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Focus on issues

Agriculture in India: Both Weak and Strong

Second largest population in the world, third largest economy, fourth largest agricultural sector Inreference 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 India127th (out of 177) in terms of the human development index.1 How is it that this country, an agriculturalgiant and a driver of worldwide growth, is not able to ensure food security at home? What strategy canIndia implement nationally and with regard to international negotiations in particular?

I. An agricultural giant incapable of ensuring the food security of its ownpopulation

India is a giant on shaky ground; although the agricultural sector is of utmost importance, the countryfaces 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. Although the sector accounted for22 percent of gross domestic product (GDP) in 2005 next to 51 percent for services and 27 percentfor industryit remains the leading industry for employing close to two thirds of the countrys workingpopulation.

Furthermore, India has as much usable farmland as the European Union: 180 million hectares 140million 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, UttarPradesh and Punjab), traversed by the Ganges and graced most by the benefits of the monsoons, arethe countrys most fertile regions where most agricultural production takes place, sugar cane and wheatproduction in particular.

These natural advantages in part explain Indias leading position with regard to many agriculturalproducts.

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B. A sector highly exposed to the vagaries of weather and up against significantstructural 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 ofweather, yet is highly sensitive to these variations given that most agricultural production depends onthe monsoon. Precipitation falls from June to September, and its level of intensity determines theproduction 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 inyields,3thereby 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 asthe miniaturization of agricultural players, limited use of mechanized farming techniques, a lack ofadequate equipment and infrastructure and the harmful consequences of the Green Revolution of the1970s.

a. Highly miniaturized and insufficiently mechanized local production

The average farm in India covers a surface area of 1.5 hectares.4This compares to an average surfacearea 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, whichaimed to redistribute land to poor farmers by placing limitations on the size of real estate. Although theIndian government is currently working to encourage farm expansions, which would create moreprofitable productions units due to economies of scale, real estate nonetheless continues to be divided

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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 andprevents 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 Indiasagricultural productivity. Facilities for the storage and keeping of crops (cold chain) are lacking and leadto 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 publicinvestment since the 1970s and a lack of upkeep have caused wear and tear of irrigation pipes, leadingin turn to the loss of over one-third of water transported. Given the increase in non-farm related waterneeds 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 theagricultural sector by increasing yields, but also had the disadvantage of increasing production costs. Ata time when agricultural prices were on the decline worldwide, this rise in production costs affectedIndias 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 ofproduction6eand 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 gainedmomentum. While it cost 30 dollars to produce a ton of wheat in 1985, by 1998 it cost no less than 80! Astudy published in the British medical research journal The Lancet in 2002 revealed that the agriculturalregions 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. Wesee today that the fears expressed by Monkombu Swaminathan,7father of Indias Green Revolution, in1968 regarding the consequences of poor irrigation and excessive use of pesticides, were well foundedand are now true. A portion of the countrys usable farmland has consequently been seriouslydegraded, 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 wellbelow the averages for the European Union (EU) and China. 8

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>Promote national development and the fight to end famine and poverty by granting the countryspopulation 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 anddevelopment in India, for it holds certain competitive advantages, particularly in the profitable economicsectors of new technologies and computing.

Additionally, the accumulated benefits of free trade in services could, via a snowball effect, benefitIndias 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 ofEconomics in October 2007: Services underpin virtually every economic activity needed in theproduction and distribution of other goods and services () we need services to help realize theeconomy-wide gains from trade and to amplify whatever market access might be achieved in agricultureand industrial products.

And yet, the breakdown of the most recent G412 talks that took place in Potsdam in June 2007demonstrates that the WTOs approach is idyllic and strictly theoretical. For if there are only advantagesto 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 asignificant 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 theother two sectors?

A much more complex reality that calls for the creation of a new developmentparadigm

Reality has run counter to the WTOs grand predictions and shown just how true the agriculturalexception is. The automatic succession of beneficial effects touted by the Director of the WTO in facthides much more complex realities, not the least of which are food security, the social equilibrium of apopulation 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 vethe 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. Inthe context of a global supply deficit, low inventories and a growing liberalization of markets, India isincreasingly exposed to the fluctuations of the international markets yet the opposite is also true:Indias positions on the international markets significantly destabilizeworld prices, as evidenced by therecent 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 Indiangovernment is adjusting customs duties to ensure sufficient domestic supply.13 .The government is alsomonitoring imports of agricultural goods deemed sensitive in nature (for competing directly withnationally-produced goods), such as dairy, fruit, nuts, coffee, tea, grains, food oils and spices. Thegovernment may also decide to limit exports in order to preserve national supply and the stability ofdomestic prices (this happened in 2006 for legume exports). Wheat exports were also prohibited, inFebruary 2007, to contain a rise in domestic prices.

>The liberalization of international agricultural trade, combined with the establishment ofintellectual property barriers, is detrimental to Indias agricultural sector, today unable to meetthe challenges they present.

With the liberalization of international agricultural trade, products imported at lower cost will enter intodirect competition with locally-produced goods. At the same time, Indias exports will suffer due toexports from other emerging countries that are better able to compete given their more modernagricultural techniques.

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Finally, the TRIPS and TRIPS-plus agreements, which establish significant intellectual property barriers,will cause direct harm to Indias agricul tural sector, as the benefits of innovation will be reaped byforeign companies rather than Indian companies or farmers, due to the intellectual property game. Thephenomenon 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, andlater to services. But in India, we are moving directly from agriculture to the service sector, a sector thatcreates only skilled jobs. Industry, for its part, is not growing fast enough to absorb the droves offarmers."

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 withthe formation of underdevelopment traps. This is affecting Indias development potential in a variety ofways, the most significant of which is related to the transfer of resources; rising inequalities and povertygive rise to a certain number of direct costs (related to social welfare as well as crime-fightingexpenditures) and indirect costs (growth of the informal economy and rising crime). These costs andexpenditures are sapping resources that would be better used elsewhere, for example as investmentsin 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 bestway toward economic growth and development, is vital, and the future of India depends on it. A newparadigm must be developed, one that would take into account regional specificities while ensuring thatthey mesh with international rules, centered on two strong notions regulation of the agriculturalmarkets 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 meetingcurrent and future challenges.

What vision do we have for agriculture at the international level?

>Development of instruments for guidance and market regulation, to ensure that the set objectives areattained.

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 integratedframework, developing the NAR Rating Agency and building the WOAGRI economic model, the firstsimulations 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 adanger for India and the other developing countries. Rather, it provides a unique opportunity toreconsider the terms of the debate and provides a convincing argument for agriculture to be accordedspecial consideration within international negotiations.

This new approach with regard to a global governance of agriculture should not, however, lead India to

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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 respectfor ecosystems.

>Increased investment in infrastructure, to modernize its agricultural system and avoid productionlosses, 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 draft14 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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