Farmers’ agitation will impact global trade

Devinder Sharma
Food & Agriculture Specialist

Addressing the Oxford Real Farming Conference last week, I said that the iconic farmers' movement in India will have tremendous global implications. If the Indian farmers succeed in making Minimum Support Price (MSP) a legal right, it will cause major disruptions in international trade, with focus shifting from trade competitiveness to first ensuring that the livelihoods of farmers — the primary producers — everywhere in the world become economically viable and sustainable.

At the same time, instead of leaving the farmers to face the vagaries of markets, which have pushed them globally into a debt trap, the demand for ensuring that no trading takes place below the MSP not only provides them with a safety net but it will also gradually become an economic design for the rest of the world to emulate.

Across the globe, farmers continue to suffer the consequences of keeping farm-gate prices artificially low so as to keep the economic reforms viable. An economically worked out minimum assured price is what would make farming a viable proposition.

At a time when the world is increasingly looking towards ‘growth without economic growth’, time has come to make farmers an equal partner in growth. This can only happen when a price assurance is given to farmers.

Take the case of coffee. While the global coffee market was estimated at $102.5 billion in 2019, growers have only received a small fraction of the price — not more than one per cent — of the end price a consumer pays. While coffee roasters and retailers rake in huge profits, a majority of the 12.5 million coffee growers somehow survive below the extreme poverty line of $1.90 a day. Although there are several proposals for responsible marketing initiatives, including the setting up of a Global Coffee Fund, probably the best way forward would be to provide an MSP to coffee growers.

Given the fact that even multinational giant Nestle has expressed helplessness, providing an assured price to coffee growers in an otherwise exploitative global value chain is actually what should constitute responsible marketing. This holds true for other agricultural commodities as well. The implications of the Indian farmers’ protest, therefore, are far-reaching.

Writing in these columns, I had earlier explained how more than 90 per cent of the cocoa farmers were living in extreme poverty, receiving only $1.3 as the average daily income.

Like the coffee growers, cocoa farmers' share of income in the end consumer price is hardly a fraction of the enormous profits the chocolate manufacturers make. Just because these farmers are poor, no one has actually bothered till recently to look at their plight, to know how markets have destroyed millions of farm livelihoods.

Coming back to the disruptions expected in international trade, and contrary to the protesting farmers' demand, pressure continues to be built on India in the World Trade Organisation (WTO) to dismantle the Farm Support Programme, which means curtailing the MSP for wheat and rice to keep it within the prescribed limit of 10 per cent for product-specific support under the Aggregate Measure of Support (AMS).

According to the US, India has, for a number of years, exceeded its 10 per cent support limit, and is actually under-reporting the extent of support. While India has contested these claims, it does explain why India is reluctant to commit on the farmers’ demand for extending the MSP delivery for 23 crops for which the prices are announced every year.

The US and its allies have time and again said that the MSP regime in India disrupts domestic and global prices. Strangely, while the US points to Indian support to farmers as a hurdle in global trade, the product-specific subsidies being provided by the US, Canada and European Union actually distort trade and make agricultural exports from the developed countries appear globally competitive. In reality, it is the huge agricultural support that these countries provide for commercially important farm commodities that lowers the international prices. As a result of which the MSP being given to wheat and paddy farmers in India looks to be higher. Let us not forget that these subsidies are in addition to the $246 billion of farm subsidies the OECD provided in 2018.

According to a joint paper presented some years ago by India and China before the WTO, the three big layers — the US, the EU and Canada — provide for 90 per cent of the product-specific support for agricultural commodities, thereby grossly distorting global prices. The total farm support these countries provide — exceeding the five per cent AMS limit for rich countries — is to the tune of $160 billion. In many cases, this support is twice the total value of the crop produced (215 per cent for wool; 141 per cent for mohair by the US; and in the EU, by 120 per cent for white sugar and 155 per cent for tobacco). This huge subsidy support depresses global prices.

As if this is not enough, the Organisation for Economic Cooperation and Development (OECD) comes out with another shocker. Even against these depressed international prices, the prices Indian farmers get are still 13 per cent less. Developing country farmers, therefore, have in reality been silently bearing the true cost of such enormous market price distortions. The export competitiveness that we see is built on the massive subsidy support these countries provide to agriculture, year after year. The time to end these price distortions has come.

The protesting farmers have now provided policymakers a direction to rethink and redesign economic policies to usher in Sabka saath, sabka vishwas by revisiting farm policies, to draw from inherent strengths rather than borrow failed policies from abroad.

The farmers’ demand for making MSP a benchmark for domestic and international trade is expected to result in severe disruptions in international trade. It will also result in the betterment of a large section of the country’s population. What the protesting farmers are standing for holds the key to future growth and provides a roadmap for bridging the huge income disparity that the world has failed to address.