Agriculture: Tough to quantify benefits now

Pradeep S Mehta

“We have agreed to address only the trade-distorting subsidies and not the whole gamut of agriculture subsidies, said Pascal Lamy, European Union’s trade commissioner, at a meeting with the civil society in Delhi recently. “We have seven million farmers in Europe to protect”, he added. In response to an intervention about the 130 million farmers in India, he tersely responded that it was the government of India who should take care of their interest. This is the central message of what India should do in the future on the issue of agriculture and the world trading system.

Indeed, agriculture has been a contentious area because of the rather heavy political overtones. Predictably, on the issues of agriculture, differences of opinion at the fourth Ministerial Conference of the World Trade Organisation (WTO) at Doha persisted till the last minute. Amidst the tough stand of the EU for inclusion of environment in the agenda as a quid pro quo for talks on phase-out of export subsidies, and reservations of many other countries, the final outcome of the Doha meeting on agriculture can be described as a balanced one.

It is worthwhile to recall that the disagreement on agriculture was ‘the reason’ behind the failure of the Seattle Ministerial Conference; not street demonstrations by non-governmental organisations, as understood by some, or the push for labour standards and environment into WTO. Keeping that in mind, many were of the view that agriculture was the key issue at Doha too and a body blow to the multilateral trading system was certain if there was no agreement on this.

The Doha Declaration on agriculture, first and foremost, recognised the on-going negotiations started in early 2000 under Article 20 of the Agreement on Agriculture (AoA). The review of the AoA enters the crucial second phase, where negotiations will be more nuanced than before and all major players will wriggle in the right political language during the negotiations.

Second, it recalled the long-term objective referred to in the AoA to establish a fair and market-oriented trading system through a programme of fundamental reforms encompassing strengthened rules and specific commitments on support and protection to correct and prevent restrictions and distortions in the world agricultural markets.

Thus, in a way, there was no fundamental change in the original objective (as orchestrated by the EU at the time of the Uruguay Round) of the AoA, i.e., not free trade but stability and equilibrium in the world agricultural markets, and mainly through domestic reforms. EU’s insistence on the production limiting programme and non-actionable subsidies under the Blue Box measures stems from this objective. It cannot be challenged at the WTO on legal terms and neither it has been challenged politically.

What could have been challenged was EU’s failure in reforming its Common Agricultural Policy (CAP). However, the European policy-makers were successful in putting CAP reforms onto the backburner by adopting a big-bang approach on the region’s geographical expansion, and also by creating difference of opinion among the ACP (Africa, Caribbean and the Pacific) countries and other developing countries.

Third, ‘without prejudging the outcome of the negotiations’ (sic) trade ministers committed themselves to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. Some developing countries are delighted with the understanding that EU has agreed to reduce its export subsidies, however, there are many loopholes and they are less likely to do it so easily.

Moreover, in future whenever there is any pressure on the EU to curtail its export subsidies, the net food importing developing countries (many of them are ACP countries) are likely to raise concerns on their food security and foreign exchange position. That will easily counter any pressures from the demandeurs.

Additionally, it was agreed that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the Schedule of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development.

There are some possible gains for India in inclusion of developmental needs in the agenda but it is not so easy to turn the table around, i.e., to change provisions in the AoA to make it not special and differential for the countries. On the other hand, emphasis on concerns like food security and rural development might even strengthen the EU’s demand for ‘multifunctionality’ for agriculture. This is the umbrella under which the EU has been arguing for continuance of its subsidies, which will provide cover to its rural environment etc.

Thus, on the face of this, it is quite difficult at the moment to quantify the benefits for India. Nonetheless, a careful reading between the lines provides clues as to what India should do to convert seemingly impossible gains into realities. First, India should play it cool in the early part of the second phase of review of the AoA. This in no way means that, Indian negotiators should keep their hands off. They should play off-the-ball game rather than take initiatives on their own.

India has to recognise that there are many hurdles in the way of its becoming a major player in the global grain economy in the near future. 65 per cent of India’s population depends on agriculture, which contributes only 25 per cent to the gross domestic product. One has to distinguish between physical surplus, as being witnessed today which is due to low purchasing power and time-irrelevant procurement and distribution system, and marketable surplus, which is based on the price of a product.

The Indian grain economy is too price uncompetitive as compared to the Cairns group and they will not budge an inch to defend their ‘field of play’. Therefore, at this point India should concentrate on domestic reforms in agriculture. To boost private investment in agriculture, the first and foremost strategy would be for the central government taking the state governments into confidence and persuading them to embark upon land reforms. Indian policy makers should learn from the Chinese policy of leasing-out land for productive use, which has proved to be a crucial factor in making their agriculture competitive.

Another crucial element of agricultural reforms is diversification of Indian agriculture. The reforms should not only include crop diversification but look at animal husbandry, which has been ignored much more. It is to be understood that cropping pattern cannot be changed over night. Farmers will change their cropping pattern, only when they are convinced about maintaining soil fertility and niche markets for selling their products. Furthermore, diversification has to be backed by proper infrastructure for agro-processing and the creation of product-specific niche markets in other countries. For instance, India has a great potential of becoming a major player in the world market for agro-foods, horticulture and floriculture.

We also have to gear up for devising strategies to cope up with possible non-tariff barriers for our agro-foods as well as other agricultural products. In Doha, the EU was successful in pushing the issues of Multilateral Environmental Agreements in the agenda and it is likely to push hard for ecolabelling and precautionary principle in near future.

Opening the environment window has certainly given more strength to non-tariff barriers based on sanitary and phyto-sanitary (SPS) measures and regulations on technical barriers to trade (TBT). One small relief is the agreement on equivalency of standards, though much work needs to be done to ensure that the process of negotiations is not blocked again and again.

India needs to do a detailed study of these potential non-tariff barriers and take suitable action rather than wait for the end of the day.

(The writer is Secretary General of CUTS Centre for International Trade, Economics & Environment)