India’s agricultural trade surplus — exports minus imports of farm commodities — has registered improvement in 2017-18 and also the first quarter of this fiscal, after suffering deterioration in the first three years of the Narendra Modi-led National Democratic Alliance (NDA) government.
During the year ended March 31, 2018, the country exported agricultural commodities worth $ 38.74 billion, as against imports of $ 24.89 billion, according to Commerce Ministry data. The resultant farm trade surplus of $ 13.85 billion was higher than the $ 8.05 billion and $ 10.23 billion figures for 2016-17 and 2015-16, respectively. But it was below the $ 17.93 billion in 2014-15, the first year of the NDA government, and the all-time-high of $ 27.72 billion in 2013-14, the last year of the Congress-led United Progressive Alliance (UPA) regime.
The period between 2003-04 and 2013-14, roughly corresponding with the UPA’s rule, saw a near six-fold jump in India’s farm exports, from $ 7.53 billion to $ 43.25 billion (see Table 1). The primary driver was the global commodity boom, with the United Nations’ Food and Agricultural Organization’s Food Price Index (base year 2002-04=100) soaring from an average of 97.7 in 2003 to 229.9 in 2011. It subsequently fell to 213.3 in 2012, 209.8 in 2013 and 201.8 in 2014, but remained at above 200 levels till July 2014.
High international prices helped boost shipments of not just marine products, spices, coffee, tea, cashew, tobacco, oil-meals and rice, which constituted India’s traditional agri-commodity export basket. While exports of these — especially basmati rice, marine products and oil-meals — did go up, the more spectacular increase, however, took place in commodities that weren’t as significant at the start of the century. We can identify at least four such items.
The first is buffalo meat. The story of India emerging from nowhere to become the world’s largest bovine meat exporter — rising from a mere $ 341.43 million in 2003-04 to $ 4.35 billion in 2013-14 and peaking at $ 4.78 billion in the first year of the Modi government — had partly to do with spiraling global prices, more so during 2009-14. But it was equally about Indian exporters setting up modern integrated slaughterhouses and supplying a relatively cheaper product — buffalo meat sells at a discount to regular cattle beef — mainly to low/middle-income developing countries in Southeast Asia, West Asia and North Africa.
The second is guar-gum, whose shipments skyrocketed from just $ 110.53 million in 2003-04 to $ 3.92 billion in 2012-13. The catalyst here was oil, more specifically the US shale boom. The said gum — extracted from the seeds of guar, a hardy legume crop grown mostly in Rajasthan — is used as a thickening agent in the fracking fluid (primarily water and suspended sands) that gets injected at high pressure into shale rocks to create cracks and allow the oil/gas to flow through them. As hydrocarbon drilling services firms such as Halliburton, Baker Hughes and Schlumberger began stockpiling guar-gum, Indian exporters and farmers, too, made a killing.
The third was raw cotton. In 2003-04, India’s cotton imports, at $ 341.67 million, exceeded its exports of $ 205.08 million. But in 2011-12, the value of exports ($ 4.33 billion) far surpassed that of imports ($ 223.18 million). In the process, the country became the world’s No 2 cotton exporter after the US. This was enabled no less by large-scale cultivation of Bt cotton hybrids, which resulted in India also displacing China as the biggest producer of the natural fibre.
The fourth commodity worth mentioning is maize or corn. In 2000-01, India shipped out 32,500 tonnes of this feed grain worth $ 5.97 million. By 2012-13, these had touched 4.79 million tonnes (mt) and $ 1.31 billion, respectively, as the likes of Cargill and Louis Dreyfus resorted to sourcing maize from Bihar’s Kosi-Seemanchal belt and even Nabarangpur in Odisha — farmers there had taken to planting high-yielding single-cross hybrids bred by DuPont and Monsanto — for dispatching to Indonesia, Malaysia and Vietnam via Kakinada and Visakhapatnam ports.
The above export party ended with the collapse of the worldwide commodity boom. The FAO Food Price Index dropped to 161.5 by 2016. A better idea of the extent of decline, though, can be had from individual commodities. At their peaks, futures prices of corn, wheat and soyabean at the Chicago Board of Trade had hit $ 8.49 (August 2012), $ 13.34 (February 2008) and $ 17.94 (September 2012) per bushel, respectively, while scaling 244 cents a pound (March 2011) for the benchmark Cotlook ‘A’ Index cotton and $ 5,142 per tonne (April 2013) for skim milk powder at the New Zealand dairy giant Fonterra’s online auction platform. The latest respective rates for the same commodities are $ 3.87, $ 5.54, $ 9.19, 98 cents and $ 1,959.
From a high of $ 43.25 billion in 2013-14, India’s agricultural exports slid to $ 33.70 billion in 2016-17. This was, moreover, accompanied by imports, too, going up from $ 15.53 billion to $ 25.64 billion (see Table 2), due to which the overall farm trade surplus narrowed from $ 27.72 billion to $ 8.05 billion. The crash in global farm commodity prices, in other words, not only reduced the cost competitiveness of the country’s exports, but also made it more vulnerable to imports.
But global prices apart, there were two other contributing factors to the external trade environment turning more adverse against Indian farmers.
The first was a strengthening rupee. Between 2013-14 and 2017-18, the rupee’s trade-weighted average real effective exchange rate (REER), against a basket of 36 currencies after adjusting for inflation differentials with regard to the countries concerned, appreciated by 15.9 per cent.
The second was the Modi government’s pronounced anti-inflationary stance, reinforced by the signing of an Agreement on Monetary Policy Framework with the Reserve Bank of India, committing the latter to keep annual consumer price index inflation within 6 per cent. One of its by-products was to impose export restrictions — on onion, potato and sugar, for instance — at the slightest hint of prices increasing, even while allowing duty-free imports. The best evidence of such a hawkish policy was in pulses during 2016-17. That was a year, when India imported a record quantity of 6.61 mt worth $ 4.24 billion on top of harvesting a bumper domestic crop of 23.13 mt, compared to the previous year’s 16.35 mt.
The last one year or so has, however, witnessed some course correction on the Modi government’s part — perhaps, in response to farm distress from low produce realisations and with elections approaching. In pulses, there is today a 50 per cent import duty on yellow peas and 60 per cent on chana (chickpea), while tur (pigeon-pea), urad (black gram) and moong (green gram) shipments are subject to annual quotas of 0.2 mt, 0.15 mt and 0.15 mt, respectively. Imports of sugar, likewise, attract 100 per cent duty, while being more than doubled or even trebled in most edible oils in the last one year.
Not surprisingly, pulses imports fell to 5.65 mt in 2017-18 and its value has plunged further during the first quarter of this fiscal. Imports of edible oil have also been lower in April-June 2018 over April-June 2017. Simultaneously, the pick-up in overall farm exports during 2017-18 has been sustained in the current fiscal as well so far.
A depreciating rupee (the REER has fallen by 5.9 per cent between December 2017 and June 2018) and global commodity prices coming off their lows (the FAO Food Price Index in June 2018 was 173.7) should further aid the cause of Indian farmers. In the new era of “permanent surpluses” (https://bit.ly/2laEOrZ), that’s what is really required.