Focus on issues

Agriculture in India: Both Weak and Strong

Second largest population in the world, third largest economy, fourth largest agricultural sector In reference to India, superlatives abound. And yet, 400 million Indians live on less than a dollar a day, 212 million are undernourished and the United Nations Development Programme has ranked India 127th (out of 177) in terms of the human development index . 1 How is it that this country, an agricultural giant and a driver of worldwide growth, is not able to ensure food security at home? What strategy can India implement nationally and with regard to international negotiations in particular?

I. An agricultural giant incapable of ensuring the food security of its own population
India is a giant on shaky ground; although the agricultural sector is of utmost importance, the country faces structural handicaps that have prevented it from rooting out famine and poverty.

A.

Agriculture:

An

economic

sector

of

utmost

importance

Agricultures share in Indias economy is significant, albeit in decline. Alth ough the sector accounted for 22 percent of gross domestic product (GDP) in 2005 next to 51 percent for services and 27 percent for industry it remains the leading industry for employing close to two thirds of the countrys working population. Furthermore, India has as much usable farmland as the European Union: 180 million hectares 140 million of which are planted, covering approximately 60 percent of the countrys total land area. The Indus and Brahmaputra regions in the north of the country (including the Assam plain, Uttar Pradesh and Punjab), traversed by the Ganges and graced most by the benefits of the monsoons, are the countrys most fertile regions where most agricultural production takes place, sugar cane and wheat production in particular. These natural advantages in part explain Indias leading position with regard to many agricultural products.

B. A sector highly exposed to the vagaries of weather and up against significant structural handicaps
1. Highly exposed to the vagaries of weather

Indias agricultural sector is exposed, along with all of the worlds agricultural sectors, to the vagaries of weather, yet is highly sensitive to these variations given that most agricultural production depends on the monsoon. Precipitation falls from June to September, and its level of intensity determines the production levels for the year, particularly for wheat, which is a staple food in India. Bad monsoons, which bring insufficient or excessive levels of precipitation, can cause significant drops in yields,3 thereby submitting production in India to a high degree of variability. 2. Insufficient productivity

Indias agricultural sector is also characterized by insufficient productivity, due to several factors such as the miniaturization of agricultural players, limited use of mechanized farming techniques, a lack of adequate equipment and infrastructure and the harmful consequences of the Green Revolution of the 1970s. a. Highly miniaturized and insufficiently mechanized local production

The average farm in India covers a surface area of 1.5 hectares. 4 This compares to an average surface area of 50 hectares in France (30 times larger) and an average of 200 hectares in the United States (130 times larger). This characteristic is a legacy of the post-independence farm reforms of 1947, which aimed to redistribute land to poor farmers by placing limitations on the size of real estate. Although the Indian government is currently working to encourage farm expansions, which would create more profitable productions units due to economies of scale, real estate nonetheless continues to be divided

into even smaller units with each new generation due to customary and succession laws. 5 . This fragmentation of farmland is a factor behind the limited use of mechanized farming techniques and prevents the development of a more organized and productive agricultural sector. b. Insufficient investment, particularly in infrastructure

Insufficient investment, particularly in infrastructure, is visible and has a direct effect on Indias agricultural productivity. Facilities for the storage and keeping of crops (cold chain) are lacking and lead to tremendous losses, which for produce can represent up to 40 percent of the harvest. Additionally, only 30 percent of usable farmland is equipped with irrigation systems. A drop in public investment since the 1970s and a lack of upkeep have caused wear and tear of irrigation pipes, leading in turn to the loss of over one-third of water transported. Given the increase in non-farm related water needs due to population growth, conflicts over water usage rights are on the rise. c. The boomerang effect of the Green Revolution

The Green Revolution launched by Prime Minister Jawaharlal Nehru in the late 1970s boosted the agricultural sector by increasing yields, but also had the disadvantage of increasing production costs. At a time when agricultural prices were on the decline worldwide, this rise in production costs affected Indias ability to compete and led many small farmers into desperate straits. Faced with this scissors effect (drop in prices and rise in costs), Indias farmers took on significant debt to gain new factors of production6 eand access to inputs, which happened to be quite costly given that they were imported. The much-anticipated results never materialized, however, and the trend of rising costs gained momentum. While it cost 30 dollars to produce a ton of wheat in 1985, by 1998 it cost no less than 80! A study published in the British medical research journal The Lancet in 2002 revealed that the agricultural regions of southern India held the sad world record suicide rate, at 58 suicides per 100,000 inhabitants (four times the average in other countries). In addition, the widespread and indiscriminate use of fertilizer and pesticides has degraded soils. We see today that the fears expressed by Monkombu Swaminathan, 7 father of Indias Green Revolution, in 1968 regarding the consequences of poor irrigation and excessive use of pesticides, were well founded and are now true. A portion of the countrys usable farmland h as consequently been seriously degraded, with soil salinization and drops in water table height commonplace in some regions. The combination of these three factors explains why the average productivity of Indian farms falls well below the averages for the European Union (EU) and China. 8

3.

Famine

and

poverty

remain

significant

handicaps

With 212 million malnourished individuals (as many as in 1992), India is the country most severely affected by malnourishment9 in the world. In addition, one third of the countrys population lives below the extreme poverty line,1 0 the majority of those individuals representing the agricultural sector. The landless farmer movement has highlighted the distress felt by thousands of Indian farmers who have been forced to abandon land that was requisitioned for the creation of industrial free zones. Close to 40 percent of all Indians are landless and 23 percent live in what a leader of Ekta Parishad, an Indian NGO,1 1 refers to as abject poverty. Although the government recently appeared to have taken note of their grievances (in 2007, opposition to the construction of a pharmaceutical plant and shipyards, redistribution of land), any measures taken were marginal and the structural changes needed to promote equity have yet to be made. In debt or broke (see above), many farmers have decided to migrate to the cities in hopes of better days. The phenomenon, seen in many developing countries, leads to the creation of underdevelopment traps that are affecting Indias pace of development, due to:

> The costs brought about by increased inequalities and poverty, particularly with relation to social
policies. > The urban markets > An increase in >A worsening of inability to absorb the shantytowns and problems related to working population from agriculture. the creation of megapolises. health, hygiene and education.

The situation in India is therefore paradoxical: a giant in global agriculture, the country is incapable of feeding its own population and meeting the challenges and issues that the 21st century holds. Will the strategy that India has adopted for international negotiations, at the WTO in particular, enable it to meet those goals?

II. Agriculture: For India, a strategic sector that requires a new development paradigm
According to most of the International Institutions such as the WTO and the World Bank, a full liberalization of international trade would automatically benefit India. The reality is anything but; far from being a source of development, unregulated free trade carries significant risks. A new approach is therefore required.

A. The WTOs idyllic and theoretical vision: The one best way development paradigm
According to the WTO, India would have everything to gain from a full liberalization of the international markets for agriculture, industry and services alike. The liberalization of international agricultural trade would allow India to develop and meet the great challenges it faces:

> Import, at lower cost, an increased variety of products that would help the country react to
Westernized modes of consumption. Indians have started to modify their dietary habits, and for the time being, imported products alone are able to satisfy their expectations and new needs, given that national food production is insufficient both in quantity and in diversity.

>Boost its exportation of agricultural goods and thereby reduce the countrys trade balance deficit. Its
balance of trade is largely negative, particularly within the agricultural sector. While imports grew by 64 percent from 1998 to 2001, exports fell by 7 percent over the same period. This is mainly because the Indian government neglected the export market for quite some time, concentrating instead on supplying the national market. The countrys exports served at the time as a way to sell off surplus food.

> Stimulate its economic growth by increasing its share in the international trade of agricultural and
agrifood products (currently at 1.2 percent) and benefitting as much as possible from the growing potential of Indian demand, stimulated by population growth and improved purchasing power.

> Promote national development and the fight to end famine and poverty by granting the countrys
population access to less expensive products via the elimination of customs duties. The WTO also purports that free trade in services would be essential for economic growth and development in India, for it holds certain competitive advantages, particularly in the profitable economic sectors of new technologies and computing. Additionally, the accumulated benefits of free trade in services could, via a snowball effect, benefit Indias other economic sectors, the agricultural sector in particular. CPascal Lamy, Director-General of the WTO, said as much in a speech given at the London School of Economics in October 2007: Services underpin virtually every economic activity needed in the production and distribution of other goods and services () we need services to help realize the economy-wide gains from trade and to amplify whatever market access might be achieved in agriculture and industrial products. And yet, the breakdown of the most recent G41 2 talks that took place in Potsdam in June 2007 demonstrates that the WTOs approach is idyllic and strictly theoretical . For if there are only advantages to free trade, why would India have walked away from the negotiating table? Why would it have taken the risk of compromising the negotiation process as a whole, when a significant share of its growth (services and industry) hinges on it, and this to preserve an economic sector that, once liberalized, will only marginally contribute to its economic growth in comparison to the other two sectors?

A much more complex reality that calls for the creation of a new development paradigm
Reality has run counter to the WTOs grand predictions and shown just how true the agricultural exception is. The automatic succession of beneficial effects touted by the Director of the WTO in fact hides much more complex realities, not the least of which are food security, the social equilibrium of a population hit hard by malnutrition, insufficient yields and uncertainty over climate factors. Consequently, three factors undermine the WTOs international free trade strategy for India and pro ve the need for a new international development paradigm.

> When

India

sneezes,

the

worlds

agricultural

markets

catch

cold

Demand from India is a significant driver of worldwide growth, an influence that continues to grow. In the context of a global supply deficit, low inventories and a growing liberalization of markets, India is increasingly exposed to the fluctuations of the international markets yet the opposite is also true: Indias positions on the international markets significantly destabilize world prices, as evidenced by the recent bid solicitations for wheat. These are set to grow in number, given that food security is a strategic, national defense issue for India, which must, above all, ensure that its 1.1 billion inhabitants are fed. Aware of this, the Indian government is adjusting customs duties to ensure sufficient domestic supply. 1 3 .The government is also monitoring imports of agricultural goods deemed sensitive in nature (for competing directly with nationally-produced goods), such as dairy, fruit, nuts, coffee, tea, grains, food oils and spices. The government may also decide to limit exports in order to preserve national supply and the stability of domestic prices (this happened in 2006 for legume exports). Wheat exports were also prohibited, in February 2007, to contain a rise in domestic prices.

> The liberalization of international agricultural trade, combined with the establishment of
intellectual property barriers, is detrimental to Indias agricultural sector, today unable to meet the challenges they present. With the liberalization of international agricultural trade, products imported at lower cost will enter into direct competition with locally-produced goods. At the same time, Indias exports will suffer due to exports from other emerging countries that are better able to compete given their more modern agricultural techniques.

Finally, the TRIPS and TRIPS-plus agreements, which establish significant intellectual property barriers, will cause direct harm to Indias agricultural sector, as the benefits of innovation will be reaped by foreign companies rather than Indian companies or farmers, due to the intellectual property game. The phenomenon can already be observed today with rice.

> Cities

will

not

absorb

the

agricultural

workforce

According to Subir Gokarn, an economist with the rating agency Crisil, an Indian subsidiary of Standard & Poors, a traditional development model would call for a transition from agriculture to industry, and later to services. But in India, we are moving directly from agriculture to the service sector, a sector that creates only skilled jobs. Industry, for its part, is not growing fast enough to absorb the droves of farmers." This non-absorption of agricultural workers by the other economic sectors, concentrated in the cities, has led to the formation of megapolises, a phenomenon seen and well known in many LDCs, along with the formation of underdevelopment traps. This is affecting Indias development potential in a variety of ways, the most significant of which is related to the transfer of resources; rising inequalities and poverty give rise to a certain number of direct costs (related to social welfare as well as crime-fighting expenditures) and indirect costs (growth of the informal economy and rising crime). These costs and expenditures are sapping resources that would be better used elsewhere, for example as investments in the private sector and infrastructure. This phenomenon has, furthermore, been exacerbated by Indian socie tys segmentation into castes, which hinders absorption of the agricultural workforce. Moving away from the WTOs idyllic and theoretical approach, according to which there is one best way toward economic growth and development, is vital, and the future of India depends on it. A new paradigm must be developed, one that would take into account regional specificities while ensuring that they mesh with international rules, centered on two strong notions regulation of the agricultural markets and international cooperation. For this to happen, three criteria must converge:

> Adoption of a comprehensive and true-to-life vision of the realities of the agricultural sector.
What is the current status of the worlds agricultural markets?

> Definition of principles of governance for the worlds agricultural markets that is capable of meeting
current What vision do we and have for future agriculture at the challenges. international level?

> Development of instruments for guidance and market regulation, to ensure that the set objectives are
attained. How do we ensure that we not stray from the development path defined in the first two criteria?

A satisfactory answer has yet to be provided for any of these three strategic questions. WOAgri has been working to that end since December 2005, defining principles of governance within an integrated framework, developing the NAR Rating Agency and building the WOAGRI economic model, the first simulations of which are set to take place within the upcoming days. This is why the current break in the WTO Doha Round negotiations must not be perceived as a danger for India and the other developing countries. Rather, it provides a unique opportunity to reconsider the terms of the debate and provides a convincing argument for agriculture to be accorded special consideration within international negotiations. This new approach with regard to a global governance of agriculture should not, however, lead India to

forget the need to reform its agricultural sector. Several possible avenues have been broached:

> A new Green Revolution, to allow India to diversify its agricultural sector while increasing its respect
for ecosystems.

> Increased investment in infrastructure, to modernize its agricultural system and avoid production
losses, and in research to lessen Indias reliance on foreign research laboratories (in the area of high yield plant research, in particular) and to enable Indias farmers to withstand international competition.

> Continued pursuit of the ambitious draft1 4 National Rural Employment Guarantee Scheme (NREGS)
policy to ensure a minimum wage for all heads of agricultural families throughout the year.

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