India’s Agri-Future in Peril? Export Bans & Unstable Weather Threaten Key Staple Supply

Globoil Post explores the future of India’s agricultural market amid looming challenges like export restrictions and unpredictable climate shifts. With insights from Arun Raste, MD & CEO of NCDEX, this article unpacks critical strategies to ensure the stable supply of staples like rice, wheat, and pulses over the next year.

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Given the recent global challenges such as export restrictions and unpredictable weather patterns, what strategies do you believe India should adopt to ensure the stable availability and supply of key staples like rice, wheat, and pulses over the next year?

“The Indian economy is one of the largest and fastest-growing large economies in the world. Being the most populous nation, the country has a large and youthful workforce, which contributes to its dynamic economic landscape and growing consumer market. The disposable income is likely to improve further as the economy grows. Therefore, the demand for agri-products would be stable and everlasting. While India has attained self-sufficiency in cereal production, we have been unable to stabilize the prices of these commodities despite record production. Commodity groups like pulses and oilseeds are import-dependent, and markets witness price volatility. At times, the government resorts to ad-hoc measures like stock limits or imports to control prices. 

‍However, these ad-hoc measures have limited impact. While the aim of atmanirbharta (self-sufficiency) is laudable, we need to accept the fact that we cannot be self-sufficient in everything, and we will need to import some commodities. Therefore, to ensure the availability and supply of these commodities, it is essential that India has a long-term stable policy, which can be a combination of import and domestic production. First and foremost, we need to further improve crop productivity. Farmers need to be enabled to invest in and adopt technologies leading to productivity enhancement, be it precision farming, using improved quality of seeds, or enhancing irrigation infrastructure to mitigate the impact of unpredictable weather patterns. As a large country, India needs to build strategic reserves and diversify import sources to manage supply disruptions. This could mean renegotiating some trade agreements and building buffer stocks.

‍The Indian Government must also implement policies that encourage private investment in agriculture and food security. This includes ensuring fair trade practices, reducing export restrictions strategically, promoting research and development in crop resilience, and above all, supporting free and competitive markets which encourage fair price discovery to motivate farmers to produce what the market demands.”

How do you see the current government policies, such as export bans and minimum support prices, impacting the agri-commodities market in terms of both domestic stability and India's role in the global market?

“As regards global markets, the Indian trade policy-related decisions are guided by the philosophy that India’s interest is supreme. For domestic policies, there is a trade-off between conflicting objectives. On the one hand, domestic consumers are to be insulated against price rise, while on the other, efforts are made to ensure that farmers receive remunerative prices. Thus, a judicious mix of domestic and foreign trade policies assumes great significance in executing successful government policies. Clear, well-defined, and stable policies are desirable for the long-term and sustainable growth of the Indian commodity market.

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Government policies have significant impacts on both the domestic agri-commodities market and India's role in the global market. For example, in recent years, we have seen that wheat export was banned in May 2022, just after the start of the Russia-Ukraine war. However, it had little impact on wheat inflation in the domestic market. Wheat wholesale price inflation went up to 23% in January 2023 and started cooling down later on. In pulses like Tur and Chana, WPI inflation is hovering above 25% in July 2024. In edible oils such as soy oil and palm oil, we are largely dependent upon international market supplies. We have seen a number of policy changes ranging from reducing import duties, easing quantitative restrictions on imports, putting stock holding limits on value chain participants, disclosing stocks on government portals, and distributing subsidized food items to a large section of society. The Minimum Support Price (MSP) has remained the single most important policy instrument, serving the needs of a large set of farmers by safeguarding them against price slumps in supply glut situations. However, the signals emanating from MSP can also distort market signals and lead to overproduction or underinvestment in other crops, affecting overall agricultural diversity and potential demand.

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India has ample scope to experiment with technology-based solutions to address market risks. While MSP-based support should continue, policymakers may explore ways and means to address the price risk management issue in the backdrop of the future needs of the country as discussed in the previous section. Institutionalization of Price Risk Management approaches and adoption of market-based price risk management instruments in the form of Commodity Derivatives like “Futures” and “Options” seem a way forward to largely address the future needs of the Indian agriculture sector.

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In the backdrop of the above discussion, policy should focus on addressing supply-side issues. Identifying long-term solutions to augment supplies would help bring respite from inflationary pressures and reduce unwarranted price volatility, thus helping grow agricultural markets. Steps such as export/import bans should be exercised in extreme cases as they can disrupt global supply chains, especially for countries dependent on Indian exports. This can lead to higher global prices for certain commodities but may also create trade tensions. These measures can prompt other nations to seek alternative suppliers or increase their own production capacities. Frequent changes in export policies might affect India's reputation as a reliable supplier in the global market. Trade partners may seek more stable sources if India's export policies are perceived as unpredictable. Thus, from a long-term perspective, these policies should act in a way that enhances India's competitiveness in international markets.”

With the ongoing challenges in agricultural production and supply chains, what are the key factors that you believe will drive market dynamics in India's agri-commodities sector in the coming months, and how should stakeholders prepare for potential volatility?

“A rising atmospheric concentration of greenhouse gases (GHGs) is said to be the principal factor contributing to climate change. Our aim should be to produce with a low carbon footprint so as to protect the environment. Climate change-linked commodity production and price volatility would be key factors guiding value chains. India needs to achieve nutrition security along with food security. A food plate would require more protein and fibers rather than carbohydrates. Thus, diversification of cropping patterns from cereals to pulses and oilseeds would be required. Supportive policies for such crops, investing in programs for farmer awareness, providing access to important farm inputs like quality seeds and fertilizers, cost-effective modern production technology, and supportive market infrastructure would help achieve these objectives. Agricultural practices with a low carbon footprint can be a triple win in the form of enhanced adaptation, increased mitigation, and stability in food security and sustainability in the country.

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Stakeholders' investment in climate-resilient crops and advanced weather forecasting systems to better anticipate and mitigate the effects of adverse weather will be essential. Enhancing irrigation infrastructure and adopting sustainable farming practices can also help in managing risks associated with climate variability. The adoption of agricultural technology, such as precision farming, data analytics, and automation, can drive efficiency and productivity. Stakeholders should invest in technology to optimize crop management, reduce costs, and improve yields. Embracing innovation can also enhance resilience against supply chain disruptions.

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Stakeholders can also learn from disruptions like “Covid-19,” which posed a different type of challenge to the world supply chain. Transportation bottlenecks and logistical challenges can potentially affect the availability and cost of commodities in international trade. Stakeholders should focus on improving supply chain efficiency by investing in better storage facilities, diversifying suppliers, and enhancing logistics to reduce dependency on global supply chains.

India has set an ambitious target to become “Atmanirbhar” by 2047. The agricultural commodity sector should make targeted efforts in this direction. Foster collaboration among farmers, industry players, and government agencies to share knowledge, resources, and best practices. Partnerships can help address common challenges and develop collective solutions. There is also a need for consensus building among stakeholders, especially farmers, towards the need for marketing reforms in Indian Agriculture to make agriculture viable and market-friendly. The present mandi system, although serving the farmers, needs modernization and innovation in methods of price discovery and price dissemination.

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Agricultural Marketing Reforms would be in the form of ensuring: 

(a) “Right to sell wherever the farmer wants,” i.e., there will not be any obligation for farmers to sell their produce inside the APMC Mandis. Competition among buyers is likely to increase with the emergence of new alternatives to trade through private mandis, direct selling to processors/millers/warehouses/aggregators/through FPOs, etc., apart from the APMC mandis.
(b) Less Price Volatility and Competitive Pricing, i.e., through the mechanism of barrier-free inter-state trade, the market will dictate the flow of supply towards demand centers through the mechanism of competitive pricing. The shocks of surplus supplies would be easily and quickly absorbed through its movement towards the deficit state, translating into less price volatility and better price realization for producers/sellers through the reach of India-level buyers.
(c) Integration of Markets: By encouraging e-Trading of agricultural produce, the Government is constantly making efforts to promote the use of modern technology for transforming the system of agricultural marketing to bring more competitiveness, improve efficiency, discourage the presence of excessive middlemen, and prevent frequent price manipulations. A clear framework of the Government of India’s ambitious project, i.e., “e-NAM,” in the form of an electronic trading portal that networks the existing APMC mandis to create a unified national market for agricultural commodities, is supposed to be a sea change in the agricultural trading system.
(d) Fast Development of Post-Harvest Infrastructure: Amendments in the Essential Commodity Act by way of deregulating and removing stock limits from cereals, edible oils, oilseeds, pulses, potato, and onions can make a huge positive difference. Entrepreneurs will come into the post-harvest inventory management business when they no longer have the fear of frequent changes in the laws, which contradict their business interests. The Essential Commodity Act is by and large perceived as a deterrent and discouraging factor in the context of entry of concerned businesses in this field.

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To fulfill the long-term vision of protecting the interests of farmers and aligning agricultural production with the changing demand of the market, it is necessary to nurture a self-sustaining institutional framework like FPOs, which is capable of managing future needs of price risk management. FPOs provide viability to technology through increased scalability, better human and financial management. Despite various FPOs facing operational issues, the need for continued support to these organizations is imperative. FPOs must be made aware of the importance of price risk management and the ways to address these challenges. Commodity Derivatives Markets, through tools like “Futures and Options,” can help mitigate price risk and enhance the income of farmers.”

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