India extension of bean import quota to benefit Myanmar farmers

Title of the article: India's extension of bean import quota to benefit Myanmar farmers

Source of the article: https://www.mmtimes.com/news/india-extension-bean-import-quota-benefit-myanmar-farmers.html

Date the article was published: 6^th October 2020

Date the commentary was written: 17^th January 2021

Section of the syllabus the article relates to:- International economics

According to a government declaration on October 1, India has approved the import of 150 000 tonnes of mung beans between now and March 31, 2021, after two months of negotiations with Myanmar.

This extends the initial three-month timeframe for filling the import quota from June to August. Prices will rise. As a result, they are bringing in more money for nearby farmers and merchants.

"Because we couldn't satisfy the import quota levels, we couldn't get a reasonable price from India in the past. We should be able to export more and earn higher pricing now that the quota period has been extended, according to local mung bean trader U Aye Lwin.

India started imposing bean import quotas to safeguard its regional farmers in August 2017. Four hundred thousand tonnes of beans to be supplied between June and August were chosen as the percentage this year. However, the Myanmar Pulses, Bean, and Sesame Seed Merchants Association reports that Myanmar farmers could only export 100,000 tonnes. The majority of India's needs for beans and pulses are met by Myanmar, which is also the leading supplier to that nation.

Mung bean imports are now limited to 150 000 tonnes by the Indian Ministry of Commerce and Industry; those in Myanmar with export licences may continue to do so until March 2021.

Due to rain damage to some of the domestic harvests this year, India is importing extra beans. There are presently only approximately 100,000 tonnes of beans stored for trade in Myanmar, according to U Awe Lwin, so bean farmers will be under pressure to harvest enough beans for export by the new deadline.

Additionally, Myanmar exports beans and pulses simultaneously to the UAE, Bangladesh, and Nepal. Price increases are likely due to the increased demand. Before the October 1 announcement, the price of a tonne of mung beans was K1.08 million; it is now K1.12 million.

According to U Tun Lwin, chair of the Myanmar Pulses, Beans and Sesame Seed Merchants Association, "the other nations purchase beans from us at more attractive pricing than India" because we could not ship to India after August.

U Aye Lwin stated that local farmers "should have enough time to produce adequate volumes to meet worldwide demand" despite the short deadline.

The article that came before it describes a quota put in place on importing mung beans from Myanmar to India to make up for a shortage of the country's local supply brought on by the current unfavourable weather conditions. A percentage designates a trade limitation that caps the volume of commodities a nation can import or export in a specific time frame. Implementing economic policies to defend the native industry against foreign competition through quotas, tariffs, or subsidies is a form of protectionism. Such strategies are in opposition to free trade, a non-discriminatory system devoid of governmental barriers that would restrict export or import between certain nations.

Rain ruined the domestic harvests, therefore India had to increase the number of mung beans imported to satisfy domestic demand. The Indian government had to comply with Myanmar's orders to refrain from requesting quantities that would be impossible to supply and choose an amount that wouldn't harm domestic providers. A prolonged quota period and an import volume of 150 000 tonnes of mung beans were the final terms of the deal between India and Myanmar, which was advantageous to Myanmar's stockpile of 100 000 tonnes previously prepared for sale.

Given that "India started implementing an import quota on beans in August 2017 to safeguard its local farmers," the starting point for examining the effects of the implemented import quota would be free trade. As seen from the graph above, in an autarky (closed economy), quantity equals Q_A and price equals P_A. Domestic demand and supply are equal in size (Q₁) and are at a world price (P_W) in a free trade environment. On the other hand, unfettered imports into the nation satisfy the excess demand that existed between Q₂ and Q₁ of the year.

India enforces an import limit of 150 000 tonnes, as seen in the graph above, which places the level of authorized import between Q₃ and Q₄. The initial excess demand between Q₁ and Q₂ changes to an extra order between Q₄ and Q₂. Since the limit has been met until Q₄, the alternative would have resulted in the market price of mung beans rising under pressure. However, this excess demand would be resolved in a free trade environment by importing more mung beans to address this shortage. Domestic suppliers are encouraged by this price increase from P_W to P_Q, which causes a rightward shift in domestic supply from DOMESTIC to QUOTA. Thus, due to the price increase, demand declines from Q₂ to Q₄ while domestic supply rises from Q₁ to Q₃, resulting in an "E" increase in domestic producer surplus. Consumer surplus has a deadweight welfare loss equal to "F" and "J," In contrast, economic rent (extra money) like "G," "H," and "I" presumably belongs to the people in charge of distributing import licences. As a result, the consumer and producer surplus following the introduction of the import quota is less than the excess in a free trade environment.

The imposed quota demonstrates that domestic prices increase until total demand and supply are equal, considering market mechanisms that operate when there is excess demand. Domestic suppliers are encouraged by such an occurrence but have less control over their stores when the aforementioned climatic conditions apply. Therefore, a higher price would result in less demand from those with lower incomes. Due to their direct effect on the volume of imported commodities, quotas are sometimes regarded as effective protectionist measures. In practice, it isn't easy to gauge the precise level of protection that quotas offer because so many parties are impacted by their implementation.

In conclusion, it has been shown that quotas can protect domestic producers and reduce the current account deficit. Still, likely, having a well-established import system that would sustain the Indian economy in times of unforeseen economic difficulty would have been more advantageous. This choice would need to be carefully considered to protect domestic manufacturing, and a balance that benefits all participating nations would need to be established. As a further measure to prevent a dent in the domestic industry and potentially boost the nation's comparative advantage in the long run, the government could subsidize affected firms in the future and invest in technology that enables domestic producers to work under harsh climatic conditions safely.