Rethinking marketing, trade, and cooperation for agriculture

Dr BK Mukhopadhyay

(The writer, a noted management economist and an international commentator on business and economic affairs, can be reached at m.bibhas@gmail.com)

Dr Boidurjo Rick Mukhopadhyay

(International Award-Winning Development and Management Economist)

Decades ago, the prevalent agricultural policies, by a large measure, were concentrating heavily and solely on cultivation and increasing yield per acre, while ignoring ensuring competitive prices for farmers' produce. The ministries and departments working on agriculture, horticulture, and farmers welfare did not orient farmers to factor the market, which led to poverty in the long term. One of the consequences was that the traders benefited at the cost of farmers. There were lessons available from other developing countries in Latin America which we could have worked on, but that didn't happen.

The 686 Krishi Vighyan Kendras in every district around our country are meant to engage with farmers and advise them. These centres are equipped with soil scientists, agronomists, entomologists, plant pathologists — but no resource allocation for agri-marketing. Equally, the State government's budget for agriculture, horticulture and related departments have substantial allocations for production technology extension and subsidy delivery (and these are equally important), however nothing for agriculture marketing.

India has now secured a reputation for being an aggregation centre and a source that can feed major markets while eliminating the role of traders. And this is a measure of success since the above was long-standing goals years ago. On the other hand, supporting the market fragmentation mechanism works against ensuring competitive prices, thereby not really benefitting farmers/sellers in diverse markets.

The manner in which COVID-19 disrupted the supply chain of the Agri sector was mitigated largely by a series of measures, by both the Union and state governments. Initially, one of the big fears was that the procurement operations of the bumper rabi harvest would be affected. However, this was mitigated well with proactive and continual steps taken during the second lockdown last year. These quick wins that were albeit strategic offered a fresh feeling of confidence during dark times, in the process of which agricultural markets were further liberalized along with ensuring remunerative returns to farmers.

Still, another fundamental problem that loomed large is the lack or poor standards of logistics and infrastructure for transport and cold storage facilities forces the farmer to sell off perishables on the same day. The new legislation aims to ensure transportation of agricultural produce anywhere in the country to promote the concept of 'one country one market' after Kisan Rail was introduced in August 2020.

Evidently, the inter-State railway connections at a nascent stage have proved a boon for farmers. As the Kisan Rail network expands it would integrate the surplus and scarce markets to ensure competitive prices for farmers. This would also address the problem of market fragmentation as mentioned above.

However, looking at the northeast region, there's still a lot to be done. Some of the core components of infrastructure necessary for the growth of agricultural marketing are a) communication, b) transport and c) storage facilities, which are utterly deficient. More than 50% of the villages in the northeast region do not have properly functioning link roads. Major markets that remain affected are Manipur, Meghalaya, Assam and Mizoram where farmers still carry the load on their head. Shockingly, the average distance covered varies from 5-10 km.

The condition for success is to strengthen farmers through farmer producer organisations or cluster farming at the back-end and incentivise front-end actors (such as e-retail, organised retail and delivery companies, big buyers, processors and exporters). Agri-tech start-ups can play a meaningful role in all these activities. Failing to do that, we fear, would mean that the reforms again don't yield the desired results. Disinformation and misinformation continue to challenge the progress that we have made – using an aggressive campaign to dumb down the rumours/fears of the farmers and explain benefits of these reforms through print and electronic media would be timely and effective.

Towards larger issues.

It is better not forgotten that agricultural trade can offer opportunities for the poor, but there are major distributional impacts among, and within countries that 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 liberalization scenarios. 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. They tend to depend on a small number of agricultural commodities for their merchandise export revenues. Unstable commodity prices and export earnings are well known to make development planning more difficult and to generate 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 a 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 developed countries' markets and that 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, smaller sized developing countries have always found it challenging to have import barriers to the markets of the developed countries falling too fast. 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 tariffs fall too fast, their preferential treatment is eroded. Some developing countries make a clear distinction between their needs and what they consider to be the desire of much richer countries to spend large amounts of money for subsidizing agriculture at the expense of the poorer countries. Subsidy, however, cannot be a lasting solution.

Meanwhile, globally…

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 that 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 the small farmers in the poorest developing countries to apply. This does, therefore, de facto shut them out of the European markets. 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 is a positive development to mention here 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 industrialized countries to the least-developed and net-food importing countries to assist the latter in improving their agricultural productivity and infrastructure.

Thus, keeping in view realistically the entire thing, it would be better that all the developing countries should participate in liberalization and integration into world markets, even if the terms are applied in a more relaxed sense. For example, 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 harmonization should be ensured between private standards and official food regulations for health and safety, including traceability requirements. The continuous strive towards improving and ensuring real global cooperation should remain one of the top priorities.