After a sudden ban on the export of the pungent vegetable, which is a must-use ingredient in most South Asian cuisines, halted traders like Sharma in their tracks.

Consequently, the central government paid heed to the diplomatic outrage in the neighbouring countries which are the biggest buyers of the humble vegetable, allowing sales to a few select neighbours including Bangladesh, Bhutan, Mauritius and Bahrain this week with a cap on supplies set abroad.

This policy flip-flop may have pleased foreign ministries in the countries concerned but proved to be a trust breaker for traders across borders.

“It’s good that the government has partially lifted the ban on onion exports. But the problem is buyers are now wary of dealing with us and will be on the lookout for other suppliers. The trust has been broken by this sudden ban which was imposed in December last year,” said Sharma.

The government banned onion exports last year in early December as prices of the bulb were rising. A late Monsoon had reduced crop yield while the demand for onions far outstripped supplies. The central government, which faces an election in mid-2024, decided to ban exports of the bulbs to keep domestic consumers happy.

However, the problem for India is that many of its neighbours are mostly dependent on its onion exports. Thus, a ban on sales of the bulbs to them can immediately result in consumer outrage in their lands.

India, the second largest onion grower in the world, produced about 31.8 million metric tonnes of onions in 2022-23. Experts are of the view that this may well come down by 1-2 lakh metric tonnes this year. Consequently, marketers have raised prices in the wholesale market, betting on future shortages.

Flip-Flops On Trade Policy

“This type of knee-jerk decision confuses global trade and impoverishes local farmers who stand to gain from exports. We see a strong pro-consumer bias, anti-farmer bias in such policy making,” said Chaudhary Pushpendra Singh, President, Kisan Shakti Sangh.

“Export bans such as on wheat, rice and now onion are irrational and without taking into consideration the interests of other stakeholders,” added Singh.

In the last few years, there have been several occasions when the government at the Centre resorted to banning exports of various agricultural commodities at different times. It was done in a bid to keep consumer prices stable in domestic markets.

Let’s have a look at agricultural products that were banned in the last few years.

In the wake of the Ukraine-Russia war back in April 2022, the inflation rate touched 7.8 per cent, and the government tried to batten down the hatches by banning wheat exports. The only exemptions were South Asian Association for Regional Cooperation (SAARC) countries.

The restrictions on sugar exports were enforced in June 2022 for five months till October 2022. The government then further extended this for one year until October 2023. The ban on sugar exports remains in force.

In July, the government banned the export of broken rice, while an export duty was slapped on paddy, brown rice and non-basmati white rice, as a deterrent to it being sold abroad.

Due to an upward trend in food prices and inflationary pressure, the government in July 2023 banned the exports of all non-basmati rice varieties and imposed a 20 per cent export duty on parboiled rice besides setting a minimum export price (MEP) of US$1,200 per tonne for basmati rice in August 2023.

This effectively stopped around 80 per cent of India’s rice exports being shipped. This impacted global prices as India is the world’s second-largest producer and the largest exporter of rice with a 40 per cent market share in global trade.

Onion Exports Were Hit The Most

However, if any agricultural commodity’s exports suffered the most, it was the humble onion, which is feared by Indian politicians as a crop whose price rise can lead to demonstrations on the street.

It suffered a ban for several months in 2019 after an abnormal price increase. Exports plummeted from 2.18 million metric tonnes (MMT) in 2018-2019 to 1.15 MMT in 2019-20. The value of export earnings on this count from Rs 3,468 crore in 2018-2019 to Rs 2,321 crore in 2019-20.

The bulb’s prices again soared in 2020 and an export ban was immediately brought back in September of that year, which continued till January 2021. Exports continued to be low at 1.58 MMT valued at Rs 2,827 crore in 2021 and at 1.54 MMT, fetching a higher price of Rs 3,432. As a result, global prices also soared because of India’s under-supply in the world market.

2022-23 was a normal year when dealers like Sharma sold without any headaches to neighbours in Bangladesh, Nepal and Bhutan, accounting for 2.52 MMT and fetching a value of Rs 4,523 crore.

However, analysts said the recent ban will take its toll, both in terms of sales abroad this year as well as India’s image as a reliable trade partner in the international market.

Experts say that frequent interventions made by the Centre impede India from being a dependable player in the global agricultural commodities market.

“What happens is that it harms us on two fronts. First, our exporters get a bad name and their credibility goes down. Secondly, it becomes difficult for them to win back trust from buyers even after the government allows normal exports,” said Vijay Sardana, agriculture economist.

Image As Reliable Trader At Stake?

These frequent interventions, latest in the case of onions, send panic waves among domestic traders as well as buyers overseas. Traders want stability in export policy and certainty in the supply of commodities.

“There should be a clear-cut assessment of stocks before the government decides to ban anything, there should be stability in terms of policy,” said Sompal Shastri, former Agriculture Minister and a farm leader.

“Any knee-jerk ban - whether on grains, vegetables or sugar - will portray India as an erratic player,” added Shastri.

Limited exports of onions to selected countries have been allowed as otherwise bilateral relations may be hurt. Even on several previous occasions, the government-to-government deals led to exports being allowed to different countries, even as a ban was imposed on the marketing of those commodities abroad.

In the past India’s flip-flop agricultural commodities exports have attracted huge protests from affected countries because it caused a panic for the populace there. Analysts assert that these bans have even led to food riots in Africa, bad press in Bangladesh and serious discussions on the issue in bilateral trade talks at the WTO.

The Way Forward

The Ministry of External Affairs has borne the brunt of complaints by foreign governments whose markets were roiled when India imposed bans.

Analysts like Shastri feel that the way forward is to fix a minimum amount or percentage of the crop which can be exported. In years when crop yields fall, exports would be curtailed to this floor figure whereas in normal years there should be no caps on exports.

“This could get farmers better prices for their crops and at the same give buying nations a certainty on supplies,” the farmer leader said.