Alternatives India can look at to mitigate effects of its export prohibitions

Economic Times, October 22, 2022

By Pradeep S Mehta

Despite various negative outcomes, it is very difficult to have a bar on restrictions on food exports. This was recognised in the latest World Trade Organisation (WTO) ministerial decision on the exemption of World Food Programme food purchases from export prohibitions.

There are multiple issues vying for urgent global attention today. But the matter of food insecurity is a critical one. From vaccines, migrants, climate finance to food and hunger, the invocation of national interests in transboundary issues often pits sovereignty against international cooperation. Sometimes a balance is maintained. Often, a solution is found that is of detriment to both. Food export restrictions are the perfect example of the counterproductivity brought by the latter.

When governments impose export restrictions on agricultural products (for legitimate reasons), they have a domino effect on similar inward measures. This ultimately reduces global supply and adds to food inflation, thereby harming the poorest consumers worldwide, directly and indirectly. Multiple studies have time and again demonstrated that export restrictions do not necessarily improve food security in countries imposing them, especially in the medium-to-long run. Worst of all, when restrictions are taken without regard to net food-importing countries, it undermines international trade by incentivising self-sufficiency over specialisation.

Get the Export of Things
Even when these restrictions are successful in shielding the domestic market from international volatility, net economic welfare losses pile up due to distortion of prices. According to a 2011 CUTS (Consumer Unity & Trust Society) International study, the 2008 export restrictions on rice by India resulted in a net decline in global economic welfare amounting to $6.38 billion. Beyond this, in the long run, export restrictions also disincentivise farmers from increasing productive capacity – the ultimate tool for increasing supply and bringing down prices, locally as well as globally.

Yet, such restrictions have their own utility. For example, India’s export ban on wheat this May tried to balance various domestic and international priorities. It brought down local wheat prices slightly, giving some relief to consumers. Further, by exempting select vulnerable countries in the immediate and extended neighbourhood, it allowed India to play an important role in mitigating the food crisis while strengthening its geopolitical ties.

Wheat was not the last commodity to be banned. Just last month, India imposed an export ban on broken rice and a 20% export tax on select rice varieties. Noticeably, unlike the wheat ban, this measure does not come with similar relaxations.

However, despite various negative outcomes, it is very difficult to have a bar on restrictions on food exports. This was recognised in the latest World Trade Organisation (WTO) ministerial decision on the exemption of World Food Programme food purchases from export prohibitions. Even as members tried to address the humanitarian issues emanating from such prohibitions, they emphasised on the member’s right to adopt measures to ensure domestic food security. Other international rules under the WTO also exist to govern such measures.

For more balanced and transparent policymaking, one must first aim for a better understanding and application of the rules that already exist. For instance, apart from stricter implementation of existing notification requirements, we need greater clarity and objectivity about the scope of terms such as ‘essential’ and ‘critical shortages’. What does it really mean to take into account the interests of the importing countries?

Beyond such definitional clarity, we also need practical guidance on issues involving the timing and purpose of such restrictions. Should members impose export restrictions as preventive measures? Should export restrictions on agricultural produce be imposed for reasons other than safeguarding food security? This is crucial, especially in respect to the ban on broken rice that has ostensibly been imposed to prevent the disruption of ethanol production meant for blending with fuel.

Let Policy Grow on Us

Various regional trading agreements (RTAs) have advanced disciplines on the treatment of essential goods and turned export restrictions into measures of last resort. RTAs such as the US-Mexico-Canada Agreement and the EU-Vietnam free trade agreement contain various provisions, including mandatory explanations, overall time limits on export restrictions and time-bound reviews for enhanced accountability and transparency.

Even with the external pressure of regional commitments, food restrictions can only be eliminated if governments have alternative measures. Export taxes or tariff rate quotas provide sufficient flexibility to balance domestic imperatives with global ones.

India should look at such alternatives to mitigate the adverse effects of its export prohibitions. Precise instantiation of triggers for such taxes and their     calibration to domestic production will also reduce the overall ad hocism in India’s agricultural export policy, which holds its farmers hostage to uncertainty.

Beyond trade, other structural issues impacting agriculture globally and locally must be resolved for improving agricultural productivity and sustainability. International policy coherence between norms and initiatives relating to trade, developmental assistance and climate change could prevent and mitigate the disruptions in agricultural trade brought by domestic as well as international crises. Notably, both bans on wheat and broken rice have been exacerbated by climate-related stress – heatwaves and reduced rainfall respectively.

Further, the desirability of equal international attention and cooperation on agricultural inputs cannot be overstated. India’s ambition to feed the world must start with the realisation of the importance of such a synchronised approach to global food security. The first step, however, involves a deeper introspection and correction of policies that are detracting from these noble objectives.

The writer is secretary general, CUTS (Consumer Unity and Trust Society) International, and former member, think-tank on national policy on ecommerce, ministry of commerce and industry, GoI. Inputs by Ujjwal Kumar
and Sneha Singh.

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