going even tougher for its second consignment at 1200 US dollars per tonne.

These high prices imply significant losses for the world economy. In fact the CUTS study estimates the consumer loss imposed by Indian rice export bans on the rest of the world at 305 billion US dollars. This is neutralised to an extent by the increase in producer profits brought about by higher prices (the net decline in economic welfare of the rest of the world is a much smaller 6.4 billion US dollars). But the large figure for consumer loss still deserves attention and cannot be tolerated. This figure might actually mean significantly greater poverty, deprivation and hunger and food riots and unrest in many parts of the globe.

Some suggestions have been made by the study. The suggested measures are all targeted at the root causes of export restrictions. Demand management through the often tried combination of support pricing and subsidised public distribution is at best only a partial solution because of associated opportunities for corruption and the resultant fiscal burden on the government being increasing in the scale of operation. Well thought out attempts to augment supplies are a must: one way out is the formation of cooperatives by developing country farmers and their going public to attract funds for agricultural infrastructure from developed countries.
For more information, please contact:
Siddhartha Mitra, Director (Research), CUTS; 9783398920;
Bipul Chatterjee, Deputy Executive Director, CUTS; 9829285921;