A harsh reality is unfolding in India’s agricultural ecosystem. Although we have achieved self-sufficiency in food production, the challenges are the difficulties faced by farmers who constitute almost half of India’s workforce. Farmers struggle with alarmingly low incomes, poor welfare and high suicide rates. India’s progress will be incomplete if the welfare issues of farmers are not addressed effectively. International trade agreements, through the removal of barriers, offer a decisive opportunity to accelerate the growth of farmers’ incomes. Cross-border trade in agricultural and food products will rise to approximately $2 trillion in 2023; India’s modest share of 2.5 percent calls for more ambitious targets. India should negotiate free trade agreements that will open doors that will facilitate large increases in farmers’ incomes.
Trade Barriers
Historically, food was among the first products traded. However, due to the unique nature of food, unlike other tradable goods, it remains one of the most difficult goods to sell in the world.
Tariff barriers
Countries often use tariff barriers to import agricultural products. This is due to the desire to protect domestic farmers from foreign competition, which is often seen as unfair. This restriction is expected to ensure that farmers get an adequate price for their produce. This is reflected in higher tariffs for agricultural products compared to other goods. Based on global WTO data, the simple average MFN tariff for agricultural products was 14.7 percent, and 8 percent for non-agricultural products. This makes global trade in agricultural products expensive and creates artificial supply shortages. In India, the difference is significant, adding to the already high average rates. The simple average MFN tariff for agricultural products is a shocking 39.2 percent, compared to 14.9 percent for non-agricultural products.
Non-tariff barriers
Trade in agricultural and related products is subject to additional security regulations that vary from country to country. Sanitary and Phytosanitary Measures (SPS) are regulatory standards established by countries to protect people, animals and plants from risks associated with the import of agricultural products. Technical barriers to trade (TBT) cover a range of standards, including product standards, labeling requirements and certification procedures. Differences between countries in SPS and technical trade barrier regulations increase compliance costs for producers and exporters, disrupt supply chains and limit market access. Furthermore, there is no single identifiable data source for these different standards. For smaller manufacturers, it is especially painful to comply with several strict standards.
The Role of Trade Agreements
Cross-border trade in agricultural and related products is expensive and complex. Trade agreements aim to reduce these barriers between participating countries. They allow countries to set lower tariffs and make concessions on non-tariff barriers. This opens up new markets and increases export opportunities for farmers. The expansion of the consumer market makes it possible to focus on certain crops, which makes countries emphasize their strengths. This focused approach improves efficiency and productivity, thus contributing to the economic growth of the agricultural sector. The positive impact of trade agreements is evident from historical case studies. The ASEAN Free Trade Agreement, EU agreements and Southern African Development Community agreements have led to significant growth in agricultural trade. The study concluded that the ASEAN Free Trade Agreement has also improved the food security of its member states. The daily calorie consumption per capita has gradually improved over time in the Member States.
Further action
Agricultural supply chains are multi-level, multi-stakeholder and complex networks with unique characteristics. In such an already complex environment, trade in agricultural and related products is further complicated by restrictions imposed by countries. High tariff and non-tariff barriers hinder competitive trade, prevent access to global markets and negatively affect the domestic ecosystem. Free trade agreements can override these restrictions. They reduce trade barriers and help form an even stronger supply chain that benefits both producers and consumers. They also strengthen India’s position in global value chains, a common factor for our success in the service sector. In addition, the integration of agricultural supply chains is even more important in the face of climate change. This provides India with a risk diversification strategy that contributes to the global sustainability of food systems. Trade agreements in particular can only benefit if they are created in parallel with complimentary domestic policies. This means removing artificial barriers to competition (e.g. floor tariffs) and developing laws that enable efficient production (e.g. improving the regulation of agricultural leases). Political stability is also important – temporary restrictions on the storage and sale of agricultural products must be avoided. Together with free trade agreements, they increase international trade and the incomes of almost half of our workforce – farmers. However, the welfare of farmers depends on strengthening India’s economic growth.
