Making farms competitive

Going by the trends of agricultural exports and imports since 1991, it would appear that Indian economic reforms led to a perceptible spurt in exports but the advent of the World Trade Organisation (WTO) in 1995 blunted this trend and encouraged agro-imports.

This is not wholly true though the relaxation of curbs on exports and adjustments in the exchange rate in the beginning of the reforms process did help agro-exports to grow. In fact, agricultural export earnings nearly doubled in three years between 1992-93 and 1995-96.

But imports of agricultural produce, too, increased almost at the same pace in this period. After 1996-97, when the WTO era got properly under way, earnings from agricultural exports began to decline. No doubt, agro-exports have tended to look up again in the last couple of years, but the uptrend in the import of farm produce has remained unabated, to the detriment of the agricultural trade balance.

However, to attribute these trends wholly to either the economic reforms or the WTO will be too simplistic. There are other important reasons behind the trend. A study on this subject, undertaken by the Delhi-based National Centre for Agricultural Economics and Policy Research (NCAP), reveals that movements in the prices of agricultural commodities in the international market are more responsible for these trends than anything else.

Prices of almost all major farm products fell sharply after 1997, partly due to the inherent cyclical nature of global commodity prices and partly to increased global export competition. The increase in export subsidies offered by many developed countries to their farmers and agro-industries also accentuated the price meltdown.

Consequently, many Indian farm products became non-competitive in the global bazaar. Especially, low-value products like rice (non-Basmati), wheat and oilmeal could not withstand the global competition and their exports, which had touched new highs in the earlier phase, dropped significantly.

But the tempo of export growth was sustained in high-value goods such as marine, livestock and horticultural produce. The drop in global commodity prices also impacted the imports of agricultural produce, which doubled between 1996-97 and 1999-2000. As a result, cheaper imports, some of them subsidised, began threatening the domestic output growth of not only staple cereals but also of edible oilseeds, pulses and some other crops.

The lessons from these developments are clear, though varied. For one, high- value food products stand a better chance of facing global price competition than low-value items.

Besides, in the event of a drop in the international prices of farm produce, it is not easy to safeguard indigenous production against competition from cheaper imports. And most significantly, the key to sustaining and boosting farm exports is held by domestic production costs, which need to come down to make Indian farm produce globally price competitive.

For this, farm yields will have to be stepped up substantially without taking a cost-push route. On the external front, this analysis in a way endorses the firm stand taken by India and other member countries of the G-20, as also the Cairns group, at the WTO negotiations on reducing production and export subsidies by major exporting countries.

For, no amount of domestic productivity improvement will be enough to enable Indian produce to compete with highly subsidised produce put on offer by some developed countries. So the strategy must be two-pronged""improve farm yields and strike a hard bargain at the WTO negotiations.