Several decades ago, the Agricultural Costs and Prices Commission (ACCP) in its Kharif Crop Pricing Policy Report gave us an insight into how it determines cotton prices for farmers. . If I remember correctly, the report mentioned very clearly that prices for cotton producers were kept at a low level of 20% in order to ensure the viability of the textile industry. In other words, cotton producers were subsidizing the textile industry, a fact that has never been recognized.
Subsequently, when the issue of cotton subsidies heated up before the World Trade Organization (WTO), it became known how blatantly the United States subsidized its cotton producers (and also the industry textile). In a joint letter published in the New York Times in 2003, the leaders of four African countries – Benin, Burkina Faso, Chad and Mali – wrote: “Your subsidies are killing our farmers” triggering an international outcry. Studies have shown that the United States spent $14.8 billion in just four years – between 1998 and 2002 – to subsidize the cultivation of cotton for its 25,000 cotton growers (who existed at the time), who was then valued at $21.6 billion. In addition, it provided a $1.7 billion subsidy each year to the textile industry to purchase the subsidized cotton from farmers.
That was in 2003. But despite the massive uproar, so much so that a few WTO ministerial conferences ended without making progress, US cotton subsidies only increased. According to the Indian Institute of Foreign Trade (IIFT), the United States now provides a massive subsidy of $1,17,494 to each of its 8,100 cotton farmers, compared to $27 in India.
These subsidies distort world markets, and any further reduction in import tariffs, as many Indian economists are calling for, only leads to a flood of heavily subsidized imports, causing small farmers to leave. It is important to understand this given the renewed pressure on India (by its own breed of senior economists) to join the Regional Comprehensive Economic Partnership (RCEP) treaty.
Despite being one of the founding members of the very idea, India had chosen to stay out of the RCEP treaty when it was signed on November 15, 2020. Nevertheless, given the degree of disappointment with several agreements Free Trade Agreements (FTAs) that India had signed which did not result in any economic gain, I think India has done a wonderful job of staying out of RCEP.
When great economists argue for comparative advantage and refuse to look beyond it, they fail to realize that the advantage they often cite is backed by huge subsidies that in many cases drive literally dumping, as well as government policies aimed at building an economy of scale and thereby keeping transaction costs low. The theoretical assumptions with which they lock horns lack any statistical methodology to assess or measure the implications that cheaper imports have on the livelihood security of millions of people.
Remember that a few years ago dairy farmers in Punjab protested against the importation of cheaper milk from Denmark, which came with subsidies that made the landed price cheaper than the cost of producing the milk. ‘India. The comparative price advantage was based on the high subsidies enjoyed by Danish farmers as well as processing units. Had the imports continued, imagine the social, economic and political fallout in a progressive state, which is already seeing young students migrating to Canada and Australia for lack of adequate job opportunities back home.
When I look at the trade policy debate India needs, it is disheartening to see that most economists only talk about how to make supply chains more competitive, which means the need for investment in more infrastructure, developing skills, encouraging more subsidies linked to production, and the ease of doing business, in addition of course to reducing import tariffs. Some even go so far as to call for the reduction to zero of import duties on 90% of our tariff lines.
Like it or not, that’s what the industry needs, so it’s no surprise to see leading economists championing them. Just to illustrate, at a time when the trickle down has failed, with even US President Joe Biden publicly acknowledging its failure, economists continue to promote the same thinking that led to widening wealth inequality.
Growing entrepreneurial culture could be India’s key to success, we are often told. But why is it that when we talk about unleashing the entrepreneurial appetite of a young India, we only talk about ease of doing business as the way forward and forget that village youths are also looking for opportunities for entrepreneurs budding. They too are ready to innovate, improve their skills and revolutionize agriculture both in terms of scale and efficiency. But if you look at the trade policy debate, the low prices that cotton growers get to keep the textile industry viable was never part of the discussion. What kind of entrepreneurial skills do we develop when we deliberately keep agricultural prices low?
The biggest hurdle to feed the entrepreneurial appetite of rural India is depriving farmers of their legitimate income and forcing them to go to gheraos and block highways and railheads to demand release of payment which is due to them.
The competitive advantage that economists think of global supply chains is actually based on the exploitation of farmers. Not realizing that farmers also have dreams; and as incomes rise, given their inherent risk-taking attitude, they have the ability to turn the tide. But if after growing a crop like sugar cane, which takes a year to mature, many of them are forced to protest for several months or so for another year to get their due released from the mills, that certainly kills the aspiration they have to take wings.
I agree that the ease of doing business has not only helped to create a favorable environment for the industry, but has also removed the unnecessary snags and bottlenecks that have occurred. No less than 7,000 steps – big and small – have been taken to make it easier for businesses to operate. To begin with, I wonder why India can’t, instead of waiting for the World Bank’s proposal, formulate its own ease of doing farming index and start implementing it in earnest. This would involve putting in place an elaborate and effective system that addresses the problems farmers face at every stage. It would also mean that farmers would not have to attend street protests from time to time.
Let’s not limit trade policy to the benefits it brings to business and industry. The trade policy India needs to resurrect should go beyond the usual rhetoric and see how the benefits trickle down to the last man on the street. It needs a fresh vision and a thought favorable to people and the environment.
(The author is a noted food
political analyst and expert
on issues related to the agricultural sector. He writes about food,
agriculture and hunger)