Impact of Global Markets on Indian Agricultural Markets Surabhi Mittal Senior Fellow Theme paper presentation at the 23 rd National Conference on Agricultural Marketing, on 12-14 th November, 2009, organized by Indian Society of Agricultural Marketing and CRIDA in Hyderabad
Agriculture Sector Goal Food Security Self Sufficiency and Sustainability Sensitivity in agricultural sector Several regulations to protect the interest of the farmers and the consumers. Economic liberalization was initiated in 1990 s, but opening up of the agricultural sector started in 1994 Total Agricultural Exports: 12.2% of national exports Import: 3.1% of national imports
Agricultural Trade Liberalisation Gradual approach to liberalization By 2001 eliminated quantity restrictions on imports simplified the tariff - also reduced for number of commodities like edible oil, pulses and cotton. reduced export restrictions large-scale withdrawal of export incentive schemes Price situation changed- international prices declined and domestic prices became higher in post-wto period. export competitiveness eroded and the country became an important market for imports of agricultural commodities.
India in the Doha Negotiations India became one of the leading members of the G-20 and G-4 group (China, India, Brazil, and South Africa). Developed countries farm subsidies became a major sticking point. India played an active role by negotiating directly with the developed countries on agriculture India supports taking DDA forward but is not ready to go an extra mile on NAMA and agriculture.
Defensive or Offensive Strategies? India hard stance regarding tariffs and subsidies is criticized India s concern large shares of the population not competitive in global markets, or even in domestic markets in the absence of tariffs can t take any risk when the livelihood of millions of Indian farmers is concerned. stressing to adopt a cautious approach Tariffs are the instrument of protection and for the safeguard mechanism for food security and livelihood security India willing to undertake substantial commitments in market access based on bound tariffs But would not agree to any bad deal that would affect the food and livelihood security India overall has a more proactive strategy rather than defensive India continues to believe in fair and strengthened multilateral trade rules of the WTO
On-going Debate Whether the policy of liberalization added to the woes of farmers? One view that liberalization had its worst impact on the farmers community and more specifically the poorer ones. The other belief views that liberalization would accelerate trade, economic growth, leading to reducing poverty, and will further have a positive impact on livelihood security of rural poor. But this remains a testable hypothesis.
Agricultural Trade Liberalization Quantitative Estimates Domestic Reforms Marketable Surplus Price Increase Boost Production Rural Employment Exports Wages Small farmers Poverty
Agriculture Trade Source: India Trades database from CMIE
Agricultural Trade Surplus Source: India Trades database from CMIE
Source: FAO India's share in global agri. export
Has agriculture liberalised? Source: DGCI&S, Ministry of Commerce, Kolkata. (Outsourced from Agricultural Statistics at a Glance 2008)
. India s average applied tariff rates for broad agriculture category groups. Commodity Groups 1990 1997 2001 2006 2008 Cereals and Pulses 2.73 1.36 68.64 55.00 72.50 Cereals Products 49.50 28.00 35.50 30.00 30.00 Dairy Products 55.00 24.00 40.86 38.00 38.00 Plantation Crops 97.50 25.00 52.50 67.86 67.86 Meat & Poultry 88.75 10.00 35.00 53.33 50.00 Sugar 45.63 10.00 60.00 60.00 60.00 Horticulture 87.04 24.13 35.81 30.77 30.77 Edible Oils (Crude) 113.57 31.43 92.14 72.50 Free Edible Oils (Refined) 117.73 30.91 95.00 84.58 11.90 Sources: WITS database and Agricultural Statistics at a Glance
India s Trade (Accounting for 75 %) EXPORTS IMPORTS Rice parboiled, Basmati Rice, other Rice (35.78%) Sugar refined and other (11.49%) Onions fresh or chilled (10.46%) Other uncooked pasta (7.61%) Other maize (corn) (4.49%) Mango pulp (1.19%); Wheat (41.51%) Crude palm oil & its fractions (18.26% Peas dried & shld (9.98%) Soya bean crude oil (8.61%)
Change in India Prices Unit: in Per cent Crop Range Subsidy Elimination Tariff Change Full Liberalization Rice Min 0.1 0.1 0.2 Max 0.2 0.4 0.5 Wheat Min 0.5 0.4 0.8 Max 1.5 0.7 3.6 Cotton Min 4.8 3.1 0.6 Max 15.2 5.0 4.1 Sugar Min 7.9 2.7 2.7 Max 28.1 11.6 17.5
Change in India s Production Unit: in Per cent Crop Range Subsidy Elimination Tariff Change Full Liberalization Rice Min 0.02 0.03 0.07 Max 0.09 0.15 0.19 Wheat Min 0.3 0.3 0.5 Max 1.0 0.5 2.4 Cotton Min 4.4 2.0 0.5 Max 13.9 4.6 3.7 Sugar Min 5.3 1.8 1.8 Max 18.7 7.7 11.6
Small Farmers Welfare Gain Unit: in Per cent Crop Subsidy Elimination Tariff Change Full Liberalization Rice 0.24 0.41 0.50 Wheat 1.48 0.68 3.66 Cotton 16.23 5.14 4.15 Sugar 30.75 12.05 18.46
Unfinished Trade Agenda Recognize the importance of linkages between trade and economic growths, still the level of protection remains relatively high. To help counteract this anti-export bias, export promotion measures have gained importance. Agricultural sector has become more open and liberal at the external front but progress on the internal front is gradual and modest across commodities. Overall progress is partial due to non-compliance of the internal trade and farm policies with external trade reforms.
Safety Net Programs Given the large scale size of the agriculture sector, the reform process will have significant implication on poor farmers as they would be exposed to vulnerable prices, changes in wage and employment India needs to focus on safety net program both at multilateral as well as domestic level. At the domestic level it may be appropriate to adopt what could be called a market-plus approach
Reform's Needed- Domestic issues Food grain market policy is highly interventionist- grain storage and the movement of food grains across states. Support price policy, particularly for wheat and rice, has remained de-linked from domestic and international market realities, creating significant budgetary costs and market distortion. Reforms at the border, when they have been implemented, have typically exposed inefficiencies in the domestic market that limit competitiveness. Require significant investment in transport and marketing infrastructure and institutional capacities to overcome the problem.
De-Regulations Opening up has the potential to transform subsistence agriculture to commercialized agriculture Important regulation and competition issues that need serious consideration are APMC Act, Forward Contract Regulation Act, establishing private markets, intensive use of contract farming and an Integrated Food Law. De-regulation of domestic and external trade is expected to improve the incentives structure of agriculture production and make it more competitive. The three components of this are improvement of productive efficiency by ensuring the convergence of potential and realized output increase in agricultural exports and value added activities using agricultural produce improved access to domestic and international markets that are either tightly regulated or are overly protected.
Conclusion India needs to move away from the production enhancing self sufficiency model to trade oriented agricultural growth model. Policy reforms are needed to remove the distortions in the current situation. India needs to get actively involved with global trade. Agricultural trade liberalization can bring in gains for Indian farmers through an aggressive trade policy that takes into account our production pattern, marketed surplus and reforming the constraints that we have in our domestic economy. The Indian farmers would actually not gain much from the WTO negotiations unless the domestic trade reforms are also launched simultaneously.
Thank you! surabhi@icrier.res.in