India: Flood of food imports could destroy Indian agriculture

by Binu S. Thomas*

Bangalore, Aug 30 -- In recent months Indian supermarket shelves have started displaying a variety of imported foods. Cheese from Switzerland, apples fron New Zealand, biscuits from Thailand, chocolates from Brazil, the list is growing by the day. These imports have been allowed as part of fulfilling India's commitment to the World Trade Organisation under its Agreement on Agriculture (AoA) to improve market access for foreign foods (and phasing out import restrictions maintained on BOP grounds.)

With a WTO's dispute settlement panel recently rejecting India's stand justifying quantitative restrictions (QRs) that it has traditionally imposed on certain sensitive imports, the stage is set for the trickle of food-related imports to turn into a flood. India had entered into bilateral pacts with its major trading partners for a six-year phasing out of QRs from April 1, 1997 to March 31, 2003. This timeframe was not acceptable to the U.S. which wanted a faster phasing out and took India to the disputes settlement process.

India maintained QRs on about 2,700 items. In the annual Exim- Import policies India has been progressively phasing out QRs. In the 1997-98 policy it freed 406 items, in 1998-99 it freed 896 items and put 414 under special import license which is also not acceptable to India's major trading partners. It seems almost inevitable, with the latest DSU ruling, that the remaining 1200 or so items, many of them sensitive agricultural imports, on which QRs are in place would be freed by 2001.

Well over a third of items under QRs are agricultural items on which import restrictions were imposed to safeguard the interests of India's large agricultural community. Two-thirds of Indian farmers are in the small and marginal category cultivating less than two hectares of land. Contrary to popular perception, given a level playing field these farmers will be more than able to compete with their Western counterparts in agricultural production and export. But this is being denied to them.

Each farmer in the developed countries gets on average a subsidy of US$29,000 a year. The US domestic support for its farmers was US$25.5 billion in 1996 while for the European Union it was US$85 billion. In both the U.S. and the EU farmers constitute less than 3% of the population. In contrast India's domestic support to its farmers worked out to a negative $23.7 billion in 1995-96 even after providing for fertiliser, electricity, irrigation, seed subsidies.

India through levies and cesses of various kinds on its agricultural products actually taxes its farmers rather than subsidies them. Under the AoA developed countries are to reduce their domestic subsidies by 20% by 2000, which will not make a major difference in terms of reducing the inequity between farmers in developed and developing countries. Worse, developed countries have got for themselves a number of exceptions under the Green and Blue Boxes of the AoA which in effect mean they need not make the 20% reduction and in some cases can still further increase subsidies.

In addition to the huge domestic subsidies to their farmers, developed countries also provide massive export subsidies to their agri-business corporations which enable them to dump agricultural surpluses (generated thanks to the huge domestic subsidies) in developing countries at less than cost of production. Only 25 of the 134 WTO members have a right to subsidise their exports (India and most other developing countries cannot do so as per their commitments to the WTO) and only two-three exporters account for most export subsidies. Three exporters account for 93% of subsidised wheat exports, two for 80% of subsidised beef exports and two for 94% of subsidised butter exports.

Under the AoA developed countries have to reduce their export commitments by 36% in value terms by 2000, but this is being flouted through some clever book keeping. For instance the European Union has been exporting processed cheese under its export subsidy commitments for skim milk powder and butter claiming this is possible under "inward processing relief." In 1998 the U.S. made a "50% ($4 billion) increase in export credit guarantee allocations, so that we could be aggressive in holding on to some of our best customers," according to U.S. Agriculture Secretary Dan Glickman.

The third area where developed countries have been circumventing the AoA has been in regard to improving market access. Under this provision countries are to convert non-tariff barriers such as quantitative restrictions into tariffs and then progressively reduce these over a period of time. While developing countries such as India have been fixing nominal import tariffs on items taken off the QR list (for eg: 10% import duties in the case of edible oils), developed countries have been indulging in "dirty tariffication" by fixing prohibitive tariffs that impede market access for agri exporters from developing countries. Average tariffs in OECD countries for 1995 stood at 214% for wheat, 197% for barley and 154% for maize, while the average import duties in developing countries were 94% for wheat, 90% for maize and 89% for rice.

It would be clear from the above analysis that not only have developed countries framed WTO rules relating to Agriculture in a manner that favours them, but they have been flouting even the marginal concessions they have made to developing countries. Should this situation be allowed to continue, farmers in developing countries will be deprived of their livelihoods by a flood of highly subsidised imports (now coming in after the lifting of QRs) and by impediments being put to exports.

Take the case of Soyabean.

With a view to attaining self-sufficiency in edible oils, the Government of India actively promoted cultivation of soyabean through the oilseeds technology mission set up by Rajiv Gandhi. Poor farmers were persuaded to give up cultivation of subsistence crops and produce soya for the market. In the last six years, area under soya has doubled to 6 million hectares and production stands at about 6 million tonnes.

With liberalisation of edible oil market and imports, as part of India shifting away from a QR regime to a tariffs based one, there has been a flood of edible oil imports - a 300% increase in the last nine months and a significant quantity of it being soyabean.

Globally there has been a phenomenal increase in soyabean cultivation to a record 150 million tonnes (partly encouraged by huge subsidies to U.S farmers who grow more soya than anybody else). Both in Brazil and Argentina there has been an explosion of area under transgenic soya. About 70% of the 1998-99 soya crop is said to genetically modified. And with resistance to genetically modified food in Europe, a lot of the production is being pushed into developing countries including India.

The huge increase in soya oil imports has depressed prices. Soyabean prices are quoted around Rs 8,500 a tonne compared to Rs 9,800 last year around the same time.

Soya oil prices have dropped about 30% to Rs 25,000 a tonne. Imports are reportedly coming in at Rs 20,000 a tonne which is below the domestic average cost of production of Rs 22,000 a tonne. All this has already resulted in a decline in soyabean sowing. Apart from farmers, the soyabean processing industry has been badly affected with capacity utilisation at record lows. The demand from the soyabean processors to raise the import duty from 10% to 25% (India can under its WTO obligations impose upto 300% duty on edible oils) has fallen on deaf ears. This is resulting in the slow death of both soyabean farmers and soyabean processors in the country.

The soyabean problem is only a microcosm of the large scale damage the lifting of QRs and the weak-kneed approach of the government towards powerful multinational agri-business cartels is wrecking on the Indian economy. The time has come for farmers, NGOs and industry to join hands to resist the destruction of Indian agriculture. (SUNS4500)

(* Binu Thomas is coordinator, Policy & Advocacy, ActionAid India, part of ActionAid, the British charity and international NGO. The views expressed are not necessarily that of his organisation). The above article first appeared in the SUNS.