EU free trade agreement puts in peril food self-sufficiency and livelihoods in India

At a time of global food crisis, India is proposing to enter into a free trade agreement with the European Union (EU) which is likely to adversely impact its agricultural sector.

Ranja Sengupta

WHEN the European Union (EU) and India launched talks on a bilateral free trade agreement (FTA) in 2007, the negotiations were expected to be long and complex. But since then its development implications have been of increasing concern to stakeholders, policy analysts and civil society in India and Europe. Agriculture remains a significant area of concern to all, not only because European  subsidies make it the most unbalanced segment of the negotiations, but also for further threatening India's food self-sufficiency and livelihoods in a time of global food crisis.  

The proposed FTA includes several chapters that affect agriculture and food systems in India. Apart from chapters on goods that target reduction of tariffs and other trade barriers like rules of origin, standards and technical barriers, 'WTO-plus' (i.e., going beyond commitments set by the World Trade Organisation) chapters on services, intellectual property, investment and public procurement are included. This is a departure from India's other FTAs even with Japan, South Korea or the Association of South-East Asian Nations (ASEAN). The interlinked chapters can have a combined and cumulative impact not only on the way India trades but also on its entire food production and distribution systems. This framework can also limit the policy space at the government's disposal to ensure domestic supply of food at times of food price inflation and/or food supply shortage.

In the talks, differences remain over some sensitive segments like dairy, poultry, wines and spirits. It is obvious that in spite of the small initial value of agricultural trade, the EU sees this segment as critical to the conclusion of the agreement.

Agriculture remains a sensitive issue in India, with almost 70% of its population still directly dependent on it. Indian agriculture, unlike big capital-based European agriculture, revolves around numerous small farmers who earn their livelihoods from cultivating small plots of land, and with limited access to resources like water, seed and fertiliser. Over 83 million  marginal farmers (those who own less than one hectare of land), who represent 65% of farmers in India, own only 20% of total land, with an average holding size of 0.38 hectares.1 Only 46.13% of the area under such holdings receives any form of irrigation.2 Rural poverty estimates vary between 28.3% and 87%.3 The agriculture sector also has a higher proportion of women workers compared to other sectors. Tribal, indigenous communities also form a sizeable chunk. All these are constituencies with low education, low skills and low productive resources.

India's agriculture sector has also suffered from low investment and policy neglect, and farmers' productive ability is constrained by grossly inadequate infrastructural facilities like road and transport systems, marketing and storage facilities. The institutional credit system, technology development and extension services are still weak. Unlike their European counterparts, Indian farmers enjoy very little direct subsidy on agriculture. The Indian farmer is still largely left to fend for himself and to eke out a living by producing food both for his own consumption as well as for the market. Most small producers sell some produce and retain the rest for own consumption, so their ability to feed themselves is intrinsically linked to their ability to sell, and therefore, to produce. Given the lack of skill and resources, they are also unable to shift very easily or gainfully to other formal sectors, and buy all of their required food needs.

It is not surprising, therefore, that agriculture and food security emerge as critical issues in India's trade agreements, be it the WTO or free trade agreements. At the WTO, India has often taken strong positions to safeguard its farmers' livelihoods, be it from import surges or from Western subsidies or on development and food security considerations. Considering that the FTAs in general and North-South FTAs (i.e., FTAs between developed- and developing-country parties) in particular move towards a WTO-plus framework for agriculture, the impact of such liberalisation on this sector remains critical.

There are several features of the proposed EU-India FTA that must be looked at in detail in order to have an understanding of the possible consequences on Indian agriculture and its food economy.

The provisions in the EU-India FTA and the impact on agriculture

India's current agricultural trade is low and accounts for only 2.9% of its merchandise imports. But that is also because India still imposes quite a high applied tariff (duty) at a simple average of 31.8% (2009) on agricultural products while its notified bound or maximum duty is 113.1%. On the other hand, Indian agricultural products face a much lower duty of 13.8% in EU markets. India offers duty-free access only for fruits, vegetables and plants (21.7%) and vegetable oils (72.9%) while 60% of India's agricultural products can already technically enter the EU duty-free.

However, even though the EU has low tariffs, it gives high subsidies to its agricultural producers which work both as a protective instrument in its domestic market, as well as a competitiveness-enhancing instrument for its exporters. Indian products also face high non-tariff barriers (NTBs) like food and other standards as well as technical barriers in the EU, making exports difficult. On the other hand, NTBs are lower in India.

Given their different tariff and NTB structures, the EU obviously has much more to gain in terms of tariff reduction while India's gains lie in getting NTBs reduced, simplified and harmonised and in the removal of EU subsidies, a much-discussed issue in the trade talks even at the WTO.

But what does the FTA contain? Tariff reduction to zero is included on at least 90% of tariff lines.  Export taxes have to be totally removed, threatening the government's control over domestic food supply even in times of a crisis. There may even be a standstill on the exempted tariff lines, i.e. duties cannot be raised from current MFN levels. Non-tariff barriers in the form of standards, sanitary and phytosanitary measures and technical barriers (TBTs) are also being discussed. However, most EU FTAs show that affirmation of at least WTO standards has been followed. According to unverified information, there are no Special Products (SP).4 The Special Safeguard Mechanism (SSM), over which India took a strong stand in the WTO, is also much diluted. Apparently, the EU has allowed only a volume trigger5 but not a price trigger.6

Moreover, removal of the EU's agricultural subsidies is not on the cards. Under the Common Agricultural Policy (CAP) which still takes up 32% of the EU budget, the EU still gives huge amounts of subsidy to its farmers on dairy, poultry and cereals. Enough literature exists (for example, UNCTAD 20077) to show that domestic subsidies are very much trade-distorting and affect global prices, thus reducing competitiveness of smaller producers in developing countries. However, subsidies cannot be negotiated under any free trade agreement as it is a multilateral issue and can therefore be negotiated only at the WTO level. Therefore, with regard to agriculture, the EU-India FTA harps on the reduction of tariffs but is silent or hazy on the removal of non-tariff measures like subsidies, standards and TBTs.

What is likely to happen?: Some projections

Impact assessment studies of the FTA suggest very little gain for India in commodity trade, especially in agriculture. The trade surplus in agriculture will turn into a trade deficit and a long-run fall in agricultural employment is predicted.8 A small increase in agricultural exports will be countered by a larger increase in agricultural imports.

While India's share in the EU's markets in cereals, other crops, agro-food and products from animal origin will remain constant (at 1.2, 0.6, 1.1/1.3 and 0.1% respectively), the EU will increase its share in all these markets in India as a result of the FTA.9  For example, in primary products the EU's share increases from 4.9% to 16.7% by 2020, and from 17.6% to 23.5% in cereals. In products of animal origin, the EU's share is projected to increase from 7.5% to 10.4% by 2020 and from 2.9% to 5.3% in agro-food. Another study points out that in both agricultural trade as well as trade in agro processed products, India will see a deficit increase by $50 million each as imports will outstrip exports.10

The asymmetric nature of this agreement is expected to hurt commodity producers in agriculture and industry, including dairy, poultry, wheat, sugar and confectionery, oilseeds, plantation products and fisheries. Apart from the EU's subsidised competitiveness in dairy and poultry products, the EU's global trade patterns show increasing exports in commodities such as wheat, oilseeds and plantation products - commodities which still enjoy high applied tariffs in India. The EU is also interested in selling wines and spirits to India, where the current applied tariff is a high 70.8% (on beverages and tobacco).

Once protections are removed, EU products are likely to flood Indian markets in these segments. European exports can also destroy value-added agro processing in India, as well as basic crops, by destroying the linkage with the local processing industry.

'TRIPS-plus' intellectual property rights

The EU has been quite insistent on its requirement for 'TRIPS-plus' intellectual property (IP) protection which exceeds the standards imposed by the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This affects not only issues like access to cheap medicines by threatening India's production of generic drugs, but agriculture and food-related issues as well. For example, ratifying the UPOV 1991 convention on plant-variety protection according to the EU's demands will prevent Indian farmers from saving, using and freely exchanging seeds. In addition, provisions under the present law, such as the registration of extant and farmers' seed varieties and benefit-sharing provisions to compensate farmers for their innovations, will also be threatened. Furthermore, the IP text also includes patent term extension by five years which also refers to plant protection products. Data exclusivity in agrochemicals can also increase input costs for farmers. Such measures can affect Indian farmers' access to seeds and traditional cultivation systems, encourage monoculture, and adversely affect biodiversity.

The EU also wants its agricultural geographical indications of origin (GIs) (highly relevant to wines and spirits) to be recognised in exchange for recognition of India's non-agricultural GIs. This can also be a problem because India's underdeveloped IP system in agriculture cannot compete with the EU's well-advanced system of IP recognition. The EU is threatening to withdraw concessions in other chapters as India has so far refused to yield to this demand.

Strong investment rights threaten access to natural resources

Strong investment provisions in the FTA that allow foreign access to land, minerals, water and forest products will surely threaten the livelihoods, food security and basic sustenance of small farmers, tribal communities and women, who already have unequal access. It can heighten land grabbing in resource-rich areas, thus taking away critical access to cultivable land and other productive resources from tribal, indigenous and rural communities. Investment provisions and removal of export taxes can even threaten the survival of India's agriculture-based industrial sectors by starving them of raw material.

Services and public procurement

The liberalisation of retail services under the FTA can also put pressure on small farmers' livelihoods. Not only do big supermarkets ask for very high standards and reject produce on grounds of not meeting that quality, they can gradually take away farmers' access to local markets. Sometimes farmers are initially offered high prices but with increasing dependence on big buyers from the retail chains, the prices have often come down.

In addition, if government procurement is liberalised in India, then special acquisition from farmers for the Public Distribution System (PDS) may also become difficult and European producers will have to be given equal treatment in relation to this mechanism which essentially provides price support to Indian farmers.

Implications of the FTA for India's food economy in the context of the food crisis

Given the multiple chapters in this FTA that can impact on agriculture, what this does to India's food economy and food security is an urgent question. This FTA will open up the Indian market to subsidised products from the EU, both in products like cereals, as well as in agro processing. And it may strengthen this exposure through its provisions on IP, services, investment and public procurement. It is clear from projections that India will be importing food products from the EU much more than it will be able to export. There are three processes that will result here.

First, Indian farmers and agro processors will lose their livelihoods as their legitimate access to a growing market within India gets blocked by subsidised European products. Agro processing is also linked to basic agricultural production which supplies the raw material, and a threat to either thus hurts both. As discussed earlier, this threat to livelihoods is a threat to food self-sufficiency as farmers also meet their family food consumption needs from their production. Their inability to shift to other formal jobs and earn decent incomes aggravates the problem.

Second, will consumers be able to finally get cheaper food from imports even if Indian farmers do not produce them?  In a situation of supply shocks in a volatile global market aggravated by large-scale speculation in agricultural commodities, food prices have skyrocketed. The food crisis of 2008 is far from gone. The FAO food price index of 236 for February 2011 exceeds even the peak value of 200 in 2008. The indices of February 2011 exceed the 2008 values for cereals (254 compared to 238), meat (170 compared to 153), and dairy (230 compared to 220). This is in spite of the gradual opening up of world agricultural trade. Both small producers and consumers are hurt by the volatility in global prices. The increase in speculation in food trade as well as inadequate storage and marketing facilities in India also imply that Indian farmers cannot actually gain even in the presence of rising food prices as speculators absorb the margins.

Finally and most importantly, in a situation of still-persisting food crisis, depending on imported food and curtailing the ability of domestic producers to produce their own food may not be a prudent option. If the EU increases restrictions on food exports during a crisis, as India often has in the past, food for India's population may become inaccessible. As is evident from the recent galloping food inflation in India, the Indian government has neither the ability nor the will to subsidise Indian consumption by buying from international markets in times of a food crisis.  Given the persistence of the crisis, it will be wiser to look inward and invest in the domestic supply of food rather than give up food self-sufficiency for illusory gains in non-food sectors like services. A long-run perspective is urgently required as such food crises  are likely to recur, with increasing threats to agricultural land and output posed by diverse factors such as climate change, biofuel production and industrialisation, to name just a few.  

In conclusion, the EU-India FTA is expected to have a significant impact on livelihoods, access to food and productive resources in Indian agriculture, especially for the poor and marginalised. The lack of transparency and adequate consultation with all stakeholders, especially vulnerable groups like farmers, indigenous groups, women, patients' groups, and micro, small and medium enterprises, during the FTA negotiation process has been a consistent worry to civil society organisations and development policy analysts. In India, neither the draft text nor the impact assessment studies have been shared with stakeholders, state governments or with civil society, and nor is there any form of parliamentary oversight. That such an important policy measure can be introduced without transparent and extensive consultations with stakeholders undermines Indian democracy.

In terms of the EU's trade policy, a joint perusal of CAP and the demands made in its FTAs with developing countries will throw into serious doubt its claims of being supportive of sustainable development in the Third World.  The EU's insistence on including agriculture belies the European Commission's claims that agriculture is not a major issue in the negotiation. It is clear that the EU recognises that it is a hugely sensitive sector for India in terms of its livelihood and food security implications, but is still continuing with aggressive demands in this sector.

Whether the Indian government will give up its policy of pursuing self-sufficiency in agriculture and food, even in the presence of a rapidly exploding food crisis which is bound to recur more often than before, remains to be seen.                                         

Ranja Sengupta is a senior researcher with the Third World Network. This article draws heavily from an article entitled 'Ambitious Trade Liberalisation and Indian Agriculture: The Case of the Proposed EU-India Free Trade Agreement' written by the author for the EcoFair Trade Dialogue run by the Heinrich Boell Foundation, Misereor and Glopolis.

Endnotes

1     Data refers to 2005-06, Indian Agricultural Census, Government of India.

2     Data refers to 2000-01, Indian Agricultural Census, Government of India.

3     There are five alternative estimates of rural poverty: 28% (Planning Commission), 42% (Tendulkar Committee Report), 50% (NC Saxena Committee Report), 77% (National Commission for Enterprises in the Unorganised Sector Report), 87% (Utsa Patnaik).

4     Special Products are those products that enjoy protection on the grounds of protecting farmers' livelihoods, food security and rural development.

5     Under a volume trigger, tariffs can be raised when the volume of imports crosses a certain threshold.

6     Under a price trigger, tariffs can be raised when import prices fall below a certain percentage of a referral period price.

7     UNCTAD India (2007) 'Green Box Subsidies: A Theoretical and Empirical Assessment'.

8     ECORYS, CUTS, CENTAD (2009) Trade Sustainability Impact Assessment of the EU-India FTA.

9     CEPII-CIREM (2007) Economic Impact of a Potential Free Trade agreement (FTA) between the European Union and India.

10   Polaski et al (2008) 'India's Trade Policy Choices: Managing Diverse Challenges', Carnegie Endowment for International Peace, IDS, IGIDR.

*Third World Resurgence No. 247, March 2011, pp 19-22