Earlier this year the Doha round of WTO trade negotiations collapsed (again) after the US, Europe, India, and Brazil were unable to reach a reciprocating agreement on cutting farm subsidies in the west, and lowering industrial goods and service barriers in the developing world.
India and Brazil blamed the US and Europe for not lowering their collossally high agricultural subsidies enough. But the question to ask is why India is even campaigning for lower farm subsidies?
India just floated a tender to buy 530,000 tons of wheat on the international market. Driven by supply constraints and record demand from India, Japan, and others, wheat prices are at an all time high. Barring a miracle in Indian agricultural productivity, it is likely that India will remain a net importer of wheat for the foreseeable future. So why ask the US to cut farm subsidies, when it is in effect subsidizing Indian bread?
The same logic applies to other agricultural products too. As pointed out last year by G. Chandrashekhar, “in none of the four major world commodities would India stand to benefit substantially even if developed economies eliminated subsidies.” What is more, the share of agricultural produce in India’s trade exports is falling – it was 20.55% in 1996-97, 18.05% in 1998-99, and 13.36% in 2000-01 (PDF, Medium Term Export Strategy).
There is, of course, the argument that lower subsidies will raise prices and thus raise farmer incomes. But this reasoning is egregious in so many ways, I don’t know where to begin.
First, it ignores the fact that while there are several million farmers in India, there are over 1 billion consumers too. This is the classic problem with farm subsidies in general – they benefit a strong, well organized group of producers, but against the interests of the much larger, but disorganized majority of consumers. Worse, the result will be incentives for farmers to stay in farming – just when they should be encouraged to move into other forms of production.
The biggest problem with this argument, however, is that it takes responsibility of the failure of Indian agriculture away from the government and places it on the US. Farm subsidies take attention away from the very serious failure of the government, through its monopoly on procurement and intervention in distribution, to provide a supply chain and market that work. This, in fact, explains why the Indian government is so keen to fight for farm subsidy cuts - because it involves little effort to keep a major vote bank happy. Actually doing something about the pitiable state of Indian agriculture is a far less enviable proposition.
The countries that will truly benefit from steep cuts in farm subsidies are mostly in Africa. While helping them is indeed a noble cause, the WTO trade negotiations are not about scoring brownie points with Africa. At the WTO, India should let the US fund its bread while bargaining for things such as looser intellectual property controls, greater access to labor markets, and service industries. And at home, it should get its own house in order, rather than blame external forces for its failures.