The Financial Express

Agri-trade: Scope least explored despite vast potential

B K Mukhopadhyay | Published: February 13, 2019 21:13:03

File Photo (Collected) File Photo (Collected)

It is better to start with the good news. In India, the long-awaited agriculture export policy was cleared by the cabinet recently in line with the government of India's commitment to double farmers' income by 2022. The new policy aims to double the nation's farm exports to $60 billion by 2022 and gives a "greater thrust" to value-added products, promotion and branding of India's produce. Under the new policy, export of commodities such as tea, coffee and rice will be boosted and help increase the country's share in the international trade of farm products. The new policy is also expected to provide an institutional mechanism to tackle market barriers.

Still, it remains a matter of regret that in spite of vast potential, the developing countries of the world, including Bangladesh, cannot make much headway into international markets. Ignorance about the main tenets of international marketing, faulty planning and poor implementation of the same, among others, did not allow economies like India, Bangladesh and others to make the desired foray into the vast international market. The sincerity on the part of the governments is not questioned on this score inasmuch as India's latest Foreign Trade Policy had, for an example, some novelty, indeed. But what is lacking is a proper regional development plan that can enable implementation agencies to move systematically towards this objective.

It should not be forgotten that agricultural trade can offer opportunities for the poor. But there are major distributional impacts among and within countries which in many cases have not been favourable for small-scale farmers and rural livelihoods. The poorest developing countries are the net losers under most trade liberalisation scenarios.

As things stand, the reality in the overall sense is also not good to note: a prominent feature of agricultural commodity exports in many developing countries is that relatively a few commodities account for a large share of total export earnings. Often they depend, rather continue to depend, on a small number of agricultural commodities for their merchandise export revenues.

The sluggish demand for primary agricultural commodities and the recurring conditions of boom and slump in their exports have created problems for commodity-dependent economies. Unstable commodity prices and export earnings are well known for making development planning more difficult and generating adverse short-term effects on income, investment and employment.

What is more important to note is that with slow demand conditions, countries specialising in production of primary commodities can be expected to have  declining share in world trade unless they have a major cost or quality advantage over their competitors.

Fears are not unfounded as many developing countries complain that their exports still face high tariffs and other barriers in the markets of developed countries. Additionally their attempts to develop processing industries are hampered by tariff escalation (higher import duties on processed products compared to those on raw materials). They want to see substantial cuts in such barriers.

Side-by-side, some of the smaller developing countries have expressed concerns about import barriers to the markets of the developed countries falling too fast. They say that they depend on a few basic commodities that currently need preferential treatment (such as duty-free trade) in order to preserve the value of their access to richer countries' markets. If normal tariff rates fall too fast, their preferential treatment is eroded, they say. Some developing countries see this situation as almost permanent. Others view it as a transition, and are calling for binding commitments on technical and financial assistance to help them adjust, including the creation of a technical assistance fund for the purpose.

Some developing countries make a clear distinction between their needs and what they consider to be the desire of richer countries to spend large amounts of money for subsidising agriculture at the expense of the poorer countries. Whatever it is, it is clear that subsidy cannot be a lasting solution; at best, it can give short-term benefits. Once it is stopped, there would be a hue and cry because the recipients were attuned to that and old habits die hard! So why not to restrict the same at the initial stages only?

The UN recognised that though European Union (EU) has made progress on subsidies and tariffs affecting the poor countries, but market access, in many areas, remains insufficient. Much remains to be done to remove remaining distortions, whilst the EU rules and regulations are frequently too complex for producers in the developing countries to navigate. Simultaneously, efforts made to reduce tariffs in order to open doors to imports from the developing countries should not be jeopardised by putting in place new non-tariff barriers. For example, stringent standards not fully justified by health and safety concerns should be reviewed since they are often too costly for small farmers in the poorest developing countries to apply. This does, therefore, shut them out of the European markets.

The silver lining is that of late, World Trade Organisation (WTO) statistics have confirmed that the developing countries, as a whole, have seen a significant increase in their agricultural exports. Agricultural trade rose globally and out of this, the share of the developing countries in world agricultural exports has increased.

It is also a fact that in case of some individual developing countries agricultural trade balance deteriorated - their imports have risen faster than their exports.

It should be mentioned that the WTO Committee on Agriculture also regularly reviews actions within its decision-making framework, in such areas as technical and financial assistance provided by the industrialised countries to the least-developed and net-food importing countries to assist the latter in improving their agricultural productivity and infrastructure.

Thus, by realistically looking at the situation, it would be better that all developing countries should participate in liberalisation and integration into world markets, even if the terms are applied in a more relaxed sense [in the 1986-94 Uruguay Round negotiations, participants agreed that the rules and disciplines to be negotiated would be equally applied to all member-governments]. Better harmonisation should be ensured between private standards and official food regulations for health and safety, including traceability requirements.

Finally, climate change is already threatening the fragile food security and ecosystem of the developing world. The poorest and vulnerable are affected most because they rely on climate-sensitive sectors, such as agriculture, and often lack the capacity to adapt themselves to disaster risks. Climate change requires collective action and also substantial investment in mitigation and adaptation efforts.

It is needless to repeat that in the absence of real global cooperation very little can be done in the days to come.


Dr BK Mukhopadhyay is a management economist.


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