Thoughts on economics and liberty

The report of the Sharad Joshi national taskforce on agriculture

Sharad Joshi, former Swatantra Bharat Party MP (the party of which I became a National Executive member in 2005 but resigned in 2006) had chaired a national task force on agriculture in 2000-01, the report of which is a thought starter in framing a view on how the Indian agriculture sector.

I’m publishing the full report below since I notice that it is not readily available on the internet (as it should be). I received this electronic copy courtesy the reading material sent in by CCS. I must note that I’m not quite happy with the approach taken in this report (which still calls for a considerable role for the state) but would perhaps support parts of it. I believe India needs a much faster and clearer reform path, as outlined in my article on agriculture

Report of the Task Force on Agriculture (TFA)

Agriculture sector is central to the socio-economic life of the country and is a source of livelihood to two-thirds of country’s population. It also provides food and fiber for one billion population of the country and is prime source raw material for its agro based industries.

Liberalization of world trade in agriculture with advent of WTO has thrown up challenges as also opened up new vistas for growth and diversification of agriculture and exports. Rapid changes in production technologies such as bio-technology, information technology and remote sensing technologies have also created opportunities for our goal of food and nutritional security and prosperity for the farming community.

The Hon’ble Prime Minister constituted a Task Force on Agriculture (TFA) on 12th September, 2000 having the following composition with the Chairman given the status of a Cabinet Minister:

i) Shri Sharad Joshi, Chairman, Shetkari SangathanChairman
ii) Shri P.P. Prabhu, Former Secretary, Commerce, Government of IndiaMember
iii) Shri Abhijit Sen, Economist, Former Chairman, Commission for Agriculture Costs and PricesMember
iv) Shri R.C.A. Jain, Additional Secretary Department of Agri. & Coopn., Government of IndiaMember-Secy

The Task Force was assigned the following Terms of Reference:

  1. To assess the impact of WTO commitments on Indian agriculture and to suggest steps to safeguard the interests of the sector, while exploiting the opportunities presented by this treaty;
  2. To make recommendations to integrate the use of information technology and other emerging technologies in the agricultural sector;
  3. To make recommendations for effective risk management in agriculture including in production systems, insurance, price mechanisms, future trading etc.

The Task Force on Agriculture have given advertisement in national english newspapers and regional language newspapers through the Department of Advertisement and Visual Publicity in 53 newspapers to seek views/comments of interested associations/Farmers organisations/public etc. on the terms of reference of the Task Force on Agriculture.

An interactive website has also been created for the Task Force for seeking suggestions from public and other interested organisations/persons. The website is at www.nic.in/agricoop/taskagr.htm. [Sanjeev’s note: This link is dead now – so much for the value of internet as a tool of dissemination of information]

The Task Force considered inputs received from different sources in nine meetings during September 2000- April 2001. During these meetings the Task Force had the benefit of interacting with the representatives from Ministries/Departments of Agriculture, Commerce, Banking, Insurance as also from Soyabean Processors, Coffee Exchange, Solvent Extract Association, Forward Market Commission, Stakeholders of Plantation Sectors, Rubber Board, Coir Board, Spices Board, APEDA, MPEDA and several experts and academicians.

Shri Madan Diwan, Coordinator, World Agriculture Forum, participated in the meetings of the Task Force at the invitation of the Chairman, pending notification concerning his nomination as a Member.

The technology issues as also risk management issues in the areas of production, price, market are closely inter-linked in the process of modernising Indian agriculture and unleashing the productive forces and creative energies of the sector making it globally competitive. Considering the urgency of some of the issues of the contemporary importance, the Task Force decided to turn in its First Report on the agriculture trade reforms agenda. The full scope of the reforms agenda covering all the technology, risk management, investment, pricing, trading and institutional framework will be addressed in the final report to be submit by the Task Force by June 2001.

1. INTRODUCTION

1.1. Agriculture is the life line of the country though the share of agriculture in GDP has since declined to 25%. Agriculture still contributes to country’s food security and provides employment to most of the rural population and is a source for fibre and prime raw materials. Agriculture has also been earning substantial foreign exchange to the country though the relative share of agriculture products in India‘s total exports has been declining and stands at 14.6% in the year 1997-98.

1.2 Prior to Uruguay round of negotiations agriculture was for all practical purposes outside the multilateral trade discipline. The developed world has been providing substantial protection and support to agriculture through import restrictions, subsidies to domestic agriculture and export subsidies. India along with few developing countries emphasised from the very beginning of the Uruguay round of negotiations that agriculture should be brought within the purview of GATT. It was felt that with removal of distortion from the agricultural trade, the developing countries like India should have greater access to the markets of agricultural products in the developed countries.

1.3 However, the experience of the last 6 years shows that the anticipated benefits have not materialized, as the developed world has not really reduced its support to and protection of agriculture. During the fresh negotiations on WTO/Agreement on Agriculture India has placed certain proposals, for further liberalization and the opening of the international trade in agriculture.

1.4 It is hoped that the fresh negotiations on Agreement on Agriculture will result in substantial reduction in subsidies by the developed world, removal of quotas and restrictions and such other trade distorting features of agricultural trade and help the developing countries to benefit from increased exports of agricultural products. India will have to closely work with other like-minded countries to achieve this major objective during the on-going Art.20 negotiations.

1.5 The Agreement on Agriculture is asymmetrical in that its provisions legitimise the protection and support to agriculture by the developed countries. However, the Agreement on Agriculture has enough existing provisions which can be used to safeguard Indian agriculture.

1.6 The data on imports of agricultural products clearly brings out that the withdrawal of QRs on imports has not resulted in any surge in imports. In the last three years it has been possible for the Government to renegotiate the bound rates in respect of some sensitive agricultural products and increase the import duties. The details of which are given below.

Name of the CommodityBound rates as on 1stApril, 1998Revised bound rateApplied rates as on 1stMarch, 2001
Rice070-80%70-80%
 Wheat0 80% 50%
 Maize*0 60% 60%
 Milk Powder**0 60% 60%
 Sorghum0 70% 50%
Millet0 70% 50%
Mustard45 75% 75%

*TRQ upto 3.50 lakh tonnes at 15%

** TRQ upto 0.10 lakh tonnes at 15%

1.7 The following table brings out the fact that except in the case of edible oils, imports have not been very significant during the period:

Name of the commodityVolume of Imports

(in ‘000 tonnes)

98-9999-20002000-01(upto Jan, 2001)
Rice 6.65 27.60 8.27
Wheat 1803.70 690.40 4.22
Sugar 900.471114.94 27.92
Pulses 563.60 203.99 219.39
Cotton 57.40 236.14 194.79
Edible oils 2621.85 4196.00 3358.23

Source: DGCIS, Calcutta

1.8 It can be seen that that there has not been any surge in import of agriculture commodities except edible oils to depress the domestic prices. In the case of edible oils though there is a possibility of import duty being raised up to 300 per cent except in the case of soya oil and rapeseed and mustard oils, the duty level has now been calibrated to ensure that there is adequate availability of edible oils in the country at reasonable prices and at the same the domestic production is not adversely affected by excessive imports. Our commitment on the WTO agreement does not come in the way of our further increasing duties in respect of edible oils if the situation so requires.

1.9 The AoA also provides opportunities for participation in the international trade to the advantage of Indian farmers. However because of various factors including restrictions on movement of agricultural produce, very high taxes and infrastructural constraints, it has not been possible for our agriculture sector to benefit from the opportunities in the world markets. Our agriculture has also to become more competitive to be able to exploit the opportunities that are increasingly becoming available in the wake of liberalisation and requires stronger policy support in order to become globally competitive.

1.10 A brief note on the existing provisions of the Agreement on Agriculture so far it relates to the obligations on the country and the commitments undertaken is at Annex-A. A gist of India’s proposals for the on-going agriculture negotiations is at Annex-B.

2. WTO AGREEMENT ON AGRICULTURE

(i) Impact on Indian Agriculture

2.1 One of the expectations from the Agreement on Agriculture was that with the reduction in domestic support and export subsidies in the developed countries the international prices would increase leading to substantial gains to the producers in developing countries. The experience of the implementation of AoA however reveals that the world prices of food products have been steadily declining threatening the livelihood of producers in many developing countries.

2.2 India does not provide any product specific support other than market price support. Our total Product Specific AMS continues to be negative, and that too by a huge magnitude. The Non-Product specific AMS is also well within the de minimis level i.e. 4.85% in the base year 1986-88. As such, we have not undertaken any reduction commitment in our schedule filed in WTO with regard to domestic support.

2.3 The non product specific subsidies being extended by India to its farmers include subsidies for research, extension, pests and disease control, as also for inputs like electricity, water, fertilizers, seeds etc. Most of these subsidies are permissible under Annex-2 or Article 6.2 of AoA.

2.4 India does not provide any export subsidy except the permissible internal and international transport subsidies and handling and processing charges to reduce marketing costs of exports of agricultural produce.

2.5 India is one of the six countries who has been maintaining quantitative restrictions (QRs) under the specific enabling provisions of GATT1947. India has, been dismantling QRs since early 1990s and the last of the QRs on remaining715 items including 147 agricultural products have been removed on 1st April, 2001. While the removal of QRs has not changed the overall rate of growth of imports or even their composition.

2.6 The current bound levels committed by India in respect of primary agricultural products, processed foods and edible oils are 100%, 150% and 300% respectively with some exceptions (soyabean oil at 45%, rape seed at 75%) in respect of which concessions were committed by India in earlier rounds of GATT negotiations are generally considered to be adequate to provide effective protection to domestic production.

2.7 In December 1999, India was able to negotiate under GATT Art.XXVIII duties bound at 0 or very low levels in respect of 15 commodities including SMP, rice, maize, wheat, sorghum to levels ranging from 50 to 80%.

2.8 The surge in import of edible oil led to the revision of applied rates within the bound levels to protect the domestic producers on as many as four occasions during the last one year.

2.9 Up to August 2000, the average applied rate on agricultural commodities in India has been 29% that is well below the bound rates. It is therefore, possible for India to revise the applied duties within the bound rates to ensure that surge in imports of agricultural produce does not adversely affect domestic production.

2.10 During the Uruguay round India has not undertaken any obligation for providing minimum market access opportunities to our trading partners.

3. COPING STRATEGIES

(i) Support to and Protection of Indian Agriculture

3.1 The inherent characteristics of Indian agriculture need large scale Government support in the areas of research extension, water and land management, infrastructure, post-harvest management, rural credit and agricultural risk management to sustain the growth and attain competitiveness. [Sanjeev: this is nonsense. There is nothing “inherent” about Nehruvian socialist controls on agriculture, as B.R.  Shenoy had clearly articulated] Most of these supports are exempt from reduction commitments under Annex-2 or Art.6.2 of AoA.

3.2 Several studies have shown that there is noticeable improvement in the incremental output ratios in agriculture sector indicating higher potential of production response to the investment. However, the investment in agriculture as a percentage of GDP has been steadily declining in the past two decades. This trend would need to be reversed and public investment [No! – let there be more private investment through allocation of property rights] in irrigation, watershed development, power and rural infrastructure should be stepped up in the coming years.

3.3 India also has several other options like imposition of anti-dumping and countervailing duties, safeguard duties as also imposition of temporary QRs under the Agreements on Subsidies and Countervailing Measures and Agreement on Safeguards to prevent surge in import of any product.

(ii) Actualising Market Access Opportunities

3.4 India needs to reorganise its production and export efforts [No!! NO STUPID BUREACURAT CAN “ORAGNISE” ANY SUCH THING. LET THE MARKET BE FREE AND IT WILL GET ORGANISED] on the basis of specific products in identified geographical areas(alphonso mango and grapes in Maharashtra, basmati in north western states) in line with the tenet of comparative advantage are examples for replication. The efforts should encompass all areas from production to post harvest management, quality standards, processing, storage, transport and marketing activities. Special schemes of market promotion including assistance for certification, for preparation of brochures, participation in specialised fairs etc. may also be necessary in the initial stages.

3.5 The unconscionably high levels of protectionism in developed country markets in terms of tariff peaks, tariff escalation, SPS and TBT have impeded the growth of India’s agricultural exports [Maybe, BUT MOST EXPORT RESTRICTIONS ARE IMPOSED BY INDIA’S STUPID GOVERNMENTS]. Internal factors limiting our exports have been infrastructure inadequacies as well as ad-hoc domestic trade policies.

3.6 India’s low use of agro chemicals can be converted into an opportunity as the consumer demand for organic products commanding a premium on prices is increasing in the developed world. India needs to identify products and specific regions of the country suitable for organic production. Organic product projects established by APEDA for johar rice, sugarcane, passion fruit and pineapple in the North Eastern region need to be multiplied also covering other products and other areas to ensure adequate volumes of organic products for exports as also to reduce per unit inspection charges.

3.7 Identification and declaration of pest free areas for export may also be of great help in promotion of exports. This will require regular and constant technical survey/surveillance, which needs coordinated efforts by all States and UTs. Meeting the sanitary and phytosanitory requirements of most of our developed country trading partners also calls for substantial investments in developing adequate infrastructure facilities.

3.8 Government have recently announced a Market Access Initiative under which assistance would be provided in research and development, market research, product studies, warehousing and retail marketing infrastructure in select countries and direct market promotion activities through media advertising and buyer-seller meets including through electronic portals.

3.9 The major deficiency in agriculture marketing is lack of grading, sorting and packaging facilities. [Sanjeev: THIS NECESSARILY ARISES FROM UNCERTAINTY CREATED BY CONSTANT GOVERNEMNT MEDDLING. LEFT FREE, MARKETS WILL CRATE TEHSE FACILITIES THEMSELVES] The advantages and benefits are not fully appreciated. We also need to focus on setting up of grading and sorting facilities to prevent under valuation of farmers’ produce in mandis. A national programme for establishing such facilities beginning from the major markets in different parts of the country will not only increase the farmer’s income but would also help in promotion of Indian agricultural products in foreign markets. Government should help establish such grading centers to begin with in 100 important production centers with different commodities like Lasan Gaon for onion, Guntur for chillies, pineapple in Mizoram etc. [NO. JUST GET OUT OF THE WAY]

3.10 Appropriate post-harvest technologies setting up of agro-processing units in the producing areas specially of horticultural products for increased value addition and creation of off-farm employment in rural areas is to be encouraged for speedy development of food and agro-processing industries and to build up a substantial base for production of value added agro products for export markets with strong emphasis on food safety and quality. For improving the quality of products, our processing techniques and methods and post harvest management have to vastly improve. To begin with, education and training can be concentrated in important centres in respect of exportable products.

(iii) Quality Isues and SPS Measures

3.11 Compliance with international quality including hygiene and safety standards will become increasingly stringent and will have to be complied with if we have to be in the international market. Quality and competitive pricing will determine the course of trade in the domestic market and definitely in the international market.

3.12 Standards have to be established for all agricultural and food products and action taken to notify them. We cannot prescribe higher standards for imports than that are prescribed for domestic products. Also it is necessary to assess the difference between Indian and International standards and analyse the reason for the gap and work out the manner of harmonising our standards with the international standards wherever required.

3.13 The standards, guidelines and recommendations established by Codex Alementarius are accepted worldwide. We have to effectively participate in the deliberations and influence the decisions on standards.

3.14 Ministry of Health which is the nodal agency shall coordinate with the different departments/agencies which may be assigned responsibility to consult all stake holders and formulate the national position on all aspects of the standards and present them effectively at the Codex meetings.

3.15 Scientific capability and the capacity for risk analysis is an area of weakness. ICAR and Universities need to develop these capabilities.

3.16 There is need to adopt internationally recognised quality management systems and establish a credible system of registration of accredited laboratories for quality certification. For the above purpose, Government may notify agencies which would prepare guidelines for registration of certifying laboratories, the norms for recognition and the responsibilities of the laboratories.

3.17 The agencies will have to notify also the inspection procedures for inspection of the accredited laboratories.

4. TRADE POLICY REFORMS

4.1 The heart of the agriculture reforms lies in the ‘market place’. The biggest beneficiaries of the market reforms should be the major stakeholders in the agriculture business, the farmers. The reforms will also lead to all round improvement of efficiencies in all the links of the value added chain from production to processing to distribution and retailing. Substantial investment in infrastructure for markets, storage, post harvest handling, processing, transport, cold chains and redefining the role of Agricultural Produce Market Committee in a more competitive environment will ensure maximum share in the final price to the farmer for his produce. We could let the market work with a view to capitalise on the opportunities for exports.

4.2 The following are the most important goals for agricultural marketing.

  • Increasing the degree of integration of existing agricultural markets.
  • Minimising instability in prices, both received by producers and paid by consumers.
  • Reducing the spread between prices received by farmers and the prices paid by consumers.

4.3 Another objective of any marketing reform is to remove as far as possible all barriers, whether natural or policy induced, which introduce inefficiencies and monopoly rents in the functioning of markets and to create institutions which permit as large a market participation as possible.

4.4 The Essential Commodities Act 1954 which is an enabling legislation permitting States to issue orders restricting private storage and movement of foodstuff, was enacted to prevent artificial scarcity when shortages were endemic. With the exception of some remote regions and possibly certain border areas, there is now no justification to retain these provisions except for use only in emergencies such as natural disasters or other contingencies, which disrupt normal functioning of civil society. However, State governments are still reluctant to repeal these provisions although there are very few operative orders restricting movement and storage and even those which exist (for example levy orders on rice mills) are now almost vestigial. While repeal of unnecessary laws which impede private trade continues to be important, the more immediate priority is to remove price and tax distortions and give fiscal support for rural infrastructure and to institutions which can provide marketing strength to Indian farmers and protect them from price and income uncertainty.

4.5 Better integration across rural markets is necessary for price signals from abroad to be fully effective in generating comparative advantages. A danger posed by weak integration across rural markets is that the price depressing effects of potential imports can be quicker and affect more regions and farmers than the income enhancing effects of higher exports, which can remain confined to a few regions. To obtain the real benefits of trade, the direct impact of exports needs to be converted to the much larger potential impact that can follow if the higher income creates demand for agricultural produce of other regions within the country.

4.6 Developing market integration, by providing reliable transportation and storage at reduced cost and through quick dissemination of market information, is, therefore, vital to realise the potential benefits from trade. However, a two-track approach might be necessary to start with. Since quality considerations and reliable time schedules are important for export trade, the type of infrastructure necessary specifically for this (quality control laboratories, cold chains, bulk and container movement etc.) is best developed selectively in regions of greatest potential where there is already private sector initiative and investment. Government support for this should be focussed, and mainly take the form of facilitation and simplification of procedures with financial support restricted to minimum subsidy on set-up costs. This should, however, be accompanied by a much larger public sector effort throughout the hinterland to strengthen and better network existing institutions using more affordable technology, with the priority on coverage and local participation.

4.7 An immediate priority deriving from removal of quota restrictions and large world price fluctuations is that import tariff policy be used proactively to counter fluctuations in international prices. This is WTO-compatible so long as tariffs are varied within the existing bound rates which for most agricultural items are sufficiently high. However, it is important that the goal of this is clearly perceived to be price stabilisation and not permanently high tariff protection. For this, average tariff rates should be calibrated on the basis of average world prices and domestic costs of production, and actual tariffs varied around this average strictly on the basis of transparent formulae linked to the deviation of actual world prices from their long-run trends. For this purpose, a Statutory Agricultural Tariff Commission may be set up with full autonomy and authority to make recommendations, which by convention would be accepted by the Government.

4.8 Simultaneously, export quotas should be removed and there should be a system of export tariffs on agricultural goods which should come into operation when the world price rise above a certain point and be varied with world price movements on the basis of transparent formulae.

4.9 The existing system of open-ended purchase at pre-announced Minimum Support Prices (MSP) should also continue since weak market integration means that local gluts can continue to occur even if border prices are stabilised. In fact, MSP operations should be strengthened in regions and for crops where it is currently weak.

4.10 Also, since MSP operations are in the nature of a guarantee provided by the Central government to farmers, State governments should be barred from imposing taxes, levies or cess on MSP purchases.

4.11 The PDS based on physical supply at fair price shops should continue for the same reason as the MSP, i.e. to prevent local spikes which can occur with weak market integration even if national prices are stabilised.

4.12 An upper limit needs to be set to the taxes and statutory levies that can be imposed by states on agricultural produce. Tax and fees on raw agricultural commodities should be rationalised. In principle, raw agricultural commodities should attract zero tax(including purchase tax, mandi tax commission of agents, and so on, which in Punjab today accounts for about 11 per cent on wheat). Allowing big grain companies to buy directly from farmers without going through commission agents can do this, and abolishing purchase/sales tax.

4.13 The Acts governing existing regulated markets, and the Agricultural Produce Marketing Committees which manage these, should be amended to require that markets which do not provide certain minimum services will cease to be covered by the Act and, wherever such Acts prohibit trade outside regulated markets, there should be substantial relaxation of the procedures for establishment of new regulated markets.

4.14 The system of negotiable warehouse receipts should be simplified and expanded and a scheme of certification of warehouses needs to be devised so that not only the quantity but also quality of the produce can be certified and banks should treat this as acceptable collateral for loans. Credit margin requirements for stocks of agricultural commodities should be reduced. Farmers should be extended credit against hypothecation of their stocks. The warehouse receipt system should be made negotiable instrument by introducing enabling legislative amendments soon.

4.15 A powerful tool to improve market integration is electronic access to price and other market information. For this, it is necessary that all regulated markets be networked and that eventually online facilities exist in each market to obtain real-time quotations in other markets. In order to provide even wider access to this data, it should be available in summary form on the internet and internet access extended as widely as possible in the form of e-kiosks. These could be served through existing telephone lines and STD booths, or better still, ride on high speed (V-Sat or similar) networks being developed by a number of agencies such as the post office, railways and commercial banks which have large rural presence.

4.16 With improved access to reliable market information it may be expected that the functioning of other risk management institutions such as future markets can improve. But, although this can improve price discovery and help trade to hedge risks, not much should be expected from this in terms of reduction in either spot price variability or income risk to farmers on the basis of international evidence. The latter would continue to depend on spot markets for sale and on existing financial institutions for consumption smoothing, supplemented by whatever the government can offer in terms of crop insurance and employment schemes to cope with natural adversity.

4.17 A basic principle in bringing marketing strength and security to Indian farmers quickly and most cost effectively should therefore be to involve, strengthen and draw synergy from all existing institutions which exist at the village level. An important place in this exists for panchayati raj and co-operative institutions in organising local infrastructure, finance, information and even direct storage, transportation and marketing.

4.18 Most importantly. It should be clearly understood that all efforts at improving market structures at higher levels are unlikely to fructify fully unless the immediate village infrastructure and its physical connectivity is improved. Also, risk management efforts will remain vacuous unless this involves a definite framework for providing income generation schemes at times of adversity. A beginning on this requires to be made immediately by accelerating the Prime Minister’s Gram Sarak Yojna, dovetailing this with the Employment Assurance Scheme and the Public Distribution System to utilise excess food stocks without insisting on targeting to the poor, at least in drought affected regions and most backward blocks.

4.19 Futures markets should be introduced in all agricultural commodities. The measures suggested above will help introduction of futures market. This would help in containing wide fluctuations in commodity prices as also cut down their costs of marketing by hedging their risk.

4.20 Policies for the oilseeds processing sector should review to permit economies of scale and for similar reason the policy relating to farm implement manufacture need to be revamped

5. CONCLUSIONS

5.1 The WTO has opened a new horizon of opportunities for increased access for which domestic production system has to gear itself for deriving maximum benefits. Since our commitments of domestic support are well within the limits, there is ample scope for increasing the support for enhancing our comparative advantage. Concurrently, incidence of surge in imports of edible oils and sugar in the recent years highlight the urgent need to put in place an effective system of international trade monitoring and response.

5.2 The policy framework has outlined in the National Agriculture Policy for triggering a sustainable growth. Due thrust need to be given to revitalise the sector to enable it to face the challenges of economic liberalization and globalization. The regional and sub-regional level programmes need to be charted out to attain this objective in a specific time frame.

5.3 Indian agriculture continues to need protection and support through creation of infrastructure, watershed development, increased availability of subsidized inputs and greater thrust on research, extension and risk management. Simultaneously, the alternatives to on going product specific support through minimum price support mechanism, may have to be evolved so that the advantage of provisions in the Annexure-2 of AoA can be availed off.

5.4 The competitiveness of the Indian agriculture have to be enhanced to realise new market access opportunities. The development of product specific regions linked to export channels, tapping the potential of organic farming and development of value addition chain and post harvest infrastructure in tune with global needs will go a long way in establishing India in the international trade scenario. Concurrently, the domestic market reforms also have to be speeded up to unshackle Indian agriculture from restrictions of movement, storage, sale, purchase and exports.

5.5 In this process, the issue of quality of produce and its standardization as per international standards needs high priority. Besides the production, the quality issues should also cover the subsequent value addition chain. The quality consciousness has to percolate to the grass root levels.

5.6 India’s initial negotiating proposals seek to protect the interest of Indian agriculture especially on its concerns for food and livelihood security, demanding more flexibility for protection from surge in imports and for acquiring greater market access. These negotiating proposals with matching efforts of protection, support and market-friendly domestic policy regime will take Indian farming to higher levels of growth and prosperity.

Annexure-A

Salient Features of WTO/Agreement on Agriculture

Genesis

  • The EU’s Common Agriculture Policy transformed European Union from being a net food importer into a net food exporter by the 1970s by developing a complex web of price and sales guarantees, subsidies and other support measures that largely insulated farmers’ incomes from market forces encouraging them to expand production.
  • The lax enforcement of Article 11 of GATT which prohibited quantitative restrictions on imports enable US to maintain protective mechanisms for sugar, dairy products and other agricultural commodities.
  • Large scale market price support in US and EU led to lowering of international prices threatening farmers’ incomes in developing countries.
  • The international markets were highly volatile as evidenced by fluctuations in the prices of agricultural products.
  • The agricultural exports continue to be dominated by a few large multinational companies and trading agencies which enjoy a unique position in the international market.
  • Prior to the Uruguay Round, agriculture was for all practical purposes outside GATT discipline.
  • Mutual realisation of the need for rules for accessing third country markets led the member countries to press for inclusion of agriculture in the Uruguay Round.
  • The WTO/Agreement on Agriculture was finally adopted at Marrakesh in April 1994 bringing agriculture within the GATT discipline from 1stJanuary 1995.
  • The implementation period of the Agreement is from 1stJanuary 1995 to 31stDecember 2000 for the developed countries (10 years for developing countries).
  • Members have also agreed to continue the process negotiations for reduction of support and protection beyond the implementation time frame. Article 20 of the Agreement provides for a review and fresh negotiations which have commenced from the year 2000.
  • The long term objective of the reform process is to establish a fair and market oriented agricultural trading system through negotiations of commitment on support and protection of agriculture.

Key Provisions:

The three pillars of Agreement on Agriculture i.e. Domestic Support, Market Access and Export Competition are the main instruments seeking reduction in distorting monetary support programmes given to Members agricultural producers, to regulate and lower protectionist barriers to importation of foreign products and reduction in export subsidies on agricultural products. The table below gives details under these categories:

 

Type of ruleMarket Access

(Base: 1986-88)

Export Subsidy

(Base: 1986-90)

Domestic Support

(Base: 1986-88)

 

Monetary

 

Tariffication of non-tariff barriers for all countries

Developed countries: Reduction of all tariffs by 36% on average, and minimum of 15% per tariff line.

Developing countries: Reduction of tariffs by 24% on average, and minimum of 10% per tariff line.

 

Developed countries: Reduction of outlays on export subsidies by 36%

Developing countries: Reduction by 24%

 

Developing countries: Reduction of total AMS by 20% except for ‘green box’ and ‘blue box’ measures

Developing countries: Reduction by 13.3%

 

 

Quantitative

 

Developed countries: Minimum access commitments: 3% of domestic consumption growing to 5% by 2000

 

 

Developed countries: Reduction of subsidized exports by 21%

Developing countries: Reduction of subsidized exports by 14%

The reduction rate for developing countries are 2/3 of those for developed countries and stretch over 10 years instead of 6 years. Least developed countries have to bind their tariffs but are exempt from any reduction commitments.

Market Access:

Market access is the extent to which a country allows the importation of foreign products. Countries have traditionally used both tariffs and non-tariff measures (such as quotas and variable levies) to regulate imports of agricultural goods. The market access provisions aim to regulate and lower protectionist barriers to trade.

  • All existing tariffs are to be bound. Countries can only reduce bound tariffs when complying with the AoA tariff reduction commitments. Bound tariffs cannot be increased.
  • All quantitative restrictions or non-tariff barriers(border measures other than simple customs duties) must be converted to tariffs. This is usually termed ‘tariffication’.
  • The Special Safeguard Provision(SSG) can be invoked only for commodities which have been subject to tariffication. They only apply to imports over the tariff-quota volumes. It allows countries to impose additional duties in the event of a surge of imports in terms of volume(quantity-triggered), or a low price based on already established trigger levels(price-triggered).

Domestic Support

  • Domestic support is the annual monetary support given by the government to agricultural producers either for the production of specific agricultural products, or in more general forms such as in infrastructure and research.
  • The AoA classifies supports into several categories – those that are acceptable because they are minimally trade distorting, and those that not acceptable as they are obviously trade distorting; those that have ceiling levels and those which do not have ceiling levels.
  • ‘Green box’ supports are deemed to be minimally trade distorting. They are acceptable within the AoA and are not subject to reduction commitments.
  • ‘Blue box’ supports are a special category created to house the EU’s and US’ production limiting programmes. These include EU’s land-set aside programmes and the US’ deficiency payments . They too are not subject to reduction.
  • ‘Amber box’ supports are deemed to be trade distorting and are subject to reduction commitments. These supports are measures by the Aggregate Measure or Support (AMS) index.
  • De minimis clause supports allow countries to maintain a certain level of AMS. These come in two forms, product specific de minimis-related support and non-product specific de minimis support.
  • Special and differential provisions allow developing country governments to provide input and investment subsidies.
Total  Domestic SupportAmber Box
(measured by AMS index
To be reduced (20% or 13.3%)
Product-specific de minimisCeiling(5% or10% of AMS)
Non-product specific de minimis
Blue BoxNo Reduction Required for all

Blue box and S &D subsidies Must not exceed 1992 levels

No ceiling for Green box Support

Special & Differential Treatment
Box (S+D Box)
Green Box
  • Green Box: Minimally or Non-trade Distorting Support:

This is a colloquial term which commonly refers to a long list of domestic support measures which are considered to have none, or only minimally trade-distorting effects.

Two criteria are given for green box supports.

  • Supports must be paid out of the government budget and not levied from consumers.
  • Supports must not have the effects of providing a price support to the producers.
  • Domestic support policies exempted from reduction commitments.
  • General Policies which have no or minimal production or trade distortion effects.
  • Government service programmes

1.research

  1. pest and disease control
  2. training services
  3. extension and advisory services
  4. inspection services
  5. marketing and promotion services
  6. infrastructure services
  7. infrastructural works associated with environmental programmes
  • Public stockholding for food security purposes
  • Domestic food aid
  • Direct payments to producers
  • Decoupled income support
  • Income insurance and safety net programmes
  • Natural disasters

Structural adjustment assistance:

  • Producer retirement
  • Resource retirement
  • Investment aids
  • Environmental programmes
  • Regional assistance programmes

Blue Box: Production limiting support programmes mainly practiced by EU now. US has by and large shifted these programmes to the Green Box by appropriately restructuring the policies. Certain countries have also taken advantage by including the quantum of Blue Box support in their initial base period calculation of AMS and excluding it from subsequent year’s AMS as there is no reduction commitment for this category Blue box support.

  • Amber Box: Subsidies measured by the Aggregate Measure of Support (AMS)
  • The support which are considered to be production and trade distorting and are together measured by an index termed the Aggregate Measure of Support (AMS). Three elements are included in the AMS calculations:
  • Market price support (to be calculated on the basis of the gap between the world market price and the domestic administered price multiplied by the quantity of production eligible to receive that administered price).
  • Non-exempt direct payments
  • Other subsidies not exempted from reduction commitment.

Of these, it is the market price support measure which make up the bulk of the AMS.

Export Subsidy

 The AoA stipulates that

  • Export subsidies must be reduced by 21 per cent in volume terms and by 36 per cent in monetary terms over 6 years by developed countries. Developing countries must reduce their subsidised volumes by 14 per cent and their outlay by 24 per cent over a 9 year period.
  • The base period of 1986-1990 was chosen. Where exports were higher in the early 1990s, countries could chose to begin their reductions from the average 1991-1992 export subsidy levels(front-loading provision). Nevertheless, the final volumes and outlay had to be 21 per cent and 36 per cent to lower than the 1986-1990 values.
  • The types of export subsidies to be disciplined include the following:
  • Direct subsidies including payments in kind, contingent on export performance
  • Sale by government or their agencies of non-commercial stocks at prices below domestic market prices.
  • Payments financed by virtue of governmental action such as a levy, whether or not there is a charge on the public account.
  • Subsidies on agricultural commodities for incorporation in exported products.
  • Subsidies to reduce marketing costs of exports (other than promotion and advisory services) and internal transport subsidies for exports which are more favourable than for domestic shipments(permissible for developing countries).
  • Reduction commitments were made for product groups rather than for each commodity. The Modalities established a list of 22 product groups.
  • No export subsidies can be introduced if they were not provided for in the base period, and no increases in export subsidies must take place from those in the base period. That is, all export subsidies are prohibited with the exception of those indicated in the countries’ Schedules.

Annexure-B

Approach to the on-going negotiations in Agriculture

  • The experience during the last six years shows that the AoA has not brought about the anticipated deepening of world trade in agriculture, spatial re-distribution of agriculture production, improved returns to farmers in developing countries or greater transparency in the agricultural trade. It is evident that a good number of provisions of the AoA lack the required degree of rigor or contain ambiguities leading to varying interpretations.
  • In the process of fresh negotiations under Article 20 of AoA, India has addressed the inequities and flaws in the Agriculture in its proposals submitted to WTO on 15th January 2001. As mandated under Article 20 of the WTO/Agreement on Agriculture, the negotiations for further progressive liberalization to establish a fair and market oriented agricultural trading system have begun from January 2000.
  • The vulnerability of Indian agriculture undermines the household food and nutrition security of large segments of the billion plus population of India. There is need for greater flexibility in providing support and protection to agriculture to ensure food and nutrition security by expanding domestic production.
  • The macro level self-sufficiency in food production will lead to household food security only when people have the purchasing power to buy food. India therefore has flagged its concerns for rural employment and poverty alleviation in its proposals for renegotiations on agriculture.
  • The additional flexibility in policy choices on the basis of S&D treatment will enable the Government to insulate the vulnerable households from the fluctuations in world food prices in times of shortages by providing protective viable safety nets.
  • Such additional flexibility is also required for creating a level playing field for the millions of small and marginal producers in developing countries. Besides chronic shortage of foreign exchange in developing countries, the adverse impact of large scale import of basic food on the domestic producers in developing countries like India, its deleterious impact on international prices and market as also poor port and distribution infrastructure in most of the developing countries justify their demand for special and differential provisions and creation of a food security box for providing additional domestic support and protection to agriculture sector for increasing domestic food production.
  • The guiding principles of the Indian proposals are the food and livelihood security of our people, protection of the interest of domestic farmers and maximising export opportunities for Indian agriculture products. Our proposals can broadly be classified into the following two categories:-

(i) Increasing the flexibility enjoyed by developing countries by creation of a ‘Food Security Box’ for providing domestic support to the agriculture sector under the special and differential treatment (S&D) provisions as also further strengthening of trade defence mechanisms with a view to ensuring the food security and to take care of livelihood concerns.

(ii) Demanding of substantial and meaningful reductions in tariffs including elimination of peak tariff and tariff escalation, substantial reductions in domestic support and elimination of export subsidies in the developed countries so as to get meaningful market access opportunities.

  • High levels of domestic support to agriculture in developed countries like European Union, USA, Japan, Korea has continued during the post WTO period. India therefore has been of the view that merging the blue box support and the direct and decoupled payments(paras 5,6 and 7 of Annex 2) into the amber box and subjecting it to a cap and reduction commitment will lead to contraction of production in those countries and expansion of production in the developing countries who are much more efficient producers of agricultural commodities.
  • In the on going negotiations on agriculture under Article 20 of Agreement on Agriculture, India has sought Special Safeguards (SSG) under which a country can raise duties even higher than the bound rates in case of import surge – option currently available under Art.5 AoA to developed countries who opted for tarrification. These special safeguards should also be made available to developing countries like India in addition to other trade policy remedies to check import surge causing injury to domestic production.
  • Food and livelihood security, particularly for the millions of women and men living below the poverty line in India, should be our bottom line in the agricultural trade negotiations to ensure that trade is carried out with a human face and becomes an effective instrument for lifting people out of poverty and raising standards of living. India should in concert with other developing countries, work for removal of the existing flaws and inequities from the Agreement on Agriculture during the on-going negotiations.

The central issue in the agricultural negotiations of the Uruguay Round was the reduction in export subsidies. EU is the largest user of export subsidies driving the more efficient producers of agricultural commodities out of the market. Elimination of export subsidies and disciplining of all other forms of export subsidisation coupled with expiry of the due restrain clause or the peace clause (Art. 13) would greatly improve the international prices and competitiveness of India agricultural products.

 

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Sanjeev Sabhlok

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