You are on page 1of 25


Indian is no exception to these general trends, with a few special features. During last two decades Indias agricultural exports as a part of total merchandise exports have continued to decline from the preponderant position they occupied in the pre-independence. But with the achievement of selfsufficiency in food grains and some other major agricultural commodities, which used to account for large portion of import bill, overall imports of agricultural commodities have sharply declined. The outlay on agricultural imports as a proportion of earnings from agricultural exports has progressively declined, and all the balance has become progressively more favorable. Discussion on these issues has, naturally, to take into account the new trade regime as the stated objective of firstly to study the performance of Indias agricultural exports under WTO regime. secondly, to analyze the competitiveness of top agri-exports of India under WTO regime. Finally, to suggest policy measures in the identified Indias agricultural. In the first part of discuss briefly introduce, the developments in agricultural trade specially the agricultural exports at the world level in the recent years and discuss the performance of Indian agriculture in this respect finally shaped the shifts in this policy. Final part, I will try to spell out the ingredients of a strategy to augment agricultural exports in the changing, and more demanding, global economy. Recent empirical studies have estimated the trade flow effect of membership in the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT). One important, although largely untested, conclusion from this literature is that the GATT/WTO has worked well if we ignore trade in agriculture one of the institutions seemingly apparent failures. This article investigates this conclusion using a large panel of agricultural and non agricultural trade flows, the latter of which serves as our benchmark. The results are impressive: the multilateral institution has delivered significant positive effects on members agricultural trade relative to trade between non members. Further, despite their special and differential treatment, membership has provided important trade flow benefits for developing and least developed country agricultural exports. These findings are robust across a large number of specifications and slices of the data. Although there are few sectors as politically sensitive, participation in the GATT/WTO appears to be a significant determinant of agricultural trade flows.


Indian is no exception to these general trends, with a few special features. During last two decades Indias agricultural exports as a part of total merchandise exports have continued to decline from the preponderant position they occupied in the pre-independence. Their share in the merchandise exports of the country in recent years (1991-97) ranges between 15 to 18 per cent. But with the achievement of self-sufficiency in food grains and some other major agricultural commodities, which used to account for large portion of import bill, overall imports of agricultural commodities have sharply declined. The outlay on agricultural imports as a proportion of earnings from agricultural exports has progressively declined, and all the balance has become progressively more favorable. A stylized version of the changes in agricultural trade pattern during the course of economic development will suggest that with the growth of an economy development will suggest that with the growth of an economy not only the share of agriculture in GDP declines, share of agricultural exports to the total merchandise exports also decline. As the economy gets diversified the non-agricultural commodities acquire greater importance in the product mix, and also in exports.

Part of the explanation for the relative also lies in the rising share of processed agricultural products. On the imports side, with larger share of purchased inputs such as fertilizers, pesticides, farm machinery etc. rises, However, as the import intensify of agricultural production is low imports. Most of the developing countries maintain a favourable trade balance in agriculture. Contribution of agricultural exports to foreign exchange earnings is critical for a country such as India which faces a chronic balance of payment problem. With the growth in economy, especially with the growth of more import intensive sectors such as industry the need opportunities mean bigger markets and higher value for their output. However, while thinking about exports of agricultural commodities in a poor country like India the implication of export growth on domestic cannot be overlooked. Discussion on these issues has, naturally, to take into account the new trade regime as the stated objective of to study the performance of Indias agricultural exports under WTO regime. In the first part of my presentation I will briefly introduce I will look into the developments in agricultural trade specially the agricultural exports at the world level in the recent years and discuss the performance of Indian agriculture in this respect. In the next part I will review years and account for the important factors which have shaped the shifts in this policy. Final part, I will try to spell out the ingredients of a strategy to augment agricultural exports in the changing, and more demanding, global economy.

1. To study the performance of Indias agricultural exports under WTO regime. 2. To analyze the competitiveness of top agri-exports of India under WTO regime. 3. To suggest policy measures in the identified Indias agricultural.


The present study is based on secondary data. The annual time series data are used for the entire period from 1991 to 2006. The objective is to compare export performance under WTO regime with pre- WTO period. Sub- periods are also made for short- term comparison. Wherever it is necessary, longer period time series data are used. Data are obtained from FAO, UNCTAD, IMF, WTO, RBI, Ministry of Agriculture GOI, Ministry of Finance GOI and Tea Board of India. To examine the agriculture export performance, tools like, percentage, ratio, Compound Annual Growth Rate, Average Growth Rate, Co-efficient Variance, etc.

Globalization manifesting in progressive integration of economies and societies has assumed increasing significance in the lives of common people all over the world. The technical ability to ease flow of goods, services, and information across the international borders, has reached immense proportions in the last few decades. In the field of the trade the World Trade Organization (WTO) is the principal international institution responsible for laying down rules for the smooth conduct of trade in goods and services among nations in this globalized world. This is achieved by developing a set of rules of multilateral trading system which aims to remove, inter alia, trade barriers (tariff and non tariff) as well as reduce and eventually remove domestic support and system of export subsidies that distort international trade between nations. These problems of trade distortion are most conspicuous in agriculture sector. Agriculture is of special significance for developing countries particularly the extreme poor (i.e. those living on one dollar or less per day). It has been estimated that three quarters of them about 900 million people live and work in rural areas, most of them as small farmers . As a matter of fact the relative importance of agriculture in the economic and social life of these countries is much more than that in the developed countries. Table 1 shows that where as agriculture contributes 3% to the GDP and employs only 4% of the population in developed countries the corresponding figures for developing countries are 26% and 70% respectively.

Table 1: Key differences between agriculture systems in developed and developing countries Parameters Developed Countries Commercial/Export Oriented 3% 8.3% 4% Developing Countries (including least developed) Subsistence 26% 27% 27%

Nature of Agriculture System Share of GDP Contribution to foreign exchange Population engaged in agriculture Source:

Green, D and Priyadarshi, S. (2001) Proposal for development Box in the WTO Agreement on Agriculture, CAFOD and South Centre, Kaukab, R; (2002) Presentation at Agriculture and WTO Seminar, Ministry of Commerce, Government of Pakistan, Islamabad, August, 2002, Action Aid Food Rights The WTO Agreement on Agriculture, 2003.

The agriculture was included in the multilateral trading system after the eighth (Uruguay) round of talks under GATT on demand of developing countries who had a comparative advantage in this sector and its benefits were being denied to them. This trade round stretched from 1986-1994 and concluded in establishment of WTO and inclusion among others of agriculture in the discipline of WTO. This was achieved by developing countries only after paying a heavy price in the form concessions on many fronts especially intellectual property rights and services. WTO policies impact agriculture principally through the following agreements: Agreement on Agriculture (AOA) Agreement on Application of Sanitary and Phytosanitary Standards (SPS): (Dealing with Health and disease related issues) Agreement on Technical Barriers to Trade (TBT): (Dealing with Regulations, standards, testing and certification procedures, packaging, marking and labeling requirements, etc) Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs): (Dealing with Patents and copyrights, plant breeders rights etc).

The preamble of the Agreement on Agriculture (AOA) recalls that the long term objective of the agreement is to establish a fair and market oriented agricultural trading system1. The way Agreement on Agriculture (AOA has been implemented so far evoked understandably harsh criticisms from developing countries and civil society organizations in the developed world. At best, Agreement on Agriculture (AOA) has turned to be a modest attempt to lay down some institutional framework and general principles that can be further developed to move towards a fair and market oriented trading system in agriculture. At worst, it has been perceived as legalization of trade distorting practices, being carried out by developed countries by virtue of which market access to foreign agricultural products is denied and domestic support to local agricultural products is continued to be provided.

The three pillars of Agreement on Agriculture are domestic support, market access and export competition. Domestic support falls mainly under three domestic subsidy boxes named after traffic lights as Green, Blue and Amber. Green Box subsidies are deemed to cause no or minimal trade distortion and hence not subject to reduction under WTO commitments. These include government spending for research, pest and disease control, training services, extension and advisory services, marketing and promotion services, infrastructure provisions, environment programme, relief from natural disasters, decoupled income support etc. Blue box subsidies are linked to acreage or animal numbers but under schemes that also limit production by imposing production quotas or requiring farmers to set aside part of their land. Amber box subsidies are considered to be trade distorting such as market price support and are expressed in terms of Total Aggregate Measure of Support (AMS) which is given as one figure. Only Amber Box subsidies are subject to WTO reduction commitments according to an agreed formula. Domestic support can be provided under deminimus provision as well. Developed countries can give subsidies up to the value of 5% and developing countries up to 10% of the value of its agricultural production for non product specific purposes.

Market access provisions under WTO are based on the principles of tariffs only. Non tariff restrictions like quotas have been replaced by tariffs but the bound levels of tariffs for agricultural products originating in developing countries are excessively high in developed countries. In Japan, for instance, tariff on rice is up to 1000%2 making it very difficult for agricultural products from developing countries to enter and compete in developed country markets. Moreover developed countries have been discouraging value addition at each step in the processing ladder by tariff escalation.

Table: 2 Reduction Commitments under Agreement on Agriculture (AOA) Developed Countries Implementation Period Tariffs 6 years i.e. 1995-2000 -36% Developing Countries 10 years i.e. 1995-2004 -24% -13%

Domestic Support (total AMS -20% support for base year 198688) Export Subsidies(based period -36% 1986-90)


Trading into future- WTO- The World Trade Organization, March 2001, P 17

Export subsidies were only allowed to the countries which were granting these at the time of coming in force of Agreement on Agriculture. Table 2 provides details of reduction commitments under various heads of market access, domestic support and export subsidies.

The problems with developing countries is that they dont have fiscal space to even take advantage of the permissible provisions for domestic support available in the form of green box and deminimus measures. Under agreements with IMF and World Bank, or under domestic political pressure (e.g. for food security reasons) they usually have decreased their tariffs much below the bound levels. The developed countries, on the other hand, have maneuvered domestic subsidy boxes and shifted most of the support to green and blue boxes leaving very little for amber box subject to reduction commitments. Studies by South Centre and Action Aid quoting statistics from OECD, FAO and UNDP have shown that the total value of domestic support provided by OECD countries in the last decade has in fact been increasing instead of falling which is exactly opposite of the desired goal. Table 3 provides a comparison of their level of domestic support before and after Uruguay Round.

Table 3: Level of Support in agriculture amongst OECD Countries ($Billions) Countries OECD US EU 1986-1988(annual average) 302 69 110 1998 339 91 125 1999-2001(annual average) 330 95 113

Source: OECD, 2001 and 2002 Agricultural Policies in OECD Countries: Monitoring and Evaluation, OECD, Paris and Action Aid, Food Rights, WTO and Agreement on Agriculture, 2003

Import barriers (market access restrictions) and domestic subsidies have increased the prices of agricultural products in internal markets of developed countries leading to over production of agricultural products. By providing export subsidies and export credits developed countries have been able to effectively dump their excess production in international markets causing a fall in prices of agricultural products. Resultantly developing countries exports suffer from low profits due to fall in international prices and in worst scenarios their domestic markets have been lost due to inflow of artificially cheap imports from developed countries. Needless to emphasize that these practices accentuate poverty through loss of jobs and diminution of GDP. Dumping of dairy products and sugar by European Union in African markets is often sited as an example in this regard. Pakistan committed to bind more than 90% of its agricultural tariff lines with most of these bound at 100%.For cereals, coffee and tea the bound rate varies from 100-150%. Applied tariff rates for agricultural items have been much lower than the bound rates.

Table: 4 WTO tariff bindings and applied rates for selected major products (percentage ad valorem)


Bound Rate

Cereals 100-150 Oil seeds 100 Vegetable oils 100 Live animals 100 Meat 100 Dairy Products 100 Sugar 100 Coffee and tea 100-150 Simple average 100.50 Source: Schedule of WTO commitments by Pakistan and Sarfraz K. Qureshi

Applied Rates 1995 1997 0-6 0-25 10-70 0-65 25-70 25-65 15-65 15-65 35-70 15-65 25-70 25-65 35-70 45-65 15-70 0-65

1999 0-15 0-35 10-35 10-35 10-35 10-35 25-35 25-35

Total AMS (Aggregate Measure of Support) in case of Pakistan has been negative and hence without any consequence for reduction commitments. Pakistan had reported that it did not provide export subsidies in 1995 as it did not have exportable surplus at that time. AOA conditionalities now prohibit provision of any new export subsidies. Pakistan, like many other developing countries has been transferring resources from agriculture to bolster its industry since fifties. Prices of food items have been kept artificially low to cater to the needs of low paid urban labour and middle class. 8

Developing countries have to face tough resistance to gain access to the markets of developed countries on the basis of food safety, human, animal and plant health and safety standards. These quality standards and disease/pest control measures are based on internationally recognized scientific measures and standards. These are aimed at better quality living for the living beings. WTO Agreement on Sanitary and Phytosanitary Measures (SPS), while recognizing the desirability of maintaining quality standards clearly mentions that these should not be used as trade barriers. Developing countries, however, fear that when pressure on developed countries will force them to decrease their market access tariff barriers, they will resort to more and more use of quality standards as non tariff barriers. In any event developing countries should make serious efforts to comply with these standards. These include Food quality standards as prepared by FAO/WHO Codex Alimentarius Commission, Animal health standards by International Office of Epizootics and Plant health standards by the FAOs Secretariat of the International Plant Protection Convention. This requires creation of awareness amongst the farmers, exporters, middle men and government departments.

The use of fertilizers, pesticides and other chemicals at various stages of crops is highly unscientific in Pakistan and leads to increase of chemical levels beyond internationally permissive levels. Disease and pest control should be on modern lines to produce quality products. Chains of Laboratories which are internationally accredited and well equipped to deal with the requirements of local exportable produce are required to be established. Overall research and development environment in agriculture sector needs to be enhanced to cater to this challenge.

Another problem for developing countriess agriculture arises out of TRIPS agreement that has made it mandatory for all member countries to accord protective intellectual property rights, which are internationally acceptable, among others to the inventors of new seeds and plant varieties. For centuries farmers had been saving, exchanging, using and selling farm saved seed. Multinational seed companies have now started claiming patent rights over the seed produced through their research by introducing some new gene sequence. Developing countries fear that this will threaten their centuries old farm practices and make their agriculture dependent on these companies. TRIPS states that all countries should protect their plant varieties by patents or through a sui generis system. Developing countries should therefore develop their own sui generis system balancing the rights of plant breeders and local farming communities. The international Union for the Protection of New Varieties of Plants (UPOV) was developed as a sui generis system in Europe and is widely viewed as tilted in favor of plant breeders. There is a need to balance the provisions of TRIPS with that of Convention of Biological Diversity wherein the sovereign rights of nations over their genetic resources is recognized. Multinational companies are criticized for utilizing the biological resources of the developing countries without informed consent of their governments and communities. These companies are able to gain patents on their valuable resources by extracting the basic contents, introducing some change in the gene 9

structure and getting patent rights. The original communities who have been using such products may not get any information or share in the profits that subsequently accrue to the companies. Pakistan needs to provide patent protection to its valuable export brands like Basmati Rice, varieties of mangoes, oranges etc. Traditional herbal and pharmaceutical knowledge needs to be documented and their link with community practices and ways of life established. Plant breeders rights legislation requires to be introduced which should be based on our own sui generis system. WTO has been criticized for paying lip service to the concerns of developing countries in the field of agriculture while pursuing an agenda of developed countries. Under Article 20 of Agreement on Agriculture the review process to ascertain the progress made towards establishing a fair and market oriented trading system in agriculture started in the year 2000. In pursuance of this built in agenda many proposals have been submitted on the three pillars of market access, domestic support and export competition as well as to make more meaningful and enforceable the special and differential treatment provisions. Under pressure of an increasingly assertive civil society, antiglobalization movement that emerged at the time of Seattle Ministerial Conference, developed countries agreed to make more meaningful concessions to developing countries at Doha in 2001. According to Doha declaration a road map was provided for agriculture negotiations. The deadline for agreeing on modalities was March, 2003 which has passed without any agreement. WTO Ministerial Conference held at Cancun from September 10-14, 2003 has reportedly ended in failure. The issue of contention had been the insistence of developed countries on further negotiations on Singapore issues. Singapore issues also called The New Issues consist of cross border investment, competition policies, trade facilitation and government procurement. The developing countries led by India, Brazil and Malaysia had made it clear before the Ministerial Conference that negotiations on The New Issues should not proceed unless there is substantial progress on the ongoing Doha Development Agenda especially vis--vis removal of trade distortions in agriculture sector by developed countries. will be in the interest of Pakistan to voice the concerns of developing countries especially on TRIPS, SPS and special and differential treatment for developing countries. We should, however, work in close coordination with the members of Cairns group of countries, which consists of powerful agricultural exporters like Australia and New Zealand, and try to improve market access to the markets of EU, Japan and USA. Our agricultural products are already working in nearly free and market oriented system unlike more protective developing countries like India and Brazil due to low values of applied tariff. Now is the time that we should struggle to reap benefits of our comparative advantage by removal of distortions in international agricultural trade instead of indulging in just anti rich rhetoric. We need to improve our production, storage, packaging, labeling, testing, processing and marketing facilities on scientific lines to pursue an export led growth strategy with adequate safeguards to ensure that the benefits reach teeming millions of our poor who are dependent on agriculture for their livelihood.


Brief review of literature

Nayyar and Sen (1994), it is argued, would be a more rational allocation of production resources. The alignment of internal domestic prices with border prices is likely to help in obtaining a more rational and sustainable cropping pattern and would result in the expansion in acreage under those crops which have a comparative advantage and contraction of acreage under crops like oilseeds and to some extent sugarcane which are high cost. It is obvious that Rao and Gulati have taken this position in order to strengthen their case for export of food-grains. They emphasize that the emerging scenario in respect of food balance opens up the prospects for, and indeed necessitates the export of foodgrains, specially in view of the comparative advantage that the country enjoys in respect of the production of rice and wheat (Rao and Gulati, 1994, p.4). Out estimate of the multivariate model that uses Nerloian partial adjustment frame work shows that for 1967-68 to 1990-91/1994-95 this aggregate net impact is negative for the output as well as marketed surplus of food-grains which occupy two-thirds of the cropped area, while for non- foodgrains, all crops and all agricultural products output as also marketed surplus it is positive (Desai and Nambodiri,2001a).

The extent environment

The economic environment for agricultural trade is changing in a remarkable way due to changes in the domestic policies as well as in International Trade arrangements. A number of scholars and practitioners have commented on the move towards the policies on liberalization and globalization and their implications for agriculture in our country. I will briefly touch upon the developments at the international plane and their implications for the agricultural trade. The international developments relevant to one, several groupings of the countries are emerging with the objective to forming unified trade blocks, starting from EEC and ASEAN to more recent attempts at forming NAFTA (North American Free Trade Agreement) and SAFTA (South Asian Association of Regional Cooperation). Second, and probably more important, development is the signing of various agreements as a result of the of the Uruguay round of trade negotiations. I shall comment on the latter now more or less universal coverage in terms of the countries agreeing to its covenants. Also, because various trade blocks would, hopefully, converge on a global trading system initiated by the Uruguay round. The significance of the Uruguay round agreements could be well appreciated one it is recognized that for the first time agriculture is brought under the General Agreement on Trade and Tariff (GATT) discipline. Until the present round of trade negotiations, the contracting patties to GATT had reconciled to a waiver on agricultural trade obtained by USA which, in fact, pleaded for 11

complete removal of all interventions in agriculture. The proposal to bring agriculture tinder GATT discipline evoked a responsive chord in several countries which were concerned with the rising burden of subsidies in their budgets.

After lengthy and tortuous negotiations under the Uruguay round, agreements have been reached on several important areas. These include: 1. 2. 3. 4. 5. Reduction in the farm subsidies; Enhanced market access; Limits on public stock holdings of grains for food security; Sparing use of sanitary and phyto sanitary import barriers; and Introduction of intellectual property rights.

The Uruguay Round Agreements are a milestone in the development of the international trade in agricultural commodities. The very fact that agriculture has been brought under international discipline is of great significance. However, exact outcome of various provisions of the agreements on the developing countries is difficult to forsee; partly, because of great complexities of provisions and instrumentalities in the agreements which could subject it to a variety of interpretations. The steps which are necessary not only for the short-term relief but also for equipping the developing countries, including ours, to take long-term advantage of a liberal international trade regime in agricultural commodities should, in my view, include the following: Macro economic reforms which discourage high tariffs and overvalued exchange rates are beneficial to agricultural trades and need to be continued. Adjustment of agriculture to a more liberal and global economy should be attempted carefully. A firm beginning could be made by domestic economic reforms, especially by encouraging liberalization, deregulation and debureaucratization within the country. Implicit taxation of agriculture through price discrimination should be avoided. International prices could be used referral for this purpose, although no sanctity need to be attached to the border prices. Nothing should be done to impair food security and poverty alleviation efforts in the process of economic reforms. Adjustment in the food sector should be gradual and non-doctrinaire.

Agricultural trade policy India like several other long countries is not an export-oriented economy. This is particularly true of agriculture. In recent years the ratio of agricultural exports to agriculture GDP has seldom exceeded 3 per cent. This is itself is not a disqualification. Nor, if the example of the African countries 12

is an indication, a high export to GDP ratio is a blessing in itself. The importance of exports as an economic activity has to be judged by the objectives it serves. Indias foreign trade regime till the reforms initiated in 1991 was primarily dictated by two important considerations, a quest for import substituting industrialization and concern for dwindling foreign exchange resources. The major instruments used to implement these policy goals comprised of quantitative restrictions, heightened tariffs, surcharge on imports, rebate on exports and phases in which these provisions were relaxed yet. The basic characteristics of an inward looking import substituting policy frame remained more or less intact. The instrumentality of element of the developmental thinking. i.e., an implicit distrust of private sector and an implicit faith in bureaucracy to achieve the stated goals of development. All these ingredients of overall trade policy applied to agricultural trade, especially till 196667, i.e., the second year of serious draughts of the mid-sixties. Till then the agricultural trade was also subjected to a regime of quantitative controls and other state interventions to conserve foreign exchange. However, while in industry the policy of import substitution was designed to pursue twin objectives of food self- sufficiency and promotion of exports of the so called commercial crops. In regard to the regulation and control, agricultural trade was no exception. The role of State Trading Corporation (STC) and the cooperative Federations was emphasized as canalizing agencies for agricultural exports. The public sector agencies were given equally important role in the imports of inputs, particularly fertilizers and chemicals. In the second phase, starting from the mid-sixties this policy was pursued more rigorously, and Food self sufficiency became the corner stone of the development strategies in agriculture. Normally, an import substitution policy leads to high unit cost of production. However, mainly because of the availability of a high yielding technology in cereals, not only the task of food self-sufficiency was accomplished, the country fill-in the gap between the demand and supply of food grains without raising the real cost of production, a fact which is generally not appreciated. In fact, along with higher yields the unit cost of production of superior cereals came down and benefits of growth in productivity could be shared by the producers (in terms of higher income) and consumers (in terms of stable prices) in an equitable manner (Vyas, 1990).

Continuation of the strategy of food self-sufficiency is challenged mainly on three grounds. Firstly, it is suggested that with the new economic regime brought in by the Uruguay round of agreements, the developed countries will also have to withdraw subsidies for agricultural products and, therefore, there will be a level playing field, and existing distortions in agricultural trade will be removed. Secondly, it is now generally accepted that food security means entitlement of food and, therefore, if the country can earn foreign exchange, import comparatively cheaper food grains and distribute it equitably, the country as a whole as well as the poor will benefit more. Thirdly, it is suggested that unlike in the 1950s and the 1960s when the food grains surplus was mainly concentrated in USA and few other developed countries there is much more widespread distribution of tradable quantities of food grains. There is hardly any country which is in a monopolistic position. The agricultural commodities can be broadly divided into two categories, the food crops and the non-food crops. The distinction between two is not firm but under stable. There is an established policy of encouraging exports in commercial crops, and it has to continue.

There are, however, several reasons why the policy of food self- sufficiency which largely for over 40 per cent of expenditure of the bottom ones-third of Indias population. Any fluctuations in food grains prices will result in undue hardship for this section of population. Price elasticity with respect to prices of cereals was estimated at 0.493 for the very poor and - 0.409 for the poor in rural areas. Corresponding figures for urban areas for urban areas of the now well 13

established that the international prices are far more volatile than the domestic prices. Therefore, an opening up of the economy for food grains imports to any sizable extent will tantamount to importing price instability, the main victims of that would be the poor in the rural and the urban areas. It is not only as the consumers; also as producers the poor have a stake in maximizing food grains production. Bulks of the poor are in the rural areas. Their livelihood depends on the growth of agriculture. On the supply side, it has to be recognized that the food grain surpluses in food exporting surplus countries are not adequate to meet the demands of the measurable extent. Indias food requirements by year 2000 are expected to be of the order of 210 (209.4) million metric tons. In this, the wheat requirement is estimated at 71 million tones and rice requirement is estimated at 88 million tones. Other major consideration is the availability of foreign exchange to meet food grains imports. Exportable surplus of food grains, particularly wheat is still concentrated in five developed countries, USA, France, Canada, Australia and Germany, who accounted for nearly 73 per cent of total exports of wheat in triennium ending 1995. However, food self-sufficiency is not a matter of faith. We can view the policy when the following conditions are met; When expenditure on food becomes a minor part of the consumers budget, especially the budget of the poor. When food production does not remain the main source of livelihood for the small and marginal farmers. When non-food exports become sufficiently buoyant to generate enough foreign exchange surplus. When country has enough buffer stocks to ward off any significant price fluctuations imported from external source When there are numerous and assured sources of supply to cope with any sizeable short fall in domestic food grains production.


iii. Market Access Where tariff bindings are too high, current market access has to be maintained as the amount of exports to other countries at preferential tariff rates. However, market access provisions do not apply when the commodity in questions is a traditional staple in the diet of a developing country.

Indian Agriculture and WTO

iv Domestic Support

World Trade Organization was established on January 1,1995. It replaced GATT. WTO is much wider in scope and coverage.

i. Agreement of Agriculture (AOA)

AOA of WTO recognizes free and market-oriented following main features. trading system in agriculture. It has the

ii. Tariffication
It means conversion of all non-tariff barriers on trade such as import quota into tariffs. Tariffs bindings are to be reduced under this agreement. Devloped countries were to reduce their tariff bindings over a period of six years (1995-2000). Developing countries are to reduce their bindings over a period of ten years (1995-2004). Least developed countries are exempted from tariff reduction.

Table 1. Growth Rates of Area, Production and Yield 1967-68 to 1980-81 Area Production Yield Area Rice 0.76 2.22 1.46 0.55 Wheat 2.94 5.64 2.61 0.33 Cotton 0.08 2.62 2.54 -0.63 Oilseeds 0.24 1.04 0.79 1.07 Coarse cereals -1.03 0.62 1.67 -1.68 Pulses 0.45 -0.39 -0.83 0.08 Source: Calculated from FAO, Trade Year Book Various Issues Crop 1980-81 to 1991-92 Production Yield 3.69 3.13 3.59 3.25 3.24 3.89 4.71 3.60 0.06 1.77 1.42 1.34


Table 2. India percentage share in world exports in value

Commodities 1991-95 1996-05 Milled paddy rice 12.66 17.15 Cake of Soyabeans 7.64 6.53 Tea 18.71 14.65 Cashewnuts shelled 60.35 49.18 Coffee, green 2.54 2.67 Buffalo meat 99.58 93.61 Tobacco leaves 2.28 3.04 Oil of castor beans 69.47 79.94 Cotton lint 1.89 2.49 Wheat 0.25 1.18 Sugar refined 1.13 1.91 Pepper, white/long/black 14.06 13.03 Sesame seed 14.40 23.88 Onion dry 8.16 8.91 Coffee extracts 2.82 3.68 Source: Calculated from FAO, Trade Year Book Various Issues

Table 3. India Percentage Share of Exports in Production (in Quantity)

Commodities 1991-95 1996-05 Rice milled 1.65 3.78 Tea 22.35 20.53 Coffee, green 51.29 54.88 Tobacco leaves 13.10 23.56 Cotton lint 3.88 7.24 Wheat 0.46 3.85 Sugar 0.85 4.03 Pepper, 49.31 32.83 Sesame seed 7.91 27.28 Onion dry 8.39 13.37 Source: Calculated from FAO, Trade Year Book Various Issues

Table 4. CAGR and CV of World and Indias Agricultural Exports Year CAGR CV World India World India 1976-85 4.88 4.10 17.08 15.52 1986-94 5.93 4.99 15.85 14.86 1995-04 2.00 1.80 12.90 12.79 Source: Calculated from FAO, Trade Year Book Various Issues

WTO member countries are subject to following obligations on domestic support to their agriculture. However, there are many issues under the AOA which are considered against the interests of developing countries like India. Firstly, the minimum access for import of primary goods flouts the basic rule of promoting free trade under WTO agreement. Secondly, distortions emerge from inequity in domestic subsidy discipline due to different base positions. The developed countries are heavily subsidized countries and are allowed to retain up to 80 per cent of their subsidies but developing countries can subsidize their farmers not more than 10 per cent of the total value of agricultural production. Hence, the domestic support by developed countries needs to be reduced 16

substantially in absolute terms. Thirdly, India has argues that for low income countries, market access and domestic support discipline should be such that their food requirements are met from domestic sources. The volatile international market can get transmitted to the domestic economy and can affect the prices of food grains and food entitlement of the poor. Include the mayor agricultural staple foods, cereals, meat, sugar, milk, butter, cheese as well as tobacco products and cotton. The Indian proposals have, by and been well received and endorsed by most of the developing countries as well as some of the developed countries. However, it is important that steps are taken to reap benefits of a liberalized trade regime through increased efficiency arising from sanitary and phyto- sanitary measured. Efficiency would be greatly enhanced with increased investment and land reforms. Also, diversification of agricultural production into agro-foods, horticulture and floriculture products and farm products with international quality standards could help to increase exports from this sector. i) Green Box Support: It is given on items which have minimal impact on trade, e.g., pest and disease Control, market intelligence, it is an exempted support. ii) Blue box support: It is product-limiting subsidy and pertains mainly to the developed countries. It is exempted from reduction commitment under WTO. iii) Special and differential treatment box support: It includes investment subsidy to agricultural sector for farm development work like land leveling, shallow wells etc.


WTO member countries are obliged to reduction commitments of their direct export subsidies. Developed countries are to reduce the volume of subsidized agricultural exports by 21 per cent and the value of subsidies by 36 precent of the average base period 1986-88 within six years. Developing countries are to reduce the same by 14 per cent and 24 per cent respectively within ten years. The table shows the growth area, production and yield for two periods, 1967-68 to 1980-81 which may be called the first green revolution decade and 1980-81 to 1991-92, i.e., the eighties. In the case of oilseeds, there was a marked increase in the growth rates of area, production and yield during the eighties as compared to the preceding period. It was mentioned above that this crop group was favoured by the market but an even more powerful influence on the performance of oilseeds since the mid- eighties has been the Technology Mission and the market intervention operations by the pubic agencies. A heartening feature of the growth in oilseeds production has been that it occurred in the agriculturally backward areas of states. In comparison with oilseeds, the performance of pulses, which received little policy attention, has been quite modest though, possibly in response to the market signals, some improvement in pulses did take place in the eighties while their production and yield had actually decreased during the preceding period in the wake of the surge in the production of wheat. In the case of cotton, its area decreased in the eighties but there was a marked rise in the growth rate of its yield and production between the green revolution decade and the eighties. Like oilseeds, cotton also benefited from policy interventions to help its production as well as marketing though, considering the decline in its area 17

during the eighties, the interaction between the policy support and the favourable market has apparently been much more effective in certain selected areas and not uniformly in all cotton growing regions. As regards tariffication, there is a misconception that India is reducing import duties on agricultural products under WTO compulsions. As a matter of fact, the actual import duties on a variety of agricultural products are lower than the tariffs under WTO. This is clear from the table. From the above analysis, we may infer that it is liberal trade policy helped the exports to increase in absolute terms during post- WTO period and importantly increased their share in world exports both in terms of quantity and value. Now question arises about economic benefit of exports. In the subsequent section, economic benefit of export in post- WTO period is mainly focused. In a countrys export share in world export, if quantity share is more than share in value, average export unit value of that country will be lower compared to average export unit value of the world. It shows, country exports are at lower price in international market. In the context of fears expressed in some quarters that liberalization of imports would lead to surge of agricultural imports affecting Indian farmers adversely, the Economic Survey, 2001-02 observed, India has considerable flexibility to counter flooding of the Indian market by cheap agriculture products which provide a fair level of protection. The government, in fact, raised the import tariff for many agriculture products such as; tea, coffee, pulses and ediable oils in the last Budget (2001-02). Countervailing duties can also be imposed to counter countries apart from having the opinion of acting under safeguard provisions to counter surge of imports. With export expansion of a country, if quantity export share increases more than share in export value in world export, it will lead to un- favorable terms trade for the exporting nation. To capture this on Indias selected agricultural commodities exports during 1991 to 2005, we have done a simple exercise in Table have calculated ratio of export share in terms of value and quantity in world export and then multiplied by 100 (share in value/ share in quantity *100). Contrary to Indias expectations from WTO AoA, the situation reversed from 1997-2002.The tempo of growth in agricultural exports of India could not be sustained after 1996. Agricultural exports of India took a downturn during 1997-2002 in absolute terms. From 2002 we find revival in Indias agricultural exports.



Before turning to the formal econometric results, we take a casual look at tariffs and trade flow differences between members and non members within each sector. While most tariff profile studies often report differences in the levels of protection between agricultural and non agricultural sectors (Gibson et al. 2001; OECD 2004), virtually no attention has been paid to differences in tariff rates between members and non members within a sector. If the GATT/WTO has worked well, then this should be reflected by more liberal trade policies of its members. While this approach fails to control for a host of other factors that may influence tariffs (as in a political economy model) or trade flows (as in the gravity equation), an initial look at the data can be quite instructive.

1. Tariff Rates
Figure 1 plots four summary indicators of members and non members tariff policies in each of the AG and NONAG sectors: (I) the average applied tariff, (II) the share of duty free applied tariffs, (III) the share of applied tariffs greater than 15 percent, and (IV) the maximum applied tariff. These plots are based on Most Favored Nation (MFN) applied rates from the WTOs World Trade Profiles database for the years 2006 and 2007. Confidence intervals for each point estimate and the difference in means t test with the usual asterisks to denote significance are also included. The results support the fact that GATT/WTO members have more liberal tariff policies (Figure 1). Compared to non members, GATT/WTO members apply lower tariff rates on average (16% (8%) versus 17.5% (12%) in AG (NONAG)); they have a higher share of duty free applied rates (22% (27%) versus 15% (15%) in AG (NONAG)); they have a lower share of applied duties greater than 15 percent (32% (17%) versus 37% (26%) in AG (NONAG)); and the average maximum tariff they apply is over 100 percentage points lower than non members (186% (84%) versus 269% (98%) in AG (NONAG). Statistically, these differences in tariff policies are significant in two out of four cases in AG (share of duty free applied tariffs and maximum tariffs) and three out of four cases in NONAG (the exception being the maximum duty rate).

2. Evidence from Trade Flows and Gravity Equation Residuals

Figure 2 plots four summary measures of trade flows along with the associated t tests for differences in means within each industry (AG and NONAG). The top left panel (I) plots the mean value of (log) bilateral trade between members (Bothin) and trade involving at least one non member (Onein, Nonein). The remaining panels in Figure 2 (II, III, and IV) plot the mean value of the gravity equation residuals conditional on GATT/WTO membership. That is, following Rose (2004a) we regress the log of trade on all right hand side variables discussed in equation (3) (including year fixed effects) but purposefully omit the GATT/WTO treatment effects. We then save the residuals. If the GATT/WTO has worked well then we might expect to see systematic differences in the residuals of members and outsiders. 19

Results presented in Figure 2 suggest that the GATT/WTO has a significant impact on members trade, particularly for agricultural goods. First, the mean value of log trade is higher between members than it is between a member and a nonmember (Onein) or between outsiders (Nonein) (panel I of Figure 2). This result is also confirmed by the gravity equation residuals (panel II), where differences in the residuals between members and non members is easily rejected in both sectors. The remaining panels (III and IV) examine subsets of the data. In panel III, DC imports from members and non members are compared, while panel IV is based on the subset of gravity equation residuals reflecting DC imports from DING country members and non members. Based on these plots, a slightly different story emerges when comparing AG and NONAG sectors. First, for AG trade, the mean residuals for DC imports from a generic member (panel III) as well as for a DING country member (panel IV) are positive, whereas the residuals are negative for DC imports of NONAG products from generic and DING country members (panels III and IV, respectively). Second, membership appears to make a big difference in terms of DING countries access to DC markets for the export of their AG products (panel IV). This is an important result given the AG export interests of DING nations. In the next section we explore the robustness of these findings using a formal model of trade flows.



t = 0.95

t = 4.66***

35% 30%

t = 1.92*


t = 3.08***

20% 25% 15%

Tariff Rate

AG Average Applied Tariff Member Non Member NONAG

20% 15% 10%


5% 5% 0% 0% AG NONAG

Share of Duty Free Applied Tariffs Member 400% 350% 300% 250% Non Member

50% 45% 40% 35% 30%

t = 1.19


t = 3.12***

t = 2.23**


t = 0.55


20% 15% 10% 5% 0% AG NONAG

Tariff Rate


200% 150% 100% 50% 0% AG Maximum Applied Rate Member Non Member NONAG

Share of Applied Duties Greater Than 15% Member Non Member

Figure 1. Differences in GATT/WTO Members and Non Members Most Favored Nation Tariff Policies


Figure 2. Differences in GATT/WTO Members and Non Members Trade Flows and Gravity Equation Residuals

8.00 7.00 6.00 5.00

Log Trade

t = 46.5***

t = 67.1***

0.15 0.10 0.05 0.00 0.05 0.10 0.15 0.20

t = 14.7***


t = 12.7***

4.00 3.00 2.00 1.00 0.00 AG I. Differences in Mean of Log Trade Bothin 0.30 Onein or Nonein NONAG

Gravity Equation Residual



II. Differences In Mean Gravity Equation Residual, With Year Fixed Effects Bothin 0.60 Onein or Nonein

t = 21.3***
Gravity Equation Residual


t = 13.2***
0.40 0.20 0.00 0.20 0.40 0.60

t = 23.2***


t = 13.1

0.00 0.10 0.20 0.30 0.40 AG NONAG

Gravity Equation Residual



III. Difference In Means of Gravity Equation Residual, With Year Fixed Effects Developed Country In, Exporter Also In Exporter Not In

IV. Difference In Means of Gravity Equation Residual, With Year Fixed Effects Developed Importer In, Developing Exporter Also In Exporter Developing Country Not


Indias competitive strength in the global agricultural market over the years is declining.

The finally, Indian agricultural products by seeking a reduction in the high tariffs and subsidies prevent in developed countries. A higher growth in agricualture, thus, needs a comprehensive revamp of agricultural policy with reorientation towards rapid diversification of this sector. A progressive correction is required in the incentive structure for agriculture so that the excessively high minimum supports prices do not continue to distort resource allocation in agriculture. After come across out results Technology Mission and the market intervention operations by the public agencies. A heartening feature of the growth in oilseeds production has been that it occurred in the agriculturally backward areas of states. This suggests that there exists some scope for raising agricultural output through improvements in technical efficiency, without resort to new improved technologies. This will ensure that farmers diversification towards high value added segments of agriculture in response to the new demand structure.



Aleandros, Nicos, 1993. Agriculture: Towards 2010, Rome: Food and Agriculture Organization of United Nations. Astha Ahuja. Agricultural and Rural development in India Post-Liberalization Intitiatives, New Century Publications, New Delhi, India, pp.78-85. Bansil, P.C 1999. Demand for Food Grains by 2020 A.D, Observe Research Foundation, New Delhi. Deepika, M.G. and R.S.Deshpande, 2003. Trade Policy and Determinants of Trade in Agriculture. Working Paper No.18, Bangalore: Institute for Social and Economic Change. Deshpande R.S. 2003a. AOA: Inertia from Uruguay to Cancum via Doha, Monthly Economic Digest, Vol. 32(8). Gulti, Ashok and Anil Sharma, 1994. Agriculture under GATT: What it holds for India, Economic and Political Weekly, Vol. 39, No, July 16, pp.1857-1863. Ruddar Dutt, Sundaram K.P.M, 1999. Indian Economy, S.Chand and Company Ltd, New Delhi. Rao,C.H.Hanumantha, 1994. Agricultural Growth, Rural Poverty and Environmental Degradation in India. Oxford & IBH Publishing Co. Pvt. Ltd. New Delhi. Rao,C.H. Hanumanth and Ashok Gulti, 1994. Indian Agriculture: Emerging Perspective and Major Policy Issues, International Food Policy Research Institute (IFPRI), Washington, D.C., U.S.A. (mimeo). Vyas, V.S. 1994. Agricultural Price Policy: Need for Reformulation, in G.S.Bhalla (Ed.) (1994), Economic Liberalization and Indian Agriculture, Institute for studies in Industrial Development, New Delhi. World Trade Organization, 1998. India Should Keep up with its Trade Reforms to Ensure Strong Economic Growth, Press Release, April. Gibson, P., J. Wainio, D. Whitley, and M. Bohman. 2001. Profiles of Tariffs in Global Agricultural Markets, Agricultural Economic Report (AER) No. 796. Economic Research Service , United States Department of Agriculture, Washington, D.C. Glick, R. and A. Rose. 2002. Does a Currency Union Affect Trade? The Time Series Evidence, European Economic Review, 46(6): 1125 1151. Grant, J.H. and D.M. Lambert. 2008. Do Regional Trade Agreements Increase Members Agricultural Trade? American Journal of Agricultural Economics, 90(3): 765 782 24

Helpman, E., M. Melitz, and Y. Rubinstein. 2008. Estimating trade Flows: Trading Partners and Trading Volumes, Quarterly Journal of Economics, 123(2): 441 487.

Herz, B., and M. Wagner. 2006. Does the World Trade Organization and the Generalized System of Preferences Foster Bilateral Trade? Department of Economics Working Paper 12 2006, Bayreuth University, Germany. Ingco, M.D. 1995. "Agricultural Liberalization in the Uruguay Round: One Step Forward, One Step Back?" World Bank Policy Research Working Paper No. 1500, Washington, D.C. Irwin, D.A. 1995. The GATT in Historical Perspective, American Economic Review, 85(2): 232 328. Josling, T. 1998. The Uruguay Round Agreement on Agriculture: A Forward Looking Assessment. OECD Workshop on Emerging Trade Issues in Agriculture, Paris, October 26 28. Liu, X. 2009. GATT/WTO Promotes Trade Strongly: Sample Selection and Model Specification, Review of International Economics, 17(3): 428 446. Mayer, T. and S. Zignago. 2006. Notes on CEPIIs Distance Measures, unpublished manuscript, Paris France, May. Meilke, K., J. Rude, M. Burfisher, and M. Bredahl. 2001. Market Access: Issues and Options in th e Agricultural Negotiations, International Agricultural Trade Research Consortium Commissioned Paper No. 14625, University of Minnesota, Minneapolis, MN. Nicita A. and M. Olarreaga (2006), Trade, Production and Protection 1976 2004, World Bank Economic Review 21(1). OECD (Organisation for Economic Co operation and Development). 2001. The Uruguay Round Agreement on Agriculture: an evaluation of its implementation in OECD countries. OECD, Paris. . 2004. Agricultural Policies in OECD Countries: Monitoring and Evaluation in 2004. Paris, September. Rose, A. 2004a. Do We Really Know That the WTO Increases Trade? American Economic Review 94(1): 8 114. Rose, A. 2004b. Do WTO Members have More Liberal Trade Policy? Journal of International Economics, 63(2): 209 235.