Financial Daily from THE HINDU group of publications
Tuesday, Jun 28, 2005
Agri-Biz & Commodities - WTO
Protecting farmers from world markets
Peppered with problems: Outdated farming practices and the subsequent fall in crop prices have left Kerala's pepper farmers in dire straits.
India signed the WTO accord with the expectation that the prices of the country's agricultural produce would rise with the opening of the markets of the West. But the exact opposite is taking place.
The problem is a global one. The orange farmers of Florida were hit by four typhoons in 2004, which badly damaged their crops. Such calamities have occurred in the past as well. But, then, they had a different impact: Loss of crop led to short supply and higher prices and farmers were compensated to some extent.
Not any longer. In the case of Florida, oranges were imported from Brazil in large quantities and the prices remained flat. Prima facie, therefore, it would seem the WTO mechanism works against the interests of the farmers.
Back to the pepper growers and the question: How do the farmers of Vietnam produce pepper at cheaper prices than those of Waynad? The International Trade Centre had launched a programme to improve the quality and crop practices in Vietnam. The ITC Web site explains that subsequently, "Vietnamese black pepper producers began systematically to address issues of poor quality related to fragmented local production and processing; out-of-date or limited technical knowledge; and under-investment in advanced production technology. In 2001 ITC launched a three-year programme, funded by the Swiss State Secretariat for Economic Affairs to boost quality assurance efforts. The American Spice Trade Association (ASTA) and the European Spice Association (ESA) worked in close collaboration with ITC to enable Vietnamese producers to address technical issues undermining the quality of their pepper. The ASTA-standard pepper covering amongst other things the pepper grade, weight, volatile oil content and moisture content is a `quality passport' for international exporters." The adoption of the ASTA norms enabled Vietnam to emerge the No 1 supplier of pepper in three years flat.
The second factor why Vietnam is able to sell its pepper produce at cheaper rates, according to ITC, is the low labour costs. But this is only one side of the story.
According to a United States Department of Agriculture report, "The US, now the world's third largest rice exporting nation, is expected in the next five years or so to be overtaken for that position by India. Exports by India are projected to steadily increase over the next decade as high internal prices stimulate production and exportable supplies."
So, the WTO would appear to be more a mixed blessing. While the pepper farmers of Waynad are suffering, the rice farmers of Punjab are rejoicing.
The creation of a world market implies that comparative advantage will now be acknowledged internationally. The farmers of Waynad could have previously continued with their outdated farming practices behind import barriers. Vietnam could have produced pepper for Rs 60 a kg but Indian farmers could continue to produce at Rs 70 because imports were not allowed. Now those farmers who adopt international best practices, such as in rice, will alone survive and conquer the world markets.
We should not get disenchanted with the WTO because of the problems of pepper farmers of Waynad. Instead, they should be encouraged to adopt quality control and better crop practices to lower their cost of production and conquer the global markets as Vietnam has done. It will not do to remain tied to backward practices and cry about the threat from imports.
The problem of lower wages is more difficult. One who is willing to work for the lowest wages will win the world market. The wages of farmers of Indonesia, India and other countries will be determined by those prevailing in the least-wage country Vietnam. On this count, the complaint of Waynad farmers has merit.
The solution is not easy, however. Higher import duty on pepper may protect Waynad farmers but two problems will remain. One, the protection could support outdated crop practices rather than higher wages. Say the government imposes an import duty of Rs 10 a kg on pepper imports from Sri Lanka and Vietnam. The price in the domestic market would rise to Rs 70 a kg.
However, the higher price of pepper may not translate into higher income for the farmer if his yield is less. Thus, protection should be provided along with a programme to upgrade the crop practices as was done in Vietnam.
The second problem is that India can protect its domestic market from imports but that will not help capture export markets. It will be necessary, therefore, to provide a suitable export subsidy to compensate for the higher wages of India's farmers.
The country needs to adopt a three-point strategy to meet the challenges thrown up by the WTO. One, it needs to readjust its agricultural exports by looking at the global comparative advantage for each crop. It is possible that farmers of Waynad will shift from pepper to rubber or ginger.
Two, India needs to implement programmes for quality assurance and best crop practices for all its crops.
Three, it needs to provide protection from imports, and offer export subsidies in limited quantities to select crops where enhanced incomes of farmers, rather than outdated crop practices, are leading to higher cost of production.
(The author is a freelance writer. Feedback may be sent to firstname.lastname@example.org)
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