Though govt has increased export duties on onions and rice to check domestic supply, no such curbs have been placed on turmeric which has seen a surge in prices due to low yield

Global turmeric prices have doubled from Rs 6,000 per quintal at the start of 2023 to Rs 12,600 by its end. At first glance, the issue seems to be associated with global inflation and a short-term supply deficit. But scrutinising the picture reveals a series of environmental causalities combined with private and governmental actions at controlling prices. These actions are subsequently associated with the effects the market has on the parties involved.

In 2023, the El Niño Southern Oscillation caused erratic rainfall and a subsequent low crop yield. India’s significant share in crops, such as onions, rice and turmeric, has consequently faced rising prices and low profits. Prices of basic food commodities, such as onions, salt, rice and turmeric, tend to have a major influence on the average standard of living of a significant population in India.

The El Niño effect, with its drought-like conditions, is one of the possible reasons to impact crops like onions, rice and turmeric, leading to a shortage. Such a deficit, combined with the high demand in the market, has led to high prices for the same. With the elections drawing close, measures to reduce this food price crisis should be of utmost importance to the government.

Export Curbs

Though the government has increased export duties on onions and rice (40% and 20% respectively) to maintain domestic supply, no such curbs have been placed on turmeric. The United Nations’ Food and Agricultural Organisation estimates that global rice prices have soared approximately 10% due to this measure. On the other hand, due to a deficit of supply over demand, turmeric prices have hit their highest prices in the past decade.

India commands a strong position in the global rice supply market. Close to 40% of the world’s total rice exports came from India in 2022. The government justified the export duties on the grounds that it had to ensure enough domestic supply to stabilise rice prices in India. To maintain a constant stock, the government purchases rice at the minimum support price for the sale and distribution among its citizens. Farmers, who now have to make do at these prices, instead of achieving strong profits through exports, are staring at the biggest loss here.

Moreover, related industries that rely on non-Basmati rice, for animal feed and ethanol, are also facing the pressure of the reduced supply.

India also has an influential position in the global turmeric market, holding 80% of the world share in turmeric production, mostly produced in Telangana (29%), Maharashtra (22%) and Karnataka (11%). Just as with onions and rice, the El Niño effect has led to low turmeric yield and an increase in prices due to a surplus of demand over supply. However, unlike onions and rice, the Indian government has not placed any export duty on turmeric. Such action can be attributed not just to the comparative rate of price increase for the spice but also to the government’s inaction in response to farmer unrest.

While counterintuitive, these actions by the government are unsurprising considering the potential consequences of the alternatives. The prices of basic commodities such as rice or spices often influence public opinion of the government significantly. Hence, the government would have a priority in controlling the domestic prices of these commodities through export duties and hoarding.

Upset farmers

The current government has faced issues in gaining the support of a significant farmer population. The farm sector constituted 45.5% of the employed labour force in the country in 2021-2022. Farmers and traders are campaigning to lift these curbs since they hurt their interests.

Commerce and Consumer Affairs Minister Piyush Goyal had declared that export curbs would not be lifted anytime soon while maintaining that farmers’ interests were paramount to the government. Given the ongoing elections, striking a balance in market interference through a realistic Smithian-Keynesian economic approach would be critical for the government if observed from a sociopolitical perspective. The Smithian-Keynesian approach is a balance between two opposing ideologies of free market (Smithianism) as opposed to government control (Keynesianism) policies to manage the market. India’s actions are likely to have a certain level of impact on foreign markets. Because of the low price of non-Basmati rice and its better quality, Sub-Saharan Africa imports more rice from India than other nations (Arya Roy Bardhan, 2024). The global shortage and rising prices due to India’s continued export discouragement of rice are likely to cause disruptions in such markets. This, given the current state of the sub-Saharan economies, would imply a catalyst in its adverse conditions.

Advantage Competitors

In both rice and turmeric, India is a leading producing and exporting country. Therefore, the respective export duty and price rise have led to its competitors shifting towards filling the vacuum left by India by increasing market share. For instance, India holds 37% of total rice exports in the world, more than double the next country, Thailand (13%). Other countries include Vietnam (9%), Pakistan (8%) and the United States (6%). In the area of Turmeric, India holds a more extreme dominance of 65%; this is close to 12 times the export size of the second-highest country, Myanmar (5%). Other competitors include Netherlands (4.3%), Fiji (3%) and Indonesia (2.8%).

On the other hand, several nations are major importers of Indian turmeric. The United States as its largest consumer at 22%, followed by Bangladesh (18%), Iran (6%) and UAE (5%) last year. Some of the other importing countries are Malaysia, the UK, Morocco, Germany and Japan. Similarly, Iran (11%), Saudi Arabia (10%), China (6%) and the UAE (4%) are mostly dependent on India to meet their rice demand.

Despite India’s promises to provide food security to friendly nations, its major turmeric importer markets have felt the impact of rising prices. India’s actions have led to international criticism, especially considering the existent burden of global inflation. However, these actions could prove to be beneficial in the long run through better supply and price control, leading to a possible reduction in global prices too.

Ground Reality

• India holds 37% of total rice exports in the world, more than double the next country, Thailand (13%)
• Other countries include Vietnam (9%), Pakistan (8%) and the United States (6%)
• In the area of Turmeric, India holds a more extreme dominance of 65%
• This is close to 12 times the export size of the second-highest country, Myanmar (5%)
• Other competitors include Netherlands (4.3%), Fiji (3%) and Indonesia (2.8%)