By Ajaz Ahmad Rather
I was returning to home from school I am posted at when I saw an otherwise busy businessperson sitting rather uncomfortably and with imposed idleness in a chair just in front of his shop. The very first glance convinced me that it was not business as usual. I would always see him in this season busy grading and drying kernels of walnuts with some relations and labourers.
We have been taught that if one person’s income increases it creates possibilities of the same for others through his economic interaction with them. In economics, we call this the multiplier effect. Further, his business involved more men than machines, fundamental to employment in a labour abundant economy like ours. As such, in principle, his efforts were expanding economic frontiers for all of us. Noticing his unease I found it irresistible not to ask him the reason for his untimely siesta. He responded, as most fruit growers in the Valley would, “What to do? Business is down. Imported walnut kernels have reduced the scope of our work. American stuff is fairer and they employ machinery at all stages”.
It was distressing on many counts. More importantly, as a student of economics I partly knew that the problem has come to stay. It, I believe, is something structural rather than seasonal. If policies go as they seem to be, it is just the tip of the iceberg. If in coming years more foodstuff comes from developed economies, then our primary sector, which employs more people than the industrial and services sector together, will progressively disown people and the state of economic security will deteriorate. It may even endanger food security. And in the long run it may have a cumulative impact much larger than the previous year’s floods.
However, from a common-sense perspective the whole process seems senseless. The question that perplexes: how come agriculture products from developed countries dominate our markets? After all, there are huge differentials in labour wages, quality and quantum of technology used, storage costs as well as transport charges. Our labour is cheaper, technology and machinery used is elementary, storage and transport costs are rather minimal in comparison to developed economies. It is well known that apart from a large and growing domestic market, it is the cheapness of labour that drives most MNCs to invest in countries like India. In the wake of global recession and China’s slowdown, more FDI around the globe has started flowing into India to take advantage of low manufacturing costs particularly labour. For example, Foxconn, the world’s largest contract manufacturer of smartphones and other electronics, and many Chinese smartphone manufacturers like Huwaei, OnePlus, Coolpad, and Oppo are moving into India to take advantage of cheap skilled labour. Thus, inputs, like cheap land, labour and even raw materials, give advantage to MNCs across globe making India a leading destination of FDI.
Therefore, our agricultural products of necessity need to be even cheaper because of relatively low skill level involved. Then how is it possible for their primary products to defeat ours that too in our markets? It really is bad economics; they had once called it “pig science”. We need to dig a little deeper to unearth the roots of this issue.
The growth and somewhat official acceptance in most of the developing countries of neo-liberal economic ideology in the last four decades is largely influenced by three international institutions; the World Bank, the International Monetary Fund and the World Trade Organisation. Each of these applies itself to different arenas of global economic operation. The first two were created in 1944 in Bretton Woods; the former with a view to provide long run investment in needful countries and the latter to ward off any problems in balance of payments by providing short term loans to prevent spread of contagion to others regions. The WTO was formed in 1995, and was build on General Agreement on Trade and Tariffs established in 1947. All the three institutions are at the forefront of not only shaping but even at times forcing economic policies across the world. Though created for specific roles, these institutions have been criticised for relinquishing the responsibilities they were created for and are blamed serving interests of influential few, particularly the corporate world.
The WTO is essentially a forum which allows negotiations on trade rules. It came into being as part of the Uruguay round of the multilateral trade negotiations that took almost eight years of tough bargaining to settle on certain rules that signatory nations acceded to follow. The organisation claims to stand for things like “lowering trade barriers” and “discouraging ‘unfair’ practices, such as export subsidies and dumping products at below cost to gain market share”. Among the agreements ratified, the Agreement on Agriculture is of great concern to developing economies. The three main provisions of AoA related to: domestic support, export subsidy and market access. Targets were set for countries to progressively reduce and streamline these to eliminate international trade distortions. As such when all the participating countries follow all these requirements trade would become mutually beneficial and countries would specialise in what is called as products of their comparative advantage.
That in principle is not only true but even morally upright. And had things moved in right direction there was every chance for developing countries to gain. Citing a study of scholars, a WB publication, Reforming Agricultural Trade for Developing Countries (2007), mentions, “So, developing countries potentially have a lot to gain from global trade reform. Recent estimates are that developing country income would be some 0.8 percent higher by 2015, than it otherwise would be if all merchandise trade barriers and agricultural subsidies were removed between 2005 and 2010, with about two-thirds of the total gain coming from agricultural trade and subsidy reform (Vol. 1, p3)
However, the promises made by the developed countries remain unfulfilled. The developed economies have been criticised by many leading economists and organisations for doling out huge subsidies to their farmers. With these subsidies, these farmers are able to cover the costs of production and thus sell products at artificially low prices. For instance, on October 7, 2014, Gawain Kripke, Oxfam America’s director of research, told Thomson Reuters Foundation, “US farmers are subsidised so they produce more cotton than they would otherwise; lowering the global price and hurting farmers in Burkina Faso. This creates unfair global competition.” One of the noted and vocal Nobel laureate critics, Joseph E Stiglitz, remarks in his famous book Globalisation and its Discontents, “while they (western countries) preached that developing countries should not subsidise their industries, they continue to provide billions in subsidies to their own farmers, making it impossible for the developing countries to compete” (p244).
If at times they found direct violation of the WTO rules rather embarrassing, the high-income countries would create new ways to provide subsidies to theirs farmers. Even the WB publications allege such picking up of loopholes in the rules. In the book cited before, it is mentioned, “one lesson from implementation of the Uruguay Round on Agreement on Agriculture is that the political economy of agricultural protection in high-income countries is such that when reduction is required in one mechanism of trade-distorting support, another mechanism often pops up to replace it. (Reforming Agricultural Trade for Developing Countries, 2007, Vol.1, p 7).
For instance, after the ratification of the WTO agreement by countries including the US, two bills—1996 Farm Bill and 2014 Farm Bill—have actually expanded the US farm subsidy programme instead of narrowing it. According to Collin A Carter of Agriculture and Applied Economics Association, an American think-tank on agriculture related issues, “the new legislation not only expands subsidies paid to the US farmers but also ties those subsidies more directly to recent and current production and market conditions and, therefore, makes them more production- and trade-distorting. On both counts (larger and more distortive subsidies), the 2014 Farm Bill fails the test of being consistent with the WTO objectives.” (Choices: The magazine of food, farm, and resource issues 3rd Quarter 2014 29(3)). Unfairness of treaties, arm-twisting tactics of developed economies and employment, health and environmental impacts of the agreements projected by the more influential members like the US, EU, Canada, Japan and now China are well recognised. Greenpeace International writes on its website, “Its (WTO) more powerful members use arm-twisting tactics to push developing countries into making bad deals. And it’s being used by corporate interests and the US to force-feed the world genetically engineered food.”
As mentioned earlier, these subsidies lead to selling of primary products far below their actual costs. As such the markets in developing countries are flooded with low price agriculture products. As a result, many developing countries, international organisations and movements have expressed their reservations to the way things are operating. They call for removal of different assistances that fundamentally place farmers of developing economies at clear disadvantage not only internationally but even in their own markets. As such, we too need to have some sense of the problem, for the enactment of counteracting policies that will ward off the oppressive consequences of the unequal competition that benefits few at the cost of many.
However, the fruit growers of the Valley live in relative ignorance and complete exclusion from participating in the decision making process with regard to policies that directly impact them the most than anyone else in India. The state government must realise the gravity of this forced unequal competition and work to protect an all important sector of the economy. More importantly the fruit growers must educate themselves of the variety of globalisation they are subjected to and come together to protect their interests by demanding facilities, subsidies and market access at par with the people they are exposed to compete. Otherwise, the rules of the game are increasingly being designed to ensure they lose.
—The author is an economics lecturer at Higher Secondary School, Vessu, Anantnag: