Export bans on agriculture produce, including sugar, must be invoked only under exceptional circumstances as it is easier for consumers to substitute or reduce consumption than for farmers to endure big losses due to ad hoc prohibitions, the Economic Survey for 2023-24 pointed out.
“Farmers should be allowed to benefit from higher international prices. Bans on food exports also need to be telegraphed in advance lest hunger and famine elsewhere in the world worsen,” the survey said.
Essential items
Listing out ways in which the markets can be allowed to function in the interests of the farmer, the survey said one way was by invoking export bans only under exceptional circumstances and allowing domestic consumers to substitute, especially if the agricultural commodities in question are not essential consumption items such as foodgrains.
“Even in those cases (where the commodity is an essential one), the government can allow substitution effects to play out before responding to domestic supply concerns,” the survey said. Citing the example of sugar, the survey said that if sugar prices increased in the domestic market, then instead of restricting or banning exports, consumers could consume less of it or switch to jaggery. “In general, it is far easier for consumers to substitute or pare back consumption than for farmers to endure big losses because of ad hoc export bans or huge imports,” it said.
Futures trading
The survey also advised against banning futures or options markets at the “first sign” of price spikes. It argued that future markets do not hurt consumers or farmers at all times. “The bar for such bans must be set so high that their recourse must be almost non-existent. The intelligent regulatory design of such markets can obviate the need for bureaucratic interference in the futures market for agricultural commodities,” the survey noted.