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Ruddar Datt

While the developed countries want unhindered access to the markets of developing countries, they go to great lengths to support their farmers. To share the benefits of globalisation equitably, developed countries must effect reductions in tariffs and subsidies and eliminate quotas to level the playing field.

THE WTO Agreement on Agriculture stipulated that developed countries would reduce their subsidies by 20 per cent in six years, and developing countries by 13 per cent in 10 years.

But as things stand today, developed countries tried to circumvent this agreement by providing Green Box and Blue Box subsidies to support agriculture.

Green Box subsidies include amounts spent on government services such as research, disease control, infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support to help farmers restructure agriculture, and direct payments under environmental and regular assistance programmes. This definition is very wide and includes all types of government subsidies.

Blue Box subsidies include certain direct payments made to farmers, where the farmers are to limit production, and certain government assistance programmes to encourage agriculture and rural development in developing countries.

Other support — on a small scale when compared with the total value of the products — supported 15 per cent or less in the case of developed countries, and 10 per cent or less for developing countries.

Similar to domestic support subsidies, developing countries are not allowed to increase their negligible level of export subsidies while developed countries are allowed to maintain 64 per cent of their subsidy outlays at the base level.

Consequently, agriculture imports from developed countries are available at much below the market price in the domestic economy.

The Human Development Report (1997) reviewing this problem mentioned: "According to the OECD, the per capita transfer to US farmers amounted to $29,000 in 1995. But in the main rnaize-producing areas of Mindanao and Cagayen Valley, the average per capita income amount to less than $300. So, each US farmer receives in subsidies roughly 100 times the income of a maize farmer in Philippines.

"Implementation of the Uruguay Round agriculture agreement over the next five years will not materially change the picture. Agriculture remains the only area in which export dumping is accepted as a legitimate trade practice."

Earlier, farm prices in India were, n general, lower than international prices. But as a result of the heavy subsidisation of agricultural exports by developed countries, the situation took a dramatic turn, and Indian farmers have been put to serious disadvantage.

The phenomenon of farmer suicides and the growing unrest in several States because of the distress of those producing and dealing in agricultural commodities and their exports is a major humanitarian problem.

Has the situation changed after Doha?

The Doha Ministerial (2001) forced the developed countries to consider issues of implementation before looking at new issues. It was also felt that developed countries should reduce tariffs and also remove non-tariff barriers. But did the situation change thereafter? It would be relevant to quote the findings of the Human Development Report (2003) in this regard.

"The most important expectation of poor countries in the Uruguay Round of international trade negotiations (1986-94) was that the rich countries would open their markets in these two sectors (agriculture and textiles). But the results have been largely disappointing. Protection in most rich countries remains extremely high, through a variety of instruments."

"Tariffs: "In agriculture, the tariffs of OECD countries are heavily biased against low-priced farm products produced by developing countries. Bangladesh exports about $2.4 billion to the US each year and pays 14 per cent in tariffs, while France exports $30 billion and pays 1 per cent in tariffs. "Quotas: Import quotas are a more extreme version of the same policy. Rather than just making developing country products less competitive, quotas do not allow those products past a certain volume to compete at all. Quotas on clothing and textiles are to be phased out by 2005.

But in 2002 quotas still governed most of the same clothing products covering quotas in the late 1980s. The lack of progress raises doubts about the seriousness of OECD countries to meet their 2005 commitments.

"Export subsidies: Rich countries, to varying degrees, pay large subsidies to their domestic food producers. These subsidies — totalling $311 billion a year — affect the market prices of agricultural goods, causing direct harm to poor countries.

What needs to be done?

The basic question is: What needs to be done? There are two levels at which action has to be taken — international and domestic.

At the international level, resistance has to be built against the developed countries so that a level playing field is available to goods and services exported by India and other developing countries. The net impact of the protective and discriminatory policies of the US and OECD countries is to corner all benefits of globalisation in their favour.

At the international level, the combined pressure of developing countries is bound to make an impact. With an improvement in relations with China after the Prime Minister, Mr Atal Bihari Vajpayee's successful visit, if these two big countries belonging to the developing world, mobilise support from Brazil, Pakistan, Bangladesh, Vietnam, the Philippines, Africa, and so on, it could represent the voice of two-thirds of the world's people.

If the developed and rich countries do not heed the pleas of the developing countries to adhere to the norms and agenda agreed for reduction of tariffs and subsidies, there are two alternatives left. Developing countries should decide whether they would like to continue to be members of the WTO or whether they should also take recourse to retaliatory measures.

Since agricultural subsidies in India are much less than the 10 per cent of GDP level stipulated by the WTO (they are around 3 per cent), there is enough scope to raise them as a retaliatory measure.

Such a course may deal a serious blow to the globalisation movement, but if it is forced on developing countries, they have to use the bitter pill to save the livelihood of the farmers who depend exclusively on agricultural exports.

The late Prof P. R. Brahmananda went so far as to assert in one of his lectures: "We have to think of domestic interests as paramount. If we have to leave WTO for the interests of our farmers, I would not mind it."

India's agricultural imports were of the order of $1.86 billion in 2000-01, and increased to $2.29 billion in 2001-02. If the surge continues, the interests of Indian farmers would be seriously affected.

The Economic Survey (2002-03) makes a forthright statement: "India has considerable flexibility to counter the flooding of the Indian market by cheap agriculture imports through the imposition of tariffs (bound rates) under the WTO.

"The WTO permissible tariff rates are reasonably high: 112 per cent for nuts, 150 per cent for sugar and coffee, 100 per cent for tea and cotton, 70 to 100 per cent for foodgrains, 45 to 300 per cent for edible oils and 40 to 50 per cent for fruits.

"Countervailing duties can also be imposed to counter the questionable subsidies given to agriculture products by the exporting countries, apart from having the option of acting under safeguard provisions to counter the surge of imports.

However, action must also be taken at the domestic level to improve its agriculture.

The experience of the Ninth Plan, as documented in the Tenth Plan, reveals that the private sector invested in irrigation technologies that were mainly extractive, such as tubewells. But these investments are not sustainable unless appropriate investments are made in rain-water harvesting and recharging of ground water resources.

However, CSO data reveals that in gross capital formation in agriculture, the share of the public sector declined from 33 per cent in 1994-95 to merely 23.5 per cent In 2000-01. In absolute terms, public sector investment declined from Rs 4,947 crore in 1994-95 (measured at 1993-94 prices) to just Rs 3,919 crore in 2000-01.

In boosting agri exports, some success has been achieved, but agri-exports, which reached $6.004 million in 2000-01, declined to $5.871 million in 2001-02.

The Economic Survey, indicating the main reasons for Indian exports continuing to be just 13-14 per cent of total exports, states: "The main reason is poor export infrastructure, low level of agri processing, grading. quality control and poor or lack of quality branding and packaging. Infrastructure specific to agri exports, such as storage, and fast track inland and mechanical port handling facilities, is also a limiting factor."

Another important area that needs attention is to make agricultural credit available at lower rates of interest. The rate of interest charged on loans ranges between 14 per cent and18 per cent. This implies that the benefit of declining rates of interest has not been passed on to the agricultural borrowers.

On account of the efforts of the Agriculture Minister, Mr Rajnath Singh, the Finance Ministry has agreed to reduce interest on farm loans up to Rs 50,000 to 9 per cent. This step, though in the right direction, is still inadequate. When interest on housing loans has been reduced to 8.5 to 10 per cent, it is imperative for the Government to cut interest rates on all agricultural loans.

Accepting the need to trim farm loan interest rates, the Prime Minister announced in late July that crop loans below Rs 50,000 will be charged 9 per cent interest, and that banks are being asked to charge a rate of interest below the PLR for agricultural loans up to Rs 2 lakhs. The current PLR for most banks is 11-2 per cent.

Such measures will, no doubt, help. But they are to be followed up by strong representation of India's stand at the ministerial meet at Cancun starting tomorrow. If under the banner of globalisation, the WTO intends to build a more equitable and just world order, it has to apply pressure on developed countries so that the principle of comparative cost becomes the basis of trade in agriculture, rather than the principle of access to subsidies.

(The author, a former president of the Indian Economic Association, is Visiting Professor, Institute for Human Development, New Delhi.)

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