Substantial environmental and fiscal costs mark the production of rice and sugar, two of India’s top agri-export items. This must be kept in mind while chasing export goals
By Ritika Juneja & Ashok Gulati
In FY22, India’s agri-exports reached an all-time high of $50.3 billion, registering a growth of 20% over the preceding year. This was largely made possible by rising global commodity prices, but also by favourable and aggressive export policy and various export promotion agencies like Agricultural and Processed Food Products Export Development Authority , Marine Products Export Development Authority, and commodity boards, etc. However, a strategic question that arises is: How sustainable is this growth in agri-exports, given India’s resource endowments and its own needs? Already, there has been a sudden ban on wheat exports. To answer this rationally, let us first look at the composition of agri-exports.
Among the several agri-commodities exported in FY22, rice is the top-ranked, with exports of $9.6 billion (21.2 million metric tons, or mmt, in quantity). It is followed by marine products ($7.7 billion/1.4 mmt), sugar ($4.6 billion/10.4 mmt), spices ($3.9 billion/1.4 mmt), bovine (buffalo) meat ($3.3 billion/1.18 mmt) and so on (see graphic). Of these, two commodities—rice and sugar—are water guzzling, and need some serious thinking with respect to their global competitiveness and environmental sustainability.
India’s rice exports of 21 mmt constituted 41% of the global rice market of 51.3 mmt. Interestingly, when most of the other commodity prices were surging in the global market, the price of rice (Thailand, with a 25% share) collapsed by about 13%, from $484/tonne in April 2021 to $429/tonne in April 2022, largely due to India’s massive exports. That means India had to export more rice to net the same dollar-amount. Is this in India’s economic interest? In trade theory, it is a classic fit for an optimal export tax of 5-10%. India should not go beyond 12-15 mmt of rice exports; else, the marginal revenue from exports will fall.
Another concern in the case of rice is that a substantial part of its global competitiveness comes from highly-subsidised water, power and fertilisers that go into its production. It is well known that one kg of rice requires about 3,000-5,000 litres of water for irrigation, depending upon the topography. Taking an average of nearly 4,000 litres of water per kg of rice, and assuming that half of this percolates into groundwater, exporting 21 mmt of rice would mean a virtual export of 42 billion cubic meters (bcm) of water!
Sugar is another water guzzler, whose exports touched 10.4 mmt in FY22. It was backed partly by subsidies (including export subsidy) that crossed the de minimis limit of 10%, landing India in a dispute with other sugar-exporting countries at the WTO, and India losing its case. But the rising global prices of sugar also helped. However, from a sustainability point of view, exporting one kg of sugar amounts to roughly exporting 2,000 litres of virtual water. That means, in FY22, India exported at least 20 bcm of water through sugar exports.
So, via its rice and sugar exports in FY22, India exported at least 62 bcm of water! And much of this is being extracted from groundwater, as done in the Punjab and Haryana belt, where the water table is receding by 9.2 m and 7 m (respectively, in the two states) over the last two decades (2000-19), and in Maharashtra and Uttar Pradesh for sugar. Also, rice production systems are one of the most important sources of anthropogenic methane emission, contributing to 17.5% of GHG emission generated from agriculture (2021). This is all because of the distortionary policies of free power and highly-subsidised fertilisers, especially urea. In the case of common rice, our earlier research shows that power and fertiliser subsidies account for roughly 12-15% of the value in states like Punjab and Haryana. The best way to tackle this embedded environmental disaster would be to support farmers in a smart way, by giving them aggregate input subsidy support on a per hectare basis and totally freeing up the input prices of fertilisers and power and their costs of production.
Innovative farming practices such as alternate wetting drying and direct-seeded rice that can save up to 25-30% of the conventional water requirement, and micro-irrigation, which can save up to 50% irrigation water, can also be game-changing for reducing carbon footprint. However, the real solution is incentivising the farmers to switch some of the area under rice and sugar to other, less water guzzling crops. Haryana has come up with two schemes, ‘Mera Pani, Meri Virasat’ and ‘Kheti Khaali, Fir Bhi Khushali’. Under the first, Rs 7,000 per acre is given to farmers for switching from paddy to an alternative crop, while, under the second, farmers get Rs 7,000 per acre even if they do not grow any crop during the kharif season.
A closer evaluation of non-basmati rice exports brings out another interesting fact. The unit value of these exports was just $354/tonne, below the MSP ($390 per tonne). How did that happen? One possibility is that a substantial part of supplies through PDS and PM Garib Kalyan Anna Yojana are leaking out and swelling rice exports. From a policy angle, it may be high time to introduce direct cash transfers in lieu of grains. This will help plug leakages as well as save costs, which can be used to better diversify our food systems, rationalise the use of scarce water, lower GHG emissions, and cut burgeoning food and fertiliser subsidies. Can the Modi government make agri-exports more sustainable? Only time will tell!
The authors are respectively, consultant, and Infosys Chair professor, ICRIER
