Ban on wheat exports may hit farm incomes

On Monday, HT reported that the ban on export of wheat and non-premium rice is likely to continue beyond March. While an official decision is yet to be taken, multiple factors seem to be nudging the government towards such a decision. They include elevated domestic inflation for cereals, low grain stocks with the government and uncertainty over weather outlook for the two most important cereal crops in the rabi (wheat) and kharif (rice) season. The former suffered heavily because of a premature heat wave last March (hence the caution) and the latter might be adversely affected if this is a weak monsoon year because of the El Nino effect.

A decision to ban exports, in the wake of so many contingencies, is not something that ought to be criticised. Food security is a strategic objective and sovereign countries are free to tweak policies to safeguard it. What needs to be kept in mind while pursuing such policies, however, is that the benefits are not without their side effects.

The most significant side effect will be on farm incomes. When farmers are not allowed to exploit windfall gains of high prices either in domestic or foreign markets, they incur a loss of potential income. This can hurt more under two circumstances. If input prices and prices of other consumables are also growing at a high rate, the terms of trade for farming move in an adverse direction. And if adverse weather leads to a crop failure or sub-par yields, price-capping moves deprive farmers of the opportunity to recover their sunk costs. Such collateral damage can lead to both political discontent and headwinds to rural demand. The government will be hoping that the benefits of low inflation compensate for such disaffection.