India's political leadership seems to be favouring narrow corporate interests over those of the people
The Regional Comprehensive Economic Partnership (RCEP) is a proposed free-trade agreement (FTA) between the 10 member states of the Association of South East Asian Nations (ASEAN)
and six other countries
RCEP negotiations were formally launched in November 2012 at the ASEAN Summit in Cambodia. All liberalisation, whether related to the World Trade Organization (WTO), FTAs and other trade-related agreements, have a serious impact on our farmers and agriculture, and the economy in general.
Trade negotiators from India's Union Ministry of Commerce and Industry argue that FTAs help create new market for farmers. But the fact remains that reduced import duties demanded by trade agreements are bleeding Indian farmers.
India's agricultural exports have declined to $33.87 billion in 2016-17 from $43.23 billion in 2013-14; import of agricultural commodities (including plantation and marine products) in 2016-17 rose to $25.09 billion from $15.03 billion in 2013-14.
This was informed by the then commerce minister Nirmala Sitharaman in the Rajya Sabha on August 9, 2017. An analysis of the signed FTAs shows that they have miserably failed to create a market for agricultural products in our FTA partner countries, Japan And South Korea being good examples. Further, the Government of India failed to use the renegotiation provisions of India under the ASEAN FTA to protect farmers’ interests.
We are alarmed to know that RCEP FTA negotiations are in the last stages and government will soon sign it. All these engagements with trade negotiations are happening without consulting stake holders including farmers. Government of India has also not published any studies related to RCEP and other FTAs.
Farmers are in a do-or-die fight to at least be able to recover their production costs and pay for loans. If RCEP materialises and products start getting imported from RCEP countries, it will further reduce farmers’ gate price.
Whether the government purchases agricultural products with higher Minimum Support Price or not, imported products will reduce the overall market price. That will lead to more debt for farmers and more suicides.
According to the National Crime Record Bureau’s report, in the 20 years from 1996 to 2016, more than 30 lakh (0.3 million) farmers have committed suicide all over India. A good part of this is due to the impact of WTO and FTAs. RCEP would be yet another monster that would eat our farmers.
A few examples from the past
So far, India has signed 14 FTAs. The impact of all these FTAs on the economy, and especially on the agriculture sector has been disastrous. Among these, the India-Sri Lanka and ASEAN-India FTAs had the greatest negative impact on the Indian agriculture sector.
The India-Sri Lanka FTA’s impact was high on spice farmers. Pepper started coming from Vietnam through Sri Lanka. In 1999, the price of pepper was 720 per kg, which has now reduced to 330 per kg.
Another sector impacted was tea plantations. Indian green raw tea leaf price was Rs 16 per kg before the agreement, but it reached Rs 6 per kg in 2004. The import quota allowed in the agreement from 2000 was 11,250 tonnes. Actual import of tea was much less than the import quota.
In 2000, it was 461 tonnes — 4.1 per cent of the quota. In 2001, it was 484 tonnes or 3.2 per cent of quota. And in 2002, it was 448 tonnes or 2.9 per cent of quota according to The Impact of the Indo-Sri Lanka Free Trade Agreement on the Sri Lankan Economy by Sumudu Perera, University of Sri Jayavardanapura.
This statistic proves that not only actual import but also chances of import have a big impact on domestic tea prices. Prices of most spice products also came down heavily after the Indo-Sri Lanka FTA.
The price of raw coffee beans was Rs 63 per kg in December 1999. This got reduced to Rs 18 per kg in 2004. Hindustan Lever and Tata, both processing companies and biggest brand owners of the processed tea and coffee, were the beneficiaries, while farmers were biggest losers.
Tata transferred their plantation asset to some other company, because they could now import tea from outside and sell it India. Today, Lankan coconut products, nutmeg, tea, coffee, pepper and rubber are still coming to India and impacting our farmers.
The ASEAN-India FTA also damaged Indian agriculture a lot. The edible oil sector was the most adversely impacted by this FTA. Due to its impact, in Kerala -- the largest coconut producing state, coconut production halved to 300 crore nuts in 2016-17 from 600 crore nut in 1999-2000.
India was once self-sufficient, but now it is importing 55 per cent of its edible oil needs, and has become a highly dependent country in terms of edible oil. Each village had an edible oil extracting unit. Most of these units closed down due to the import of edible oil and 0.5 million people lost either employment or other income.
Trade statistics on edible oil from January 2019 reveals the future shock that can be caused by the RCEP agreement and import duty reduction. According to the Indo-Malaysia Free Trade Agreement, India reduced the import duty of crude palm oil from 44 per cent to 40 per cent and purified palm oil import duty reduced from 54 per cent to 45 per cent. From other ASEAN countries, it is still 50 per cent. From January 2019 to June 30, purified palm oil import from Malaysia increased 516 per cent!
Black pepper from Vietnam and Indonesia started coming in with these FTAs. That is one of the reasons for the crash in pepper prices in the last three years. According to the Vietnam Pepper Association Statistics, India imported 20,441 tonnes of pepper in 2018.
In 2010, India was still self-sufficient in rubber production. After the ASEAN agreement, rubber import increased. Between 2013 and 2015, rubber imports almost doubled from 2.6 lakh metric tonnes in 2013 to 4.4 lakh metric tonnes at the end of 2015.
Production cost calculated by the Kerala government for one kg rubber is Rs 173. The current farmers gate price is Rs 142 per kg. When farmers gate price goes down, it is the tyre manufacturing corporations that are the beneficiaries. But now, tyre manufacturers are also under threat from cheap Chinese tyre imports.
Like other FTAs, RCEP will take many farmers’ lives. Because Indian products face high non-tariff barriers (NTBs) like food-related and other standards, as well as technical barriers in Japan, Australia and New Zealand, exports are difficult. At the same time, NTBs are lower in India. When tariffs are reduced, Australia, New Zealand, and ASEAN countries will be the major beneficiaries.
RCEP will have a huge impact on the diary sector. The crisis of milk producers started along with globalisation. Up to 1995, India's milk production was continuously increasing and there was also a continuous increase in farmers gate prices.
After India acceded to the WTO and had to convert all quantitative restrictions on trade into tariff equivalents, the Indian negotiators initially left the bound tariffs for skimmed milk powder (SMP) imports at a zero level. This led to an increase in imports of SMP and butter oil, when quantitative restrictions were lifted.
According to the import/export database of the Union Ministry of Commerce and Industry, the quantity of SMP imported was nearly 20,000 tonnes and butter oil nearly 15,000 tonnes in 2008. Multiplied by a factor of five, these imports are equivalent to liquid milk imports of about 75,000 tonnes.
Imports of butter oil, which is needed for mixing with SMP and water in order to finally obtain liquid milk, peaked at a level of more than 21,000 tonnes in 2009. The share of New Zealand dairy exports (% of total agricultural exports) to India increased by 57 per cent from 2000 to 2009. In case of Australia, the increase is 25 per cent.
Import of 17,000 tonnes of SMP from Denmark at zero duty and dumping of SMP and butter oil from New Zealand and Australia attracted farmers’ agitation, whereby the government of India increased the import duty on SMP and butter oil in 2012.
But still, farmers gate price of milk in Punjab is only Rs 20 per litre. In Maharashtra, it is only Rs 17 and at present, there is a big agitation for ensuring the recovery of the production cost. From 2000 to 2011, there seems to be a trend towards substituting national production with cheap milk powder imports.
More than 220 companies imported SMP and butter oil, which mixed with water, gets distributed as milk. Corporate companies’ cheap milk has started replacing the co-operative milk of Indian farmers. The 2012 increase of import duty saved Indian farmers from further reduction of milk products price.
All these import duty reductions caused by trade agreements seriously affected the farmers’ gate price and pushed them into a debt trap and finally, some of the farmers were led to suicide.
Farmers are the sufferers and importers and the processing corporates are the beneficiaries from all such import duty reductions. Those corporates benefited from FTAs and the corporates from the RCEP countries are lobbying to sign the RCEP. Some of the articles that have appeared in the Indian media supporting the agreement, are the efforts of such lobbies.
The Centre for Regional Trade (CRT), New Delhi, is an organisation working with the support of the commerce ministry. We are concerned that an article co-written by Ram Upendra Das in The Financial Express on August 6, 2019, may be reflecting the position of the Ministry of Commerce on dairy liberalisation, not only in RCEP but in trade talks with other countries.
This article is deliberately misleading as it says that India is headed towards a deficit in terms of consumption demand versus production of 102.52 million tonnes (MT) by 2034. This is a completely wrong argument according to publicly available statistics.
Niti Aayog’s own report, Demand & Supply Projections Towards 2033, shows projected demand for 2033-34 is 292.15 million MT while the projected production is 329.73 million MT. Clearly, not only will Indian dairy producers meet the demand, there will be a surplus of 37.58 million MT. This is supported by National Dairy Development Board data. The National Action Plan for Dairy Development-Vision Report projects figures only until 2024.
Hence, it is not clear which figures the article is using to point out a deficiency for 2033-34. It is using different figures from different reports to argue for a deficit which the reports themselves are not indicating so. Even if New Zealand ‘dumps’ just five per cent of their exports into India, it will still be fatal for Indian dairy farmers. They are already suffering because of a crash in prices due to over production.
Ideologically, this government is committed to cow protection. Imports of wheat and edible oil reduced the availability of cattle feed in India. That impacted the production cost of milk in India. Due to continuous loss, many people dumped their cows in the street or sold them to the slaughter houses.
If milk imports from the United States or RCEP countries are allowed, it will send lakhs of our cows to the slaughter houses. Thus, a government which shows itself as ‘cow protector’ will end up as ‘cow killer’. Before any trade negotiation, the government must understand that the cow is the back bone of Indian agriculture, and milk-related revenue is the basic livelihood of crores of Indian-farmers.
Another sector coming under threat is fisheries. Some of the countries are interested in opening up the sea for Deep Sea Fishing (DSF) vessels. When the new vessels enter the field of DSF in the Indian Exclusive Economic Zones (EEC), they will go dry in a short span of time.
Traditional and small-mechanised vessels are already on the life support system. How can we liberate DSF vessels from RCEP countries? If huge vessels are allowed to operate in our fragile fisheries zone, our fishing resources will be exhausted within no time. This will displace 7.5 million fisherfolk.
Farmer agitations are going on in most of the sugar producing states. Nowhere are farmers getting the due MSP. Sugar factory owners complain that retail prices of sugar have come down to Rs 40-42 per kg. This is due to import of sugar. Even though we increased import duty to 100 per cent, import is increasing and export is decreasing.
Import increased from 2.14 million tonnes in 2016-17 to 2.4 million in 2017-18. Export decreased from 2.53 million tonnes in 2016-17 to 1.75 million tonnes in 2017-18. Among RCEP countries, China, Japan, New Zealand and Singapore are sugar exporters. In 2016-17 and 2017-18, India imported sugar from all these countries. Even as farmers are demanding to amend the finance bill that seeks to increase import of sugar from 100 per cent to 150 per cent, RCEP negotiations will decrease the import duty of sugar to minimum!
The case of wheat
Australia is the sixteenth largest exporter of agricultural products. It is an exporter of wheat, soya bean oil, fruits, especially apple, and fish products. Statistics from the last five years show huge imports from Australia.
India has the experience of cheap wheat imports from Australia. Wheat is the second most important staple food after rice in India and generally provides about 50 per cent of the calories and protein requirement to a vast majority of the Indian population. Twenty to 30 per cent of the wheat-based products, including husk, is used as fodder for cattle. Wheat production provides income and employment to more than 6.7 crore people. Increased import of wheat, therefore, is a big threat to the economy.
Even though we had signed the WTO agreement, our bound duty was high, which protected our wheat farmers. Concerns of Indian farmers related to wheat import are becoming more serious with the increasing import duty reductions.
In 2006-07, we had a stock of 6.3 million tonnes with the Food Corporation of India. During 2006/7, the Indian Government imported a total quantity of 5.5 million tonnes of wheat worth $1.13 billion at an average landed cost of $205.5 per metric ton. Bulk imports were through the State Trading Corporation.
In addition to bulk imports on account of the Indian government, there were private sector imports by end users such as wheat flour millers and manufacturers of wheat-based products like bread, biscuits and noodles. These lead to a price crash of Rs 2.65 in the market.
Private sector wheat imports totalled 0.7 million tonnes during 2006 and 1 million tonnes during 2007. This were mainly imports from Australia. The general preference amongst private sector importers such as wheat flour millers is for Australian wheat which is considered the most suitable replacement for Indian wheat.
In RCEP negotiations, if India agrees to reduce import duty on wheat, it will seriously affect our farmers. In 2005, we exported a small quantity of wheat, the impact of which was that prices started spiralling. Then we started importing, whereby the prices plummeted. Any international interference will lead to a high price variation.
A small quantity of imported wheat can impact our farmers gate price a lot. Even before signing the Comprehensive Economic Partnership Agreement, in 2012, Indonesia opened the agricultural market for Australia. Most of the projections and predictions were that Indonesia would be the gainer in agricultural products trade. But statistics from the last five years show huge imports from Australia.
Statistics say the same about import duty reduction in India. Government of India reduced the import duty of wheat to 10 per cent on September 13, 2016. On December 9, 2016, the government removed the import duty of wheat. After this, wheat imports reached a record level of 5.9 million tonnes in 2016-17.
Then, the government increased the import duty to 10 per cent in 2017 and again increased to 20 per cent in 2018. This reduced the imports to 2 million tonnes. 2019 was an election year and the government faced big agitations from farmers groups, whereby it increased import duty to 40 per cent in April 2019. The government’s plan was to give wheat stock to private companies after purchasing it from the farmers. But there are no takers for government wheat as private companies had stored a lot from the time of low import duty.
China is the sixth largest exporter of agricultural products. Since 2010, every three months, tomato prices in India crashed to around Rs 2 (and at several places to Re 1 per kg). Farmers had no choice but to feed them to cattle or to throw them away. This was happening at a time when the tomato processing industry was merrily importing tomato paste and pulp mainly from China.
This is also the case with apple pulp and mango pulp. Many of the juice manufacturing companies also import apple pulp and mango pulp from China, and it is then mixed with water and sold as juice. There is no coconut cultivation in China, but the Chinese import them from other countries and then process and export. Processed foods from China not only impact farmers but also have a heavy impact on the food processing Industry. These sectors have the potential to create millions of jobs in India. All that will be eroded with RCEP.
China, at present, is a successful exporter of garlic and garlic pulp, pulses, apple and apple juice, tomato pulp and dried tomato, green chilly paste, potato and potato powder, plywood and wood articles, and preserved chicken meat, and frozen fish especially eels.
The road ahead
If we reduce import duty, all these products will flood in from China. Similarly imports of wheat from Australia, milk from New Zealand and Australia, palm oil, rice, rubber, tea, coffee pepper and fish from ASEAN countries, will have a massive impact on the Indian agricultural sector. Finally, this will be the death knell for most of our agriculture products which engage a very large numbers of farmers in India.
Following nationwide protests from different parts of the country, the previous United Progressive Alliance government had appointed a Standing Committee of Commerce on Free Trade Agreements. The Committee was headed by former Himachal Pradesh chief minister and former union minister Shanta Kumar, who is a member of the current ruling party, which was then in opposition.
Many farmers organisations, trade unions, civil society organisations and academics were invited for the hearing by the Committee. After the hearing, the Parliamentary Standing Committee unanimously wrote a letter to the then Prime Minister Manmohan Singh to stop FTA negotiations. At that time, the current ruling party had criticised FTAs. But after coming into power, the Bharatiya Janata Party-led government restarted the negotiations.
Farmers have suffered a lot in the backdrop of the India-Sri Lanka FTA, but corporations like Tata Tea and Hindustan Unilever benefited. In case of ASEAN-India FTA too, farmers suffered but tyre- producing corporates, edible oil importing corporates, and spice-extracting corporates benefited.
In RCEP, the trade agenda at this point also seems to be benefiting only corporates. It also seems that one of the powerful corporate groups in India that have a link with the prime minister - the Adani group, will receive massive benefits.
Adani is one of the larger edible oil brand holders and importers, and one of the biggest pulses importer and sellers in India. Adani group will get investment protection with this FTA. Adani group’s mining products like coal from Australia will become much cheaper, while it will be causing environmental pollution.
India's political leadership seems to be favouring narrow corporate interests over those of people. The secrecy in which negotiations are held can only breed corruption and bad decisions.
The comparative advantage theory of free trade is a corporate advantage theory. It is harming farmers, workers and people at large. Countries must rethink about free trade theory-based agreements.
K V Biju is All India Organising Secretary, Swadeshi Andolan and National Co-ordinator, Rashtriya Kisan Mahasangh. Views expressed are the author's own and don't necessarily reflect those of Down To Earth
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