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27 January 2021, Gateway House

Revisiting India’s Agricultural Trade Policies

The Jan 26 riots by the protesting Punjab farmers, is a set back both to the reform of India's domestic agriculture sector, and to the country's external agriculture trade. Nevertheless, willing farmers and communities can improve their engagement with the market, start inter-state trade, and build the farming infrastructure necessary to prepare for a fully free agriculture market. This will ready India to fulfil its commitments and find its rightful place in the international trade system.

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For three months now, farmers and agricultural middlemen from Punjab and Haryana (and some farming communities in UP and Rajasthan) have been protesting against the three new farm laws passed by the government last September.  The laws aim to reform the agriculture sector, increase exports, and boost farmer incomes. The demonstrators’ worry is three-fold: that they will be vulnerable to the big corporates, with little bargaining power and no course for redressal; that the new private agricultural markets (mandis) will diminish the primary position of the Agricultural Produce Market Committees (APMCs) which have been the point of first sale for agricultural produce; and that all this will undo the guarantees of the Minimum Support Price (MSP) for produce. As a result, the demand for a legal guarantee of the MSP has also been raised.

Two major developments, one domestic and one international, have taken place recently in the backdrop of these protests. At home, on 12th January, the Supreme Court stayed the implementation of the farm laws and constituted a committee to hear the concerns.[1]  Internationally, on 6th January, India’s trade policy was reviewed at the World Trade Organisation where India, while being applauded for its economic growth, was also questioned about its continued use of agricultural tariffs of 36.5%, among the highest in the world.[2]

The two developments are interlinked. For decades, India has been questioned at the WTO about its protectionist attitude towards trade and price support and was recently accused by the West, particularly the U.S., the E.U. and Canada, of breaching its agricultural price support reporting requirements and exceeding the permitted threshold.[3] The tariffs reflect India’s domestic compulsions to protect agricultural producers. Who doesn’t remember the Doha and Bali trade rounds, where India was accused of playing spoiler and, holding up the Trade Facilitation Agreement until a peace clause allowing developing countries to exceed their subsidy thresholds, was agreed to in Bali? Abroad, it reinforced India’s reputation as a stubborn nation, suspicious of free trade and that always sat outside the international trade system.  India has also spurned regional free trade agreements (FTAs), mostly recently the Regional Comprehensive Economic Partnership (RCEP). India is now surrounded by a sea of FTAs of which it is not a part.[4]

Herein lies the dichotomy. India is the world’s second largest producer of fruits and vegetables[5] but yet is only amongst the top 15 exporters of vegetables and ranks 23rd for fruits.[6]  The Food Corporation of India holds twice the recommended levels of public stockholding of grain,[7] yet it cannot find a domestic or global buyer.

The farm laws were made to change this, and turn India into significant exporter of food. The laws have been waiting enaction for 20 years, and were initiated by successive governments before being put aside by vested interests. The Agricultural Export Policy of 2018, aims to double India’s agricultural exports from $30 billion to $60 billion by 2022 and $100 billion thereafter.[8] The Electronic National Agricultural Market (ENAM) system, a key reform in trying to increase market access for agricultural producers is an underutilised forum to boost interstate agricultural trade.  While 54% of India’s GDP comes from interstate trade,[9] agricultural trade is underrepresented and can only be successful if transport, cold storage, technology, and warehousing infrastructure is built.  Bringing in the private sector to set up the logistics required to stop leakages in the system will ensure food security for domestic consumers, as also that exportable products do not rot.

Law Aim Concern Benefits
The Essential Commodities (Amendment Act), 2020 Specifies the situations in which the Essential Commodities Act can be invoked as regards foodstuffs. Does not place limits or answer concerns about hoarding by traders. Companies will have to deal with less uncertainty and more stability
The Farmers Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 Aims to allow privatisation of agricultural marketing by allowing private mandis to run parallelly to APMCs. Marketing and trade will move to private mandis where the MSP will not apply and hence farmers will lose MSP protection. Private Mandis can set up closer to areas where the foodstuff is grown, and farmers can sell in areas outside the APMC if price is better
The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020 Aims to regulate the practice of contract farming. Farmers do not have enough legal protection and will have to fight against corporates, putting their land at risk. Regularisation of contract farming under regulation will provide security, can also bring small landholders together to form Farmer Producer Organisations.

Under the current circumstances, India can work around its international obligations to reduce price support, by providing income support to its farmers, a lumpsum cash payment as is already being done by states like the Haryana,[10] West Bengal,[11] and Odisha[12], and has been suggested by agricultural economists like Ashok Gulati.[13]  This will incentivise crop diversification, with the adjoining benefit of protecting the already-depleted water tables. Companies like United Phosphorous, Mahindra, and Godrej Agrovet are already involved in this, providing solutions to farmers to produce high value crops and move away from the wheat-paddy cycle.  It will reduce India’s subsidy bill at the WTO since cash transfers are not calculated as part of trade distorting subsidies.[14]  It is also through these mechanisms that countries like the U.S. can give their farmers large subsidies at the WTO and not face penalties.

In 2018, global agricultural trade was worth $1.5 trillion,[15] and according to the WTO, India’s share of this was 2.17%,[16] a clear underperformance given India’s production capacity.  An unwillingness to segregate the domestic issues from global commitments, and trade regionally and globally, even minimally and without restrictions, has resulted in India being left behind.

To truly matter globally, India has to participate in international trade arrangements like the RCEP. In turn, this will sweep India into the global supply chain, much of which is already concentrated in China or moving to countries like Vietnam which have fewer barriers to free trade.

Even if the farm laws are put on hold for two years now, as the government had offered the protestors, willing farmers and communities in India can engage in inter-state trade, and build the farming infrastructure necessary to prepare for a fully free agriculture market. A successful rejuvenation of the agricultural space will ready India to fulfil its commitments and find its rightful place in the international trade system.

Kartik Ashta is Research Intern at Gateway House.

This article was exclusively written by Gateway House: Indian Council on Global Relations. You can read exclusive content here.

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References

[1] Rakesh Vaishnav and Ors v Union of India, Writ Petition(s)(Civil) No(s).1118/2020, Order, 12 January 2021, p.10, https://images.assettype.com/barandbench/2021-01/21ee53b1-65fc-43e2-b059-b587088ade17/Farmer_Protests_order.pdf

[2] India Trade Policy Review, Report by the Secretariat, WT/TPR/S/403, p.47,  https://www.wto.org/english/tratop_e/tpr_e/s403_e.pdf

[3] Office of the United States Trade Representative, United States Issues WTO Counter Notification Concerning India’s Market Price Support for Various Pulses, 15 February 2019, https://ustr.gov/index.php/about-us/policy-offices/press-office/press-releases/2019/february/united-states-issues-wto-counter; US Department of Agriculture, United States Issues First-Ever WTO Counter Notification Against India’s Market Price Support, 9 May, 2018, https://www.usda.gov/media/press-releases/2018/05/09/united-states-issues-first-ever-wto-counter-notification-against; Office of the United States Trade Representative, United States Issues WTO Counter Notification Against India’s Market Price Support for Cotton, 13 November 2018, https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/november/united-states-issues-wto-counter#:~:text=United%20States%20Issues%20WTO%20Counter%20Notification%20Against%20India’s%20Market%20Price%20Support%20for%20Cotton,-11%2F13%2F2018&text=To%20continue%20to%20improve%20transparency,measures%20on%20November%209%2C%202018

[4] These include the African Continental Free Trade Agreement, the Comprehensive and Progressive Trans-Pacific Partnership, the Pacific Alliance, and the Canada-USA-Mexico Agreement.

[5] Agricultural and Processed Foods Development Authority, Fruits and Vegetables, http://apeda.gov.in/apedawebsite/six_head_product/FFV.htm#:~:text=It%20ranks%20second%20in%20fruits,million%20metric%20tonnes%20of%20vegetables

[6] Exports of agricultural commodities during March to June 2020 increased by 23.24% compared to corresponding period in 2019, Press Information Bureau New Delhi, 18 August 2020, https://pib.gov.in/PressReleseDetailm.aspx?PRID=1646632#:~:text=As%20per%20WTO’s%20Trade%20Statistics,%25%20and%201.90%25%2C%20respectively

[7] Food Corporation of India, Food grains Stock in Central Pool for the years 2016-2021, https://fci.gov.in/stocks.php?view=46

[8] Agriculture Export Policy 2018, p.7, https://apeda.gov.in/apedawebsite/Announcements/AGRI_EXPORT_POLICY.pdf

[9] Economic Survey of India 2016-17, Chapter 11: One Economic India: For Goods and in the Eyes of the Constitution, p.232, https://www.indiabudget.gov.in/budget2017-2018/es2016-17/echapter.pdf

[10] Mera Paani, Meri Virasat Scheme, Department of Agriculture and Farmer’s Welfare, Government of Haryana, http://117.240.196.237/Default.aspx

[11] Krishak Bandhu Yojana, Government of West Bengal, Department of Agriculture https://krishakbandhu.net/about_kb

[12] Samrudhi, Agricultural Policy 2020, Department of Agriculture &Farmers’ Empowerment, Government of Odisha, https://agriodisha.nic.in/Content/pdf/SAMRUDHI%20-Agriculture%20Policy%202020.pdf

[13] Ashok Gulati, Time has come to merge income support schemes with MGNREGA, May 25 2020, https://indianexpress.com/article/opinion/columns/india-coronavirus-lockdown-rural-distress-mgnrega-farm-labours-ashok-gulati-6425546/

[14] Domestic Support in Agriculture: the boxes, https://www.wto.org/english/tratop_e/agric_e/agboxes_e.htm

[15] The State of Agricultural Commodity Markets 2020. Agricultural markets and sustainable development: Global value chains, smallholder farmers and digital innovations. Rome, FAO. https://doi.org/10.4060/cb0665en, p.3

[16] Exports of agricultural commodities during March to June 2020 increased by 23.24% compared to corresponding period in 2019, Press Information Bureau New Delhi, 18 August 2020, https://pib.gov.in/PressReleseDetailm.aspx?PRID=1646632#:~:text=As%20per%20WTO’s%20Trade%20Statistics,%25%20and%201.90%25%2C%20respectively

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