Minimum Support Price hikes add to the woes of India’s farm exports

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India’s farm exports are at a severe peril. First, a global oversupply in agricultural commodities has led to constantly declining agricultural commodity prices. To add to its woes, sustained and regular increases in the minimum support price (MSP) of agri commodities by the Indian government has over-priced the country’s agricultural commodities in the world market. India’s competitiveness in farm exports is rapidly losing its edge.

Between FY13 and FY19, the government of India raised MSP of various agricultural commodities by 40-70 per cent.

Going by World Bank’s latest commodity outlook which states that global farm prices are expected to remain weak for some more time, exporters of agri commodities have no respite in near future. RCEP-type agreements will only dampen the prospects of increasing farm exports further, because they may open up floodgates for imports, claims a report in Business Standard.

Data compiled by the Ministry of Commerce showed India’s overall exports of agricultural commodities stood at $28.62 billion for the financial year ended in March 2019. Exports did improve a bit from the low base, but were still lower by 13 per cent compared to the peak seen in FY14. And in current year, the downward trend has continued.

For the period between April and September 2019, India’s exports of farm produce declined by 4.8 per cent to $12.86 billion from $13.79 billion last year.

India’s sudden love for various free trade agreements (FTAs), will only encourage agri-commodity traders to import commodities if the international price is lower than domestic MSP-induced prices. Continuous hikes in MSPs will make India’s commodities over-priced, traders argue.

To be sure, bulk consumers of commodities like maize and wheat in southern India have started importing to meet their demand as sourcing from local farmers has become costly. Meanwhile, a recently released World Bank report forecasts greater downward pressure on commodity prices, with stock levels hitting a multi-year high. Most agricultural commodity prices appear to have stabilised recently.

The report further states that the high stock levels for some grains such as rice and wheat, favourable weather conditions in key producing regions, ongoing trade tensions, low energy costs, and weakening demand for some commodities would continue to weigh on prices.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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