KHETI BARI

EU threat to Indian farmers

There is now a looming threat to Indian agriculture from the Free Trade Agreement (FTA) with the European Union. The smoke signals have already started blowing from Brussels. The 27-nation block of the EU, which has a notorious record of extravagant subsidies dished out to the Union’s farmers, set aside a big chunk of its new 7-year budget to support its agriculture, precisely, Euro 363 billion, that works out to approximately to Rs 26 lakh crore, of the total Euro 900 billion (approximately Rs 69 lakh crore), a whopping sum at that, for the Union’s farmers, giving in to strong political pressure from France, the Union’s major agricultural partner.

The sum is approximately 38 per cent of the EU spending for the agriculture sector of the 2014-2020 budget. This decision was not in consonance with the views of other EU nations, which wanted more money from the budget to be diverted to spur the growth of the EU and create new jobs.

What does this mean to Indian farmers?

Simply put, Indian farmers will face new threats to their livelihood, once India signs on the dotted line on the FTA with EU in the coming weeks. Ironically, while Brussels was finalising its contentious budget, in India, our commerce and industry minister went on record to say that the FTA with EU was India’s “most ambitious trade and investment agreement”. This article examines the implications of this far-reaching assessment.

The EU FTA, known officially as the “Bilateral Trade and Investment Agreement”, is shrouded in secrecy. In addition to agriculture, production of generic medicines in India will be most hard hit.

The FTA provision of bringing down India’s import tariff level to zero or near-zero will dramatically increase India’s agricultural trade deficit. Are farmers being unnecessarily alarmist? An analysis done by Misereor and Heinrich Boll Stiftung of Germany and four other international institutions confirms that Indian farmers are bound to heavily lose once EU FTA comes into force. This will oblige India to eliminate more than 90 per cent of all (agricultural and non-agricultural) applied tariffs towards EU within seven years. Besides, a “standstill clause” might cap the tariffs even for the remaining sensitive products at the level currently applied, and, more worryingly, the goods chapter could impose discipline on export tariffs that are currently used by India to contain price volatility.

A UNDP 2005 report warns the main issue affecting agricultural trade is the massive subsidies applied by developed countries to their production and export. India will have no other option except to drastically slash duties on more than 92 per cent of its agricultural goods export. It is important here to note that the EU tariffs are already much lower and cannot offer India  additional market access. Export of Indian products like the famous Malabar pepper, Basmati rice, Darjeeling tea, Banares silk, whose production and export are not subsidised, will most severely be affected.

Most worryingly, the EU FTA trade pact has the “conflict of interests” scenario where EU wants India to do away with its export measures, which would imply that India has to give up export bans on food (wheat and rice), which the country uses strategically to ensure its food security. Ironically, at WTO-level meetings, India fought hard to safeguard its right to use export measures and tariffs on agricultural products!

Of all the Indian sectors, the dairy sector will be most adversely affected. Dairy co-operatives like the Gujarat Co-operative Milk Marketing Federation, the producer of the famous Amul, generate employment for about 15 million dairy farmers in rural India, spread across 140,000 villages. Amul, studiously built by late Verghese Kurien, India’s “milkman”, is possibly the most valuable and well-known brand in the dairy sector, and, expects a turnover of more than ` 14,500 crore this financial year, which is a huge jump from the `11,668 crore recorded last year.

The protective cover given to the EU products under the Geographical Indication (GI) tag , with over 3,000 registered GIs, of which 130 are for dairy products, will make things worse for Indian dairy products. A 2010 study conducted by the European Commission revealed that 2,768 GIs had yielded revenue amounting to more than Euro 20 billion, a colossal sum of money and a great advantage which it is pursuing to preserve in its trade agreements. EU is also seeking “extra extensive protection” of its GIs.

There are 3.2 million dairy farmers in Gujarat whose livelihood would be directly impacted. India’s dairy sector is not subsidised as the European. Non-tariff barriers like the stringent sanitary and phytosanitary standards (SPS) will make things worse for Indian dairy products export. Opening up of the dairy sector to European corporate will make India’s dairy farmers extremely vulnerable to dumping of dairy products on Indian soil.

Under WTO rules, India can impose high bound duties (the maximum tariff) of 113 per cent on a number of food items, although its applied duties or actual tariffs stand at an average of 31.4 per cent. Bound rates give India the flexibility to increase duties if a spike in imports is found to be damaging its domestic sector through the special safeguard mechanism. The FTA will erode these protective measures. The case with imported cheese is a classical example on this count.

Additionally, Amul’s two manufacturing units in Europe which sell its cheese using the European tag (Gouda and Emmantel) will be obliged to cease production and marketing using these brand names.

Trade asymmetries show India has but little to gain in agricultural trade in absolute terms. While EU will gain US $ 321 million in agro food products, India will get US $ 83 million. Similarly, India’s cereals market will earn EU US $ 133 million, while India gains only US $ 7 million. The disparity is most marked in primary products in which EU gains US $ 5,128 million, while India can hope to get a business of just about US $ 39 million. In short, the EU FTA will be a “no win” pact for India. While this happens, our agricultural minister, trade and commerce minister, and even the prime minister have preferred silence to action.