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PRESS RELEASE – OCTOBER 2008
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Releases Archive...
Agricultural export
restrictions are ineffective: CUTS
Jaipur, October 30, 2008
Fast growing developing countries like India
characterised by burgeoning food demand often
impose export restrictions on agricultural
produce to provide food security and
facilitate supplies to domestic consumers at
low prices. These measures often turn out to
be ineffective for the initiating economy and
downright harmful for the rest of the world.
In the short run exporters in restricting
countries might curb supplies through hoarding
and greater reliance on futures contracts. In
the long run they might decide to shift to
other crops. In both cases the intentions of
the restricting authorities might be
frustrated.
These are the findings of a study by CUTS. Not
only do export restrictions not do any good
for initiating countries, says the study,
their effect on consumer welfare in importing
countries might be disastrous. A case in point
is rice. In 2007 India impacted the world
market heavily with export embargoes on rice
to meet galloping domestic demand and provide
a modicum of food security. In 2007 the
average world price of rice was around 330 US
dollars per tonne. As the effect of these
restrictions played out fully rice prices rose
steeply – Philippines bought its first import
consignment in 2008 at 700 US dollars per
tonne and found the going even tougher for its
second consignment at 1200 US dollars per
tonne.
These high prices imply significant losses for
the world economy. In fact the CUTS study
estimates the consumer loss imposed by Indian
rice export bans on the rest of the world at
305 billion US dollars. This is neutralised to
an extent by the increase in producer profits
brought about by higher prices (the net
decline in economic welfare of the rest of the
world is a much smaller 6.4 billion US
dollars). But the large figure for consumer
loss still deserves attention and cannot be
tolerated. This figure might actually mean
significantly greater poverty, deprivation and
hunger and food riots and unrest in many parts
of the globe.
Some suggestions have been made by the study.
The suggested measures are all targeted at the
root causes of export restrictions. Demand
management through the often tried combination
of support pricing and subsidised public
distribution is at best only a partial
solution because of associated opportunities
for corruption and the resultant fiscal burden
on the government being increasing in the
scale of operation. Well thought out attempts
to augment supplies are a must: one way out is
the formation of cooperatives by developing
country farmers and their going public to
attract funds for agricultural infrastructure
from developed countries.
For further
information please contact:
Siddhartha Mitra, Director (Research),
CUTS; 9783398920;
sm2@cuts.org
and Bipul Chatterjee, Deputy Executive
Director, CUTS; 9829285921;
bc@cuts.org
The full study is available on request. |
