Stepping up public investment in agriculture sector .

Agricultural policies of various countries and their impact on world farm goods trade have been a major focus area in the inconclusive discussion among members of World Trade Organisation (WTO). In particular, trade-distorting subsidies (both domestic support and for export), market access, and reduction of tariffs are issues that continue to engage the attention of policymakers from around the world, but seem to defy an amicable and equitable solution.

Doha meeting

Since the Doha meeting in November 2001, India has been playing an active role in harnessing opinion to shape agricultural policies that reduce distortions and create a level playing field for all nations, especially the developing economies, some of which overly rely on farm goods export on which depend the livelihood of millions of farmers.

India's position at various Ministerial and other meetings has been to press for:

Maximum possible reduction of distorting subsidies and protection by developed countries; Protection of the vast low-income resource-poor and subsistence farming community in developing countries through an appropriate tariff-reduction formula and proportionately lower commitments in market access compared to developed countries;

Appropriate provisions designed to secure policy space to safeguard food security, livelihood and rural development through flexibility to designate an appropriate number of special products on which either no or, at best, marginal tariff reductions are agreed; and

A simple user-friendly special safeguard mechanism against price dips and import surges.

Key elements of the subject of negotiation include overall reduction in trade-distorting domestic support based on a tiered formula such that developed nations with higher levels of support make deeper cuts (three largest distorters: the US, the EC and Japan to undertake 70-80 per cent reduction), and for each sub-component of overall domestic support, separate disciplines have been agreed to be negotiated which will lead to numerical limitations on support levels and/or tightening of their criteria to ensure that the trade-distorting aspects are minimised.

Also, all forms of export subsidies will be eliminated by a credible end-date, which, after the Hong Kong Ministerial, is 2013.

India provides product-specific domestic support in the form of minimum support price. There is also non-product specific support provided in the form of either free or subsidised fertilisers, seeds, water, power and credit. The aggregate measure of support is considerably less than the de minimis level. Farm growth rate in India has remained alarmingly tardy for 10 long years. From an annual average rate of 4.5 per cent during 1991-96 (coinciding with the 8th Plan), farm growth rate declined by half to 2.2 per cent during 1997-2002 (9th Plan). In the 10th Plan, it remained more or less at the same level (2.3 per cent) as in the previous Plan period. Inter-year variability has been uncomfortably high.

Meanwhile, robust overall GDP expansion, fuelled by manufacturing sector and services sector growth has begun to put more incomes in the hands of a large number of people. Together with demographic pressure, income increases drive consumption growth. With indigenous output growth decisively trailing consumption growth, shortages of essential food products are becoming gendemic.

Food-related inflation hurts the poor the most. India regularly imports humungous quantities of edible oil and pulses and occasionally imports sugar and wheat. Export of many food products has been banned. Subsidies given by OECD countries, especially the US and the EU, are huge. Every tonne of commodity produced is subsidised to the extent of anything between 25 and 50 per cent of the market price. These subsidies encourage more production, augment global supplies, depress world prices and distort the discovery of free-market prices. There is, therefore, a strong move to pressure the developed economies to phase out farm support. Less than 4 per cent of the population is engaged in agricultural activities in the US and the EU where it is “agri-business”. India provides a stark contrast. Nearly 60 per cent of the population is directly or indirectly dependent on agriculture and related activities. Agriculture is India's largest private sector activity; yet, far from being a business, agriculture is a livelihood issue.

Global policy context

Policy support to this sector facing distress leaves much to be desired. Importantly, the global policy context is becoming increasingly complex. Most countries, including India, face the dilemma of how to reconcile the conflict between protecting domestic interests and fulfilling international obligations. Domestically there are political compulsions (to continue to support agriculture), and internationally there are obligations such as under WTO. If experience is any guide, the developed economies would continue to “somehow” subsidise agriculture so long as their internal compulsions operate.

It is absolutely essential that the Indian government recognises the risks associated with rapidly widening mismatch between indigenous production and demand. With integration of the Indian market with the global market, we are subject to global price influences. With soaring foreign exchange reserves, India can afford to import food products. But given the agrarian nature of the economy, imports are but a facile option and must be resorted to as a temporary measure, to tide over short-term needs. The scope for raising production of agricultural crops – rice, wheat, coarse cereals, pulses, oilseeds, sugar, cotton, to name a few – is immense. A growth-oriented policy environment with “political will” to implement programmes is the need of the day. What can India learn from OECD?

Although India has been critical of OECD agricultural support programmes, there is something to learn. It is common knowledge that total support to agriculture in the OECD area remains high. It was $375 billion in 2008 (one per cent of OECD GDP) out of which market price support and output payments (support to producers) remain dominant (as high as 80 per cent).

Across OECD countries, there is a wide range of support levels; also there is a wide variation in support level across commodities. The categories of measures that potentially have the most production-distorting effects are market price support, and payments based on output and input subsidies (such as interest, water, fertilisers, and energy subsidies).

KEY COMPONENT

An important component of agricultural support in OECD is the expenditure on “General Services” which is sector-wide and covers institutional services such as research, education, inspection, marketing and rural infrastructure. The monetary value of General Services has been rising in recent years and was $79 billion in 2008 (up from $74 billion in 2007).

Back home, instead of addressing structural issues of agriculture, our policymakers have been busy tinkering with trade and tariff policies. We need non-trade and non-price initiatives to boost agriculture production and marketing, which is what the OECD General Services represent. There is a strong case for India to step up investment in several farm-related activities. We need to strengthen the input delivery system, rapidly expand irrigation facilities, improve agronomic practices, build rural infrastructure and utilise our strengths in information and communication technologies to empower growers to benefit from open and expanding markets.

Simply put, instead of attacking developed countries over the issue of farm subsidy, India must focus its attention on setting its own house in order. India may not currently be facing a food security risk; but unless domestic production base is strengthened and supplies augmented through growth-oriented policies and steady flow of public investment, over time, the challenge of facing food and nutrition insecurity may become real and daunting.

Source : Business Line