The Doha Round has resumed in February and agriculture is still one of the stumbling blocks. The introduction of a farm bill in the US that will shift amber and blue box subsidies to the green box has complicated matters further. This is because the bill will cause an increase in direct payments to farmers by 10 per cent. As far as India is concerned, it needs to do a rethink on agriculture, which is crucial. Nevertheless India also needs to ask what else it can gain from the successful completion of the Doha round.
Everyone knows that OECD support programs artificially reduce world prices below the cost of production and inhibit the ability of developing and less developed countries farmers to compete. Even if the trade distorting product specific subsidies are reduced or eliminated, the price transmission mechanism is so poor that it will be difficult to transmit the impact of price change directly to the farmers in an efficient manner. Recent research by the author shows that a 10 per cent rise in world prices leads to only 0.5 per cent, 2.0 per cent, 7.3 per cent and 8.7 percent rise in rice, wheat, cotton and sugar domestic prices in short run. Also, prevailing regulations by the government in form of policies of Minimum Support Prices shield producers from adverse price swings, causing domestic prices to adjust to world market prices in a partial-adjustment manner. High distribution costs add another layer between border prices and producer prices. The credibility of India’s agricultural exports can be judged by our random decisions to ban exports in situations of domestic crisis. Thus OECD liberalization will not have a meaningful effect on Indian farmers.
The farm and export subsidies of OECD countries are an important supply constraint for Indian farmers but not the most important one. There is need to work out the trade-offs between sectors in the Doha negotiations based on realistic gains rather than just following the tradition of protecting our agriculture sector.