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Trade Agreement Impasse over Agriculture
No Farm Trade Pact at Cost of Farmers
Context: The disagreements between India and the US have been significantly fueled by contentious agricultural trade issues, with India’s protective measures for its farmers clashing with US demands for greater market access. India’s primary reason for withdrawing from the Regional Comprehensive Economic Partnership (RCEP) in 2019 also was the threat of a surge in dairy imports from New Zealand and Australia.
What are the vulnerabilities of the Indian agriculture sector to foreign trade agreements?
- Small and Fragmented Landholdings: 86% of Indian farmers are small and marginal, rendering farms economically unviable to attain economies of scale. On the contrary, large agri-businesses in the US, Australia, or ASEAN nations make it difficult for Indian farmers to compete on price.
- High Cost of Production: Input costs (seeds, fertilisers, power, water) in India are often high due to inefficiencies and import dependence, along with targeted subsidies in developed nations.
- Inadequate Infrastructure: Poor post-harvest management, cold storage chains, and transportation lead to high wastage (estimated at 15-20%), increasing the effective cost and reducing the competitiveness of Indian produce.
- Stringent Sanitary and Phytosanitary (SPS) Measures: Developed countries often use stringent quality and safety standards as non-tariff barriers (NTBs), which Indian exporters, especially smallholders, find difficult to comply with.
- Subsidies in Developed Countries: Countries like the US and EU provide massive direct income support and subsidies to their farmers (e.g., US Farm Bills), allowing them to dump surplus produce at artificially low prices in global markets, which can devastate local prices in importing countries like India.
What policy measures should India adopt to enhance its global agricultural competitiveness?
Instead of a protectionist-only approach, India needs a multi-pronged strategy to build a resilient and competitive agricultural sector:
- Investment in Rural Agricultural Infrastructure: Massive public and private investment in supply chains, cold storages, warehousing, and food processing industries is crucial to reduce wastage and add value.
- Focus on Export-Oriented High-Value Agriculture: Shift focus from staple cereals to high-value, low-volume products like organic produce, spices, horticulture, and floriculture where India has a comparative advantage.
- Focus on Value added products: Value addition through food processing elevates the economic worth of farm produce while reducing wastage of raw produce. It further boosts farmer incomes and rural livelihoods, reducing vulnerability to climate and market shocks.
- Strengthen SPS and TBT Compliance: Establish internationally recognised certification labs and assist farmers in meeting global quality and safety standards to overcome NTBs.
- Formation of Farmer Producer Organisations (FPOs): Consolidate smallholders into FPOs to achieve economies of scale in input procurement, production, and marketing.
- Reorient Subsidies: Move from input-based subsidies (power, water, fertiliser) to direct income support (like PM-KISAN) and invest the saved capital in building infrastructure and R&D.
- Leverage Technology: Promote precision agriculture, drone technology, and digital marketplaces (e-NAM) to improve efficiency and market access.
Can FTAs be used as leverage to boost agricultural competitiveness and sustainability?
If negotiated strategically, FTAs can be a powerful tool for enhancement rather than a threat:
- Market Access for Competitive Sectors: India can use FTAs to secure duty-free access for its competitive sectors (e.g., basmati rice, spices, marine products) in partner countries, boosting exports.
- Attracting Investment: FTAs can include clauses that encourage foreign direct investment (FDI) in Indian agricultural infrastructure, such as food processing and logistics, addressing a key weakness.
- Technology Transfer: Agreements can be structured to facilitate knowledge and technology transfer in areas like sustainable farming, seed technology, and precision agriculture.
- Strategic Diversification: Instead of across-the-board liberalisation, India can negotiate sensitive lists to protect vulnerable sectors (like dairy) while offering market access in non-sensitive areas. This was a key demand during RCEP negotiations.
- Promoting Sustainability Standards: FTAs can include chapters on sustainable agriculture, encouraging and providing a premium market for Indian organic and sustainably farmed produce.
