Indian farmers taxed $169 bn via export bans or restrictions in 2022: OECD report

Indian farmers were implicitly taxed $169 billion in 2022 due to export bans, duties or permits on several commodities like wheat and rice, to stabilise prices for consumers, the latest Organisation for Economic Co-operation and Development (OECD) assessment on agricultural policy and support globally has pointed out.

This drove the overall market price support (MPS) to farmers in negative in 2022.

India’s negative MPS policy taxation constituted over 80 per cent of all such taxes globally in 2022. Among 54 countries analysed in the report, implicit taxation to farmers was about $200 billion.

Simply put, MPS is the benefit or loss farmers receive by having domestic prices that do not reflect those of world prices.

Specifically, MPS is defined as the ‘annual monetary value of gross transfers from consumers and taxpayers to agricultural producers, arising from policy measures that create a gap between domestic market prices and border prices of a specific agricultural commodity, measured at the farm gate level’.

Other emerging economies which had a negative MPS, managed to offset it through other budgetary support, bringing the net support in positive figures.

However, in India’s case, different budgetary transfers to farmers in the form of large subsidies for variable input use, such as fertilisers, electricity, and irrigation water, PM-KISAN, did not offset the price-depressing effect of domestic marketing regulations and trade policy measures.

While budgetary transfers corresponded to 11 per cent of gross farm receipts, negative MPS came out to be 27.5 per cent of gross farm receipts for different commodities. Overall, this led to negative net support of 15 per cent of gross farm receipts.

India introduced export bans, duties or permits on several commodities in 2022 with an open-ended timeframe to stabilise fluctuations in domestic prices following the outbreak of war in Ukraine and also due to the 2022 heatwave.

While this kept domestic prices from rising for the consumers, it also meant that producers’ (farmers) receipts were lower than they would have been had these policies not been in place.

Commodities affected included various types of rice, wheat, sugar, onions, and related products (like wheat flour).

“Virtually all gross producer transfers (whether positive or negative) come in potentially most production — and trade-distorting forms — a consistent pattern since the early 2000s, the period for which support data are available. Net support to producers in India has been negative throughout the last two decades, but fluctuates markedly,” said the OECD report released on October 30.

The international measure of a government’s budgetary and other subsidies to farmers is the Producer Support Estimate (PSE), developed by OECD that uses this for its annual tracking of global agriculture supports. In simple terms, this measure estimates what a farmer receives at the farm gate.

The effect of these new and other existing policies was particularly pronounced for the MPS of Indian wheat, causing implicit taxation to increase by close to $10 billion.

The export restrictions also directly affect India’s reliability as a supplier and exacerbate the persistent challenge of low farm incomes.

Meanwhile, across the 54 countries, total support directed to the sector totalled $851 billion per year on average over 2020-22. This is considerably higher than the $696 billion averaged in the three years preceding it from 2017 to 2019, largely reflecting policy responses to the COVID-19 pandemic, inflationary pressure and fallout from the war in Ukraine.

Producer support was estimated to have declined in 2022 due to falling market price support, but still remains higher than pre-pandemic levels. In fact, producer support among OECD countries has been in long-term decline. However, the rate of decline has slowed since the early 2010s.

However, $411 billion, or two-thirds of the $630 billion in positive support to producers across the 54 countries covered in this report, was in forms considered to be ‘potentially most distorting’ to production and trade.

The types of support considered to have the potential to be the most distorting are payments based on output and payments based on the unconstrained use of variable inputs.

These forms of support are also known for being both inefficient and untargeted to providing support to those households in need as a large share of the transfers are leaked in the form of higher prices for and larger use of inputs, or capitalised into land values.

On average, these forms of support are much more prevalent in emerging economies than in OECD nations.

“In the 11 emerging economies, potentially most distorting policies generated positive support to producers equalling 10 per cent of gross farm receipts and implicit taxation equal to 6 per cent of gross farm receipts in 2020-22. In OECD countries, potentially most distorting policies generated positive support equalling 7 per cent of gross farm receipts in 2020-22, but did not implicitly tax producers,” the report said. 

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