Agriculture: India for a "market- plus" approach

by Chakravarthi Raghavan

GENEVA: Developing countries, particularly those with large sections of their population dependent on agriculture for their livelihood and for survival at the margins of the poverty line, need a "market-plus" approach to agriculture in domestic policies, and not the conventional theoretical view of "market", India, one of the largest countries dependent on agriculture, has said.

In presenting this view in a paper for the WTO Agriculture Committee, India noted that the objective of the Uruguay Round Agreement on Agriculture (AOA) was to bring about disciplines in one of the most distorted sectors of trade - by disciplining unrestricted production and export subsidies, as well as reducing tariff and non-tariff barriers. It thus sought to limit the extent of support granted by individual countries and ensure a more liberal policy on agricultural trade. However, the agreement in its preamble recognized the importance of non- trade concerns which, among others, included food security and the need to protect the environment.

But this fine balance in the preamble between trade and non-trade concerns has not been fully reflected in the provisions of the agreement, and thus in implementation.

The main thrust of the agreement was on the hypothesis that liberalization is the panacea for all ills of the agriculture sector. While this argument may be tenable from a conventional economic point of view, such a reasoning does not take into account problems faced by a number of developing countries. These latter, because of underlying constraints, have necessarily to take into account non-trade concerns such as food security in formulating their domestic policies. This is particularly so in the case of countries with a significant proportion of their population dependent on agriculture not only for their livelihood but also for survival just around the poverty line.

A purely market-oriented approach in such countries is unwarranted, India contended in its paper. Instead, in some of them, it may be appropriate to adopt what could be called a "market-plus" approach in which non-trade concerns such as maintenance of the livelihood of the agrarian peasantry and production of sufficient food to meet domestic needs are taken into consideration.

"It is important to examine this aspect of the AOA at this juncture, so as to ensure that the reform process in the agriculture sector takes into consideration the food security and other non-trade concerns like those of India," the paper said.

Basic objective of food security

Ensuring food security - access of the population to sufficient food to meet nutritional requirements - is a basic objective of government policies in agrarian developing countries. Food security issues hence cover not only issues related to availability and stability of food supplies but also issues of access to this supply. This last is related to the resources needed to procure the required quantity of food.

Thus, India said, issues related to food security are sensitive issues and hence countries where a large percentage of the population is dependent on agriculture need a certain degree of autonomy and flexibility in determining their domestic agricultural policies. These would have to be geared towards improving productivity, enhancing income levels, reducing vulnerability to market fluctuations ensuring stability of prices and so on.

These, inter alia, could be achieved through reliability of production and supplies, so that seasonal variations in access to food are minimal.

"It is for this reason that national production policies have been central to domestic agricultural policies, not just for developing countries, but also for developed countries who are net food importers, as has been brought out in the papers of Norway and Japan.

"It is therefore clear that in this sense food security is a legitimate national concern, and has been so recognized by the FAO."

During the 1996 World Food Summit, "the importance for food security of sustainable agriculture, fisheries, forestry and rural development in low- and high-potential areas" was explicitly recognized.

This recognition of food security even for low-potential areas "clearly underlines a developmental perspective which goes beyond mere trade concerns, and is therefore germane to the outlook and interest of developing countries."

Examining in this regard the external and internal dimensions of this problem, particularly for developing countries, the Indian paper noted that countries supporting rapid liberalization of the agricultural sector contended that global food sufficiency would ensure food security since countries could then produce what they are most competent and efficient in producing while importing the rest of their food requirements.

This argument presupposes that all countries would at all times have sufficient foreign exchange to procure their food requirements internationally. But this assumption is not true since not all developing countries would be in a position to import food grains, even if these were available at competitive prices, due to limited foreign exchange reserves. Also, these countries face cross-sectoral pressures on their available funds, further limiting the capacity to procure internationally. This problem is further compounded in cases where there are unforeseen variations in international prices.

There are also internal constraints which would severely limit the capacity of developing countries to increase their domestic production to at least a minimum percentage of their requirements.

Firstly, holdings are small in developing countries and the majority of farmers belong to the small and marginal category.

"This limits any attempts to introduce mechanized farming and constrains adoption of new techniques unless accompanied by large- scale extension programmes."

Hence, their productivity is low and total production varies substantially, since a large percentage of the agriculture sector continues to be at the mercy of the vagaries of nature.

Even more, only a small percentage of what is produced finds itself in the market; the rest is used by the small and marginal farmers for their sustenance or for simple barter.

At the same time, there is increasing pressure on land from non-agricultural users, both because of the rising level of urbanization as well as due to the geographic spread of industries.

If this limitation on the availability of agricultural land is viewed in the context of the growth in populations, which most developing countries invariably face, it is clear that the only way agricultural growth can be sustained and the food security objective attained would be through increased governmental support in the use of inputs, particularly in terms of irrigation, electricity, fertilizers, pesticides, technical know-how, high-yielding varieties, infrastructural development, market support and so on, the Indian paper underscored.

Thus, there are significant external and internal ramifications in attaining objectives of food security. While it may not be immediately possible to ensure that developing countries are able to produce at least a certain minimum percentage of their annual food requirements, this is a goal that has to be pursued, particularly in the light of constraints faced by developing countries in adopting an external solution to this problem.

"And given the percentage of small farmers in the agriculture sector of most developing countries, it is clear that a major part of the financial burden of increased inputs would have to be met by government subsidies. The small farmer would not be able to meet his principal responsibility without adequate support from government, and this has to be recognized. Public intervention would therefore be necessary in order to achieve these national goals."

Developmental perspective

Agricultural self-reliance, India further argued in its paper, "is a vital underpinning for the growth of GDP of agrarian developing economies, since good agricultural production provides purchasing power to a large majority of the population and in turn spurts industrial growth."

Self-sufficiency in food production is therefore a specific developmental perspective as opposed to purely commercial perspectives.

"Hence it is our view that developing countries need to be provided the requisite flexibility within the AOA to pursue their legitimate non-trade concerns. More specifically, developing countries need to be allowed to provide domestic support in the agricultural sector to meet the challenges of food security and to be able to preserve the viability of rural employment as different from the trade-distortive support and subsidies presently permitted by the Agreement."

"It is therefore important that a differentiation is made between such domestic support measures which are presently being used to carve out a niche in the international trade and those measures which would allow developing countries to alleviate rural poverty."

It was therefore necessary to examine the manner in which developing countries can be provided additional flexibilities by appropriate adjustments to the provisions of the AOA, in order to enable them to pursue their legitimate non-trade concerns, India said. "

A focused discussion on the subject will contribute to increased awareness of the non-trade concerns of countries like India, concerns such as food security and rural employment, and thus enable the membership of the WTO to deal with the subject of continuation of the reform process in the agriculture sector with sensitivity to these concerns," India concluded in its paper. (Third World Economics No. 199, 16-31 December 1998)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) from which the above article first appeared.