The Indian Economy Blog

August 29, 2007

Why India Should Not Demand Cuts in Agricultural Subsidies

Filed under: Agriculture,Business,Politics,Trade — Dweep @ 5:17 pm

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.

30 Comments »

  1. Good points.

    India’s WTO stance may have been engineered by Lula of Brazil. Indian policy makers would not have thought about it at length.

    At the end, fighting for lower tarriff shows to the world that we are an aspiring export nation rather than acknowledging our problem.

    Suhit

    Comment by Suhit Anantula — August 30, 2007 @ 6:17 am

  2. If this article is about what India should prioritise in its WTO negotiations, then its fine. The arguement of not pushing for subsidy reduction holds water in that context.

    But from a free market point of view, i do not think subsidies needs to be encouraged, whether it is provided by US or India. What becomes if US wheat becomes more expensive for India to import ? Either indian consumer will be willing to pay for it, or may shift to rice which is cheaper, or it will give an opportunity for Indian farmers to start producing wheat, and in long term look for effeciencies in production, technology in farming etc.In a similar way if the cash rich US government would subsidise BPO’s in US (assumption, for illustration) to an extent where it becomes cheaper than TCS, would you encourage indian companies to start using US based BPO’s citing the reason that consumer benefits from all this..? The Indian govt will never be able to provide subsidies as much as EU or US would be willing to dish out.

    The subsidies that US govt provides has been utilised by big/rich farmland owners, there has been considerable debate over this, if this is a healthy trend at all. All the subsidies have ensured that these farmland owners are able to look for better productivity, higher production and investment in technology. An indian farmer will never be able to compete with that.

    I certainly do not agree on Indian govt giving subsidies to Indian farmers as well, coz it is the tax payers(you and me) money which goes out as subsidy, which in turn protects all the in-effeciencies in this sector. So in effect consumer pays tax and gets wheat at cheaper level, why not pay it upfront ?

    There is no arguement on the fact that we need to get our house in order, we of course should. We have been a nation of 60 years, with a major portion of our independent history devoted to socialist ideals keeping the farmer in mind. We havent been able to reform our agricultural productivity, except for the white revolution and food security that we achieved. Why not give free market economics a chance to try and put our house in order, with the government providing only back seat supports ?

    Comment by Renjith — August 30, 2007 @ 7:39 am

  3. ‘What becomes if US wheat becomes more expensive for India to import ?’

    i agree with ranjith – if american subsidies start working for their farmers, in the situation that they are not lowered, indian production would fall across the board and not just in the four major products that you mention. and american prices are bound to rise in the long run if india’s needs are not satisfied from local production and we’ve to depend more on imports.

    higher subsidies in india or america do not work for indian farmers – lower subsidies in america are the only mantra that will increase productivity and investments in agriculture in india. and that won’t mean farmers will stay in agriculture in the long run – only those who find farming profitable will stay. most marginal, sub-marginal farmers (holdings less than one acre) won’t be able to make new investments or reach scale. most of them already depend on non-agricultural sources for a major portion of their income- they’ve no illusions about incomes/livelihoods from agriculture.

    and the supply chains are not solely the government’s business- they will be strengthened only when agriculture becomes profitable for a substantial section of small, medium and large farmers.

    Comment by kuffir — August 30, 2007 @ 11:36 am

  4. In the UK, subsidies keep many farmers afloat and without it, they would sink or cease being farmers, as they never make enough money from selling their produce. The produce is sold mainly to supermarkets who seem to have a monopoly over distributing it to the consumer. In turn, supermarkets argue that the consumer does not wish to pay so they have to push the suppliers.

    From here, the argument is two-pronged. One prong says the consumer got used to paying low due to supermarket price wars. The other is that the consumer is operating from the wrong order of priorities e.g. plasma TV before meat-and-two-veg. That is why prices have to kept low and supermarkets are in fact doing the country a favour by making food affordable and preventing mass scale malnourishment crisis. So the government better keep subsidising farmers so this crisis can be averted. (If I recall correctly there was a post on this blog earlier about prioritising TV over clean water…)

    However, if the said farmers did decide to sell in the world markets, they would make more money but still benefit from subsidies. They can negotiate more since they know that subsidies keep them in the black anyway. They can thereby screw over anybody else who wishes to sell his produce but without the benefit of any subsidies, and who needs to exact a decent price in the open market to survive and stay afloat.

    Now, what were we saying about India should not demand cuts in subsidies?

    It depends on how you define the game in the agricultural produce market. And the argument is far more nuanced and steeped in domestic politics of the US and the UK, than can be unravelled at a public, international forum such as the WTO.

    Comment by Shefaly — August 30, 2007 @ 11:53 am

  5. What becomes if US wheat becomes more expensive for India to import ??? – i didnt realise this until you highlighted it, sorry for wrong sentence, would like to rephrase it to ‘What happens if US wheat becomes more expensive for India to import’ :)

    Comment by Renjith — August 30, 2007 @ 12:36 pm

  6. Renjith, I absolutely agree with you that subsidies should not be encouraged, and concur that free-markets need to function in agriculture. In that context, I have some hope for the entry of organized retail in the supply chain. However, my point is also that subsidies in the US are more of a boundary condition. We may not like it in India, but its better to get used to them and fix our own problems. In that sense, the domestic and international agenda on agriculture need to be decoupled.

    Shefaly, I’m not sure what point you’re trying to make with regard to the post. Are you saying India should demand cuts? Or that its a moot point?

    Comment by Dweep — August 30, 2007 @ 1:40 pm

  7. Dweep, i am a bit indifferent to your comment here. Your title and general arguement for this post is ‘Why India Should Not Demand Cuts in Agricultural Subsidies’. The comments we have,so far, tend to the point, yes, we should demand a cut in subsidies. I dont think anyone so far in this forum has disagreed to your suggestion of working on resolving our agricultural issues in-house. But how does not demanding a reduction in US/EU subsidies help us to resolve our internal agricultural issues ?

    Comment by Renjith — August 30, 2007 @ 1:52 pm

  8. Dweep, my point simply was that since the issue of subsidies is riled inextricably in domestic politics of the nations with whom India is negotiating, it is not going to be as simple as ‘should India demand or not demand cuts’.

    In a simplistic framing, it may be called a ‘moot’ point but so long as the effects of the outcome of such a negotiation remain material for India, it is, in effect, more than a moot point; it is an issue that requires more subtle and indirect negotiations than just making demands at world fora.

    Thanks.

    Comment by Shefaly — August 30, 2007 @ 1:53 pm

  9. In the 21st century with increasing pressure on land, diversion of water to the cities, massive pollution of the rivers and changing climate, farming can never be a profit making industry. Without govt subsidies, it will cease to be lucrative and there will be global hunger. Farming is not an industry, it is a sacred duty leading to feeding the masses and taking care of mother nature. Already, it is a social crisis in europe where farmers donot get women to marry them due to the no weekend, no holidays situation. May be indian farmers should just migrate to the west and take over the farming leaving the rest of india to write software.

    Comment by Revathi — August 30, 2007 @ 2:47 pm

  10. Revathi:

    You say: “Farming is not an industry, it is a sacred duty leading to feeding the masses and taking care of mother nature.”

    It may be the case in an ideal world but the fact that subsidies exist is a sign enough that not many see farming as a ‘sacred duty’ of any sort, but plenty see it as an industry where making profits is vital to survival.

    You say further: “Already, it is a social crisis in europe where farmers do not get women to marry them due to the no weekend, no holidays situation.”

    Really? I have read something about rural youth in certain countries not being able to find wives, but not in Europe. Could you share some references about this here? Thanks.

    Comment by Shefaly — August 30, 2007 @ 3:08 pm

  11. ‘However, my point is also that subsidies in the US are more of a boundary condition. We may not like it in India, but its better to get used to them and fix our own problems. In that sense, the domestic and international agenda on agriculture need to be decoupled.’

    dweep,

    your post and this response are premised on several loose assumptions – one, for instance, is the assumption that the it’s totally within the powers of the government to somehow improve the conditions for farmers in the country through building infrastructure and market interventions and input subsidies. agriculture in the country has deteriorated beyond that stage- growth has been stagnant for the last ten years and subsidy, msp bills have all been going up steadily.
    it’s not just the value of exports but also agriculture’s contribution to gdp too that has been declining fast. tell me how would massive investments in infrastruture improve the farmers’ lot when their collective share of national income is going to decrease anyway? don’t tell me improvements in productivity, if any, would push up prices and margins for farmers. the only way out is for a large number of farmers to get out of agriculture starting now – the process, at least, has to be started now. and it won’t start if the govt continues with the existing subsidy/msp regime because that’s what keeps a lot of fartmers (marginal/sub-marginal farmers) in and pushes down margins/yields for other farmers(small, medium and large farmers).
    two, you seem to look at the indian farming community as a large undifferentiated entity. small, medium and large farmers who constitute only 20% of the farmers in the country bring to the market over 60% of the produce. marginal and sub-marginal farmers, by their very existence (as producers and consumers) effectively ensure that the market of the small, medium and large farmers doesn’t grow beyond a certain limit. so private investments in the farms itself, by way of adapting new technologies etc., would be meaningless for the first category of farmers. improvements in supply chains might result in small improvement in margins for these farmers.
    three, the assumption that ‘decoupling’ might work is wrong because of the same reasons as explained in the previous para- the farmers who produce for the market( the small, medium and large farmers), unlike marginal/sub-marginal farmers who mostly produce for their own needs, need markets- it doesn’t matter whether they’re domestic or overseas markets. govt interventions manage to limit the size of their ambitions and their incomes. access to global markets would definitely improve the lot of these farmers, bring in investments in productivity and also ensure food security needs are met (indian productivity levels are much lower than even those in several south eastern asian countries). the situation will not improve unless the prices improve.

    Comment by kuffir — August 30, 2007 @ 4:43 pm

  12. Renjith/Shefaly, it seems my post – which brings together two issues – has caused some confusion. So I’m going to rephrase.

    My first point is that India should not demand cuts in US subsidies. Why? Simply because since India is a net importer – and likely to remain so – US subsidies effectively fund Indian meals. Shefaly, thus far this is not a political argument – so yes, it is a fairly simple conclusion. Do you agree with this reasoning, or not?

    The issue of putting our own house in order is separate, and perhaps I should have left it out. The point I was making, however, was that by blaming US subsidies India is able to shirk its responsibility to do so. I will not argue this point further, because there seems to be general consensus that domestic action is needed.

    Comment by Dweep — August 30, 2007 @ 5:10 pm

  13. Kuffir,
    I should clarify that I do not advocate government intervention in the markets. Quite the contrary – I think there is already too much intervention. And its true the situation will not improve unless prices improve – but that is not a strategy, it is a pipedream. Besides, you’re ignoring the gist of what I said, that a) agriculture is mostly a commodity business so improving prices is hardly under your control; b) if prices improve, farmers will benefit, but the vast majority of consumers will suffer, and c) those subsistence farmers should be encouraged to get out of subsistence agriculture – not stay in it. The situation will improve when agricultural productivity and supply chains improve *substantially* AND a majority of farmers get out of farming and into something else (unless they’re happy living as subsistence farmers).

    Comment by Dweep — August 30, 2007 @ 5:12 pm

  14. Finally, two other clarifications:
    1. How does not demanding a reduction in US/EU subsidies help us to resolve our internal agricultural issues?
    - I think I’ve already mentioned the economic argument for keeping US subsidies. On this issue, note that by blaming US subsidies for internal issues, we reduce incentives for solving them.

    2. What happens if US wheat becomes more expensive for India to import
    - What happens if it becomes cheaper? Wheat is a commodity, and its price variations are best handled through the highly advanced mechanisms of the commodity and financial markets (futures, forward contracts, etc).

    Comment by Dweep — August 30, 2007 @ 5:18 pm

  15. @ Dweep: “India should not demand cuts in US subsidies. Why? Simply because since India is a net importer – and likely to remain so – US subsidies effectively fund Indian meals.”

    Two counterarguments-
    1 ) Reduction of Farm Subsidies in US/UK etc will involve reallocation of agriculture land among those countries, thus making the sector much more equitable and labour intensive, thus should shift towards India.

    2 ) Given that the prices will start reacting to incentives, i do believe that the Indian Farmer will react and adopt technology thus improving productivity (In current scenario- Low incentive for anyone to react to technology as prices are exogenously fixed.)

    Also, at the intuitive level, it makes sense to break the status quo considering that the current state of Indian Agriculture is not good. Let us ‘disrupt’ the present world agriculture model, we may come out as gainers.

    Also an analogous analysis of effect on Indian industry after removal of textiles quota may be useful here

    Comment by Rishav — August 30, 2007 @ 5:50 pm

  16. @ Dweep: I do not agree with the unqualified assumption ‘and is likely to remain so’. Any negotiations, that may change how agricultural subsidies operate in the US in the future, will have an impact in the future and as such assumptions of this kind can be quite dangerous.

    The ability to procure – note, I did not say ‘buy’ which is an economic ability – will also depend upon whether someone is willing to sell to a buyer or not. Last week, wheat prices shot up in the commodities market due to adverse weather having affected the crops in Canada, Europe and Australia. In a state of paucity, governments will focus on feeding their own flock first, and then exportation. It will be interesting to see what this does to wheat prices in India.

    Besides if you think that this is not a ‘political argument’, then you have missed something vital about WTO negotiations. Everything in global trade is about politics. Reductionist arguments, while fascinating in academia, are not useful in real life. I imagine we discuss real life issues on IEB, don’t we?

    Thanks.

    @ Rishav: Did you mean “We may come out as ‘grainers’?” :-) Thanks.

    Comment by Shefaly — August 30, 2007 @ 6:05 pm

  17. dweep,

    ‘And its true the situation will not improve unless prices improve – but that is not a strategy, it is a pipedream.’

    on the contrary, working for cutting down american/eu subsidies is a strategy that would help farmers gain access to those markets and help improve overall realizations which in turn would motivate them to make investments in productivity- i’m talking of the farmers who produce for the markets here. what you suggest, working on internal issues, is already being tried and has not improved the situation (remember the prime minister has been talking about improvements in productivity for the last three years and it has still been going down). and will not improve the situation substantially.

    let’s look at those internal issues:’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.’

    if the market remains limited, any gains from improvement in internal issues would not improve prices even in the medium term. better prices in one year would mean more produce and depressed prices the next year. there would be no improvement in the overall rural economy and no increase in non-agricultural jobs for subsistence farmers to move to. in the long run all farmers would suffer.

    in a limited market (addressed by a large number of sellers) even if the govt withdraws from procurement (as it has to a significant extent in many states and commodity markets) that would not translate into better prices for the farmers. and improvements in productivity and supply chains needs significant private sector-farmer investments. these won’t happen as long as prices are low for the farmers and there are too many farmers.

    ‘b) if prices improve, farmers will benefit, but the vast majority of consumers will suffer,’

    this is wrong – because if prices improve it means farmers would produce more the next year and so on. vast improvements in productivity in indian agriculture are possible – i’ve pointed out how south eastern farmers are doing much better than us. farmers in vietnam, for instance, despite weak infrastructural support are doing much better on smaller holdings than the farmers in the most fertile indian holdings such as in bengal and south india (i’m talking of paddy). in fact, india doesn’t need to cultivate rice, wheat and other major crops in such vast areas and with such colossal wastage of natural resources like water to produce enough food for all its people- you need only to compare our yields per acre with yields in neighbouring china and other countries to know this.

    c) those subsistence farmers should be encouraged to get out of subsistence agriculture – not stay in it.

    a strategy that works towards cutting down american/eu subsidies won’t benefit the susbsistence farmers because they don’t produce for the market. and they won’t stay on in agriculture if subsidies are cut down because they’ve nothing to gain from it. the farmers who have marketable surpluses will benefit from the opening up of american/eu markets and they’d also be able to produce enough for the domestic market too (they already produce more than sixty percent of our requirements as i mentioned earlier). improvements in productivity will happen almost automatically if these farmers can export more. and the gains these farmers make would result in a stronger rural economy and a larger market for non-farm goods. wouldn’t that pave the way for more non-farm jobs for subsistence farmers?

    Comment by kuffir — August 30, 2007 @ 6:45 pm

  18. Dweep,

    ’1. How does not demanding a reduction in US/EU subsidies help us to resolve our internal agricultural issues?
    - I think I’ve already mentioned the economic argument for keeping US subsidies. On this issue, note that by blaming US subsidies for internal issues, we reduce incentives for solving them’

    Question – how come US/EU is fighting with supplier nations to take out subsidies in areas like textile/garmets, arent consumers in US/EU getting cheaper t-shirts if China/ India/Vietnam decides to subsidise its garment industry? Isnt US/EU thinking about its consumers? Why does WTO put down removal as subsidies as a pre-condition to join WTO, are they not concerned about consumers, should consumers be protesting against WTO?

    Also, indian politicians and decision makers do not need subsidy as an excuse to hold on, we know our politicians, they ll find some other excuse for not putting the house in order. Who are we kidding here, preventing free market economics from operating in the world markets, we are further surrendering ourselves to the whims and fancies of such politicians.

    ’2. What happens if US wheat becomes more expensive for India to import
    - What happens if it becomes cheaper? Wheat is a commodity, and its price variations are best handled through the highly advanced mechanisms of the commodity and financial markets (futures, forward contracts, etc)’

    i dont understand the relevance of this comment here. What has futures got to do with subsidy, we are talking about the price of wheat imports from US getting costly/cheap due to removal of govt subsidies. Futures and forward contracts would exist in both subsidy/non subsidy environmant and is a function of supply / demand in global markets.

    Comment by Renjith — August 31, 2007 @ 9:05 am

  19. Renjith, my point on financial instruments was made because you ask what if wheat becomes more expensive. That is a possibility, but your solution is that we grow our own wheat. But by doing so, you loose the upside of benefiting if global wheat prices fall below the national. So what I’m suggesting is that wheat be treated as a commodity.

    Shefaly, I’m probably more aware of the politics of the WTO than you. If you actually READ my post, you may realize I don’t say the WTO negotiations are not political – just that the domestic issues should not be tied to the international issue. Note also that the wheat prices that shot up last week were not simply because of adverse weather but combined with increased demand – most notably from India itself (see here). And yes, I assume that India will remain a net importer – but you assume equally that removing agricultural subsidies may “have an impact in the future”. At least mine is an educated assumption, based on recent trends (as well as analysis that I point to in the Hindu – again, READ the post), so less dangerous than the hope that removing subsidies will somehow work in our favor.

    Rishav, the comparison with textile quotas is not accurate. In that case, we were dealing with quotas AMONG developing countries – all of which compete to export. In this case, we are asking that subsidies in countries that DO NOT compete with India, be reduced.

    One argument that has been presented, especially by Kuffir and Renjith, is that removing subsidies may transfer production to the South, and as such may trigger increased productivity by increasing competition. Yes, this is indeed possible, and desirable. But what I point out is that those improvements a) can (and should) happen anyway, and b) would prevent India from getting its farmers out of farms and into high value added production.

    Comment by Dweep — August 31, 2007 @ 2:10 pm

  20. “I don’t say the WTO negotiations are not political – just that the domestic issues should not be tied to the international issue.”

    Dweep: When subsidies are inextricably linked with the domestic policies of the nations India is negotiating with, this is a dream, not a feasible reality of negotiations.

    The rest of your comment clearly was written in anger, and it appears you are defending yourself rather than your position. Since I was not attacking you, but just a position you have taken in your post, I shall not spend any time on it.

    It is for the rest of the readers to judge what was written and how many explanations have had to be made after that to clarify what you might have meant to write.

    Thanks.

    Comment by Shefaly — August 31, 2007 @ 2:48 pm

  21. [...] August 31, 2007 « Why India Should Not Demand Cuts in Agricultural Subsidies [...]

    Pingback by The Indian Economy Blog » The Full Monty — August 31, 2007 @ 3:32 pm

  22. I think we are looking at two kinds of threads here:

    1) Dweep, you’re suggesting that looking at the past 3-4 year trends, we can safely assume that India would continue to be a net importer of agricultural products. So, it would be in our interests to not persist on our demands of cuts on Agricultural subsidies of US and Europe.

    2) Kuffir and others are skeptical of your argument of India being a net importer and would probably like some more research data.

    Since this is a policy suggestion, We should perhaps weigh our benefits as well as losses on this issue of “American and European citizens subsidizing Indian consumers”. What you’re suggesting is that Indian consumers would gain by increase in Agricultural subsidies, and even US and European taxpayers seem to be happy in subsidizing their farm lobby, So we should rather play this situation to our advantage.

    Fair enough. However, I don’t quite understand your reasoning on Africa being the only loser in this subsidy game. Many a times, supporters of agricultural subsidies in US and Europe claim to support their point of view by saying that African Cotton farm produce is anyways not in competition with American or European products due to vast differences in prices, but the opponents of subsidies claim that this is so only because African farmers are handicapped due to the heavy subsidies being given to American farmers. If it were not so, then everybody would have been at an equal footing and perhaps, the final result of competition would have been very different.

    So, by above logic, Why are Indian farmers not a part of losers in this subsidy game? Also, you say that 1 billion consumers are more important than a strongly organized Farm lobby in India. However, around 60% of Indian population is is some way dependent on agriculture, so 600 million people are not just consumers but producers too.

    This is not to say that Government arbitrary meddling with Indian agriculture not be stopped, or the current practices of MSP, or recent cabinet decisions regarding stopping the trading of certain agricultural commodities on derivative markets is an encouraging trend for the future. However, I feel that just because more and more subsistence farmers aren’t getting out agriculture due to Government’s vote-mongering policies, our pushing for more Agricultural subsidies from US or Europe, or not opposing them, is a wrong way of trying to get the intended result.

    In fact, Even if most of our subsistence farmers were to get out of Agriculture, I don’t think it would make any large difference to total Agricultural produce of India (I’m sorry I don’t have figures but I’m guessing it on the basis of 80-20 rule). So, What is required is the change of Government’s attitude on Agriculture and not expect for more subsidies from US or Europe so as to change the situation of agriculture in India. Because if the current trend continues, What will happen is that, even though our Government will continue to import wheat and other commodities, it will continue with its meddlesome politics with markets just to appease Farm lobby which obviously isn’t what you intend to achieve through this policy prescription.

    Comment by Himanshu — August 31, 2007 @ 4:49 pm

  23. himanshu,

    ‘I don’t think it would make any large difference to total Agricultural produce of India (I’m sorry I don’t have figures but I’m guessing it on the basis of 80-20 rule).’

    very true. the actual ratio is around 60-40… but that doesn’t matter. because the shortfall, from the subsistence farmers exit, can be bridged in a very short period of time through increased domestic production.

    and the substance of your main argument- that american /eu agriculture is unviable on a lot of counts is also probably true. dweep’s argument misses the the crux of the issue by a wide margin- that the unviable producers are making agriculture a miserable business for everyone (especially so for the ‘viable’ farmers in the developing world).

    Comment by kuffir — August 31, 2007 @ 6:23 pm

  24. We tend to forget that India is not as small as Hongkong and we are not price taker. Our demand or supply has capacity to influence world market prices siginficantly so why are we beocming net importer ? farmers not investing in agriculture ? becuse they can’t sell outside as prices are jacked up there.

    If for a momen we assume we don’t oppose subsidy in europe/america and import food. Since our farming is not remunerative more people will shift out of agriculture and our demand will balloon market prices.
    Secondly assumption that indian agricultural workforce can be employed somewher else is flawed .We don’t have job for these unskilled labour force .Yes we have shortage of skilled labour but system to convert one into other are awfully lacking and wit people like arjun singh at helm of affairs seem to be so in near future.
    Similary shift to horticulture can’t happen becuase of weak supply chain .

    Comment by Anshul — August 31, 2007 @ 11:33 pm

  25. [...] In an interesting post at the Indian Economy blog, Dweep argues that India shouldn’t’t oppose West’s agricultural subsidies. He offers two main reasons a) subsidies keep prices low thus benefiting the Indian consumers b) the debate on subsidies shifts the focus away from the failure of the Indian government to promote agriculture. [...]

    Pingback by Policy Wise » Should India Oppose Agricultural Subsidies? — September 1, 2007 @ 3:04 am

  26. This article assumes that Indian government is acting objective and impartial in this issue. But if there a parties in India that would oppose the 123 Nuclear deal, which is so one-sided favoring India, why not WTO regulations. I mean, if you have the Left in the government that opposes any deal that involves US, why are you guys so surprized with Indian stace on farm subsidies? A lot of old-farts in India have made their political career demonizing US. How can they all reconcile and jeopardize their careers, particularly when they have no accountability to most of the people or care zilts about state of future economy?

    Comment by Balaji Viswanathan — September 4, 2007 @ 10:12 am

  27. For those posters opposing farm subsidies, they have to take the opportunity cost of the successful deal here. For US and EU the deal doesn’t matter as much as for developing countries. Developed world have little head room to grow and have set the fundamental priorities as inflation control and unemployment. Both these will be affected by a reduction in subsidy regime and so there is no realistic probablity that the governments would want a deal, which would at best lead to a 1% growth, at the cost of losing their domestic priorities. But, for growing countries like India, this is a big deal. It gives improved access to markets and better technological exchange and investment. We have a long way to go and to alleviate poverty we have to keep growing at this rate for next 2 decades. We cannot keep bickering on hyperboles and rhetoric. So, a real cost-analysis has to be done on the deal.

    For India’s size, and the current state of production technology, I dont think any country could step up the production so much that Indian producers of Wheat and rice will be totally out of the game. Same old billion people game. We have enough room to take risks and proceed with reforms, without risking our domestic farmers. And if I’m not wrong, the increased ethanol mania in US has diverted farmers to grow more of Corn than Wheat, and other exporters like Australia are seeing a reduction in exports due to various other reasons. So, its not like there wont be any need for farmers in India. And India is not a big exporter of agricultural products. For a nation of 1.1 billion, that is compressed into a 3.2 million sq.km land surface, it might be preposturous to talk about agricultural exports. We have managed to export so far just because we have so many people without access to the grain. If we have to ensure the standard dietry intake for each person, even with complete green revolution, we might have to import substantially. Lets face reality, and move India into industrial stage for which a WTO deal can be crucial.

    Comment by Balaji Viswanathan — September 4, 2007 @ 10:35 am

  28. Balaji, I thought I’d drop in a “real cost-analysis” on the issue. Please see this WB report, that compares subsidies with import tariffs and other barriers.

    As is evident from the report, up to 93% of the support the rich country agricultural industry gets, is from import tariffs, not from subsidies. Just another reason for India NOT to ask for subsidies.

    Comment by Dweep — September 11, 2007 @ 1:29 pm

  29. [...] important, are farm subsidies or safeguards really the key issue that Indian and Chinese diplomats should be worried about? In a world where food prices are rising [...]

    Pingback by The Discomfort Zone | The Doha Round is Dead, Long Live Free Trade — July 30, 2008 @ 4:04 am

  30. Dweep, that’s an interesting, and well-explained perspective. Helped me see things from a different angle.

    Do we need to abolish subsidies at home in order to rectify the multitude of issues with the agrarian sector? Or will the removal of these subsidies lead to market failure in the short run(higher production costs, producers exit the market, higher price levels for commodities)?

    Comment by Aman — April 10, 2009 @ 8:07 pm

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