Why WTO matters today

5th South Asia Regional Meeting,

Think Tank InitiativeCentre for Policy Research

November 2015

Harish DamodaranThe Indian Express

Crop output: million tonnes, 5-year-end average1993-94 2003-04 2013-14

1. Foodgrains 175.91 201.48 248.76

(a) Rice 75.14 85.67 100.43

(b) Wheat 55.55 71.35 90.39

(c) Maize 9.25 12.57 21.36

(d) Pulses 13.05 12.78 17.52

2. Oilseeds 19.15 19.97 30.20

3. Cotton-million bales 10.62 15.38 35.04

4. Sugarcane 235.66 282.75 337.39

5. Potato 15.80 23.47 41.87

6. Onion 3.48 4.94 16.28

7. Milk 55.92 83.51 127.25

Twice blessed!

• Farm output rose much more in last 10 years.• General inflation based on GDP deflator averaged

6.85% a year during 2004-05 to 2013-14.• It was higher, at 9.67% a year, for ‘agriculture’.• So, farmers benefitted from higher production

and improved terms of trade.• This was not so during 1994-95 to 2003-04, when

average annual farm inflation (5.80%) was below general inflation (5.86%). Output also rose less.

Main reason: Global prices rising• Between 2004 and 2013, IMF’s ‘Food’ price index soared

76.5%, while going up 74% for ‘Beverages’ and 37.2% for ‘Agricultural Raw Materials’ .

• This helped push up domestic farm prices through (a) better realisations from exports, and (b) alignment of official MSPs to international prices. Globalisation and WTO helped!

• The end-result: higher rural incomes. % of poor in rural India fell marginally from 50.3 to 41.8 between 1993-94 and 2004-05, but to 25.4 by 2011-12 (Panagariya and More, Columbia 2013).

The farm export boom ($ million)2003-04 2013-14 2003-04 2013-14

TOTAL AGRI EXPORT 7533.1 43251.7 Fruits & vegetables 389.9 1495.1

Marine products 1328.7 5016.5 Processed foods 305.2 1909.6

Basmati rice 433.7 4864.7 Wheat 520.4 1569.0

Non-basmati rice 473.3 2925.1 Sugar 269.0 1201.6

Bovine meat 334.4 4350.2 Tobacco 238.6 1011.4

Raw cotton 205.1 3637.5 Maize (corn) 77.1 1009.9

Oil meals 728.7 2796.3 Cashew 371.0 848.7

Spices 336.0 2497.2 Tea 356.3 798.8

Guar gum 73.1 1979.6 Coffee 236.3 798.8

When global prices crash

Commodity/Contract Price unit Current Year ago 2 years ago

Wheat (CBOT-most active traded) $/bushel 4.94 5.52 6.45

Corn (CBOT-most active traded) $/bushel 3.60 3.78 4.22

Rice (Thailand white 5% broken FOB) $/tonne 367 418 438

Soybean (CBOT-most active traded) $/bushel 8.60 10.36 12.81

Crude palm oil (Malaysia futures) $/tonne 523.62 666.67 816.82

Cotton (Cotlook ‘A Index’) Cents/lb 68.85 66.60 84.70

Sugar (Raw ICE futures) Cents/lb 15.18 15.77 17.55

Rubber (RSS-4, Bangkok) $/100 kg 121.5 164.85 248.5

Skim milk powder (Fonterra auction) $/tonne 2018 2457 4559

Flip side of WTO/Globalisation• India exported wheat at average $ 310/tonne FOB in 2012-

13 and $ 275 in 2013-14. Today, you can realise only $ 185-195 FOB, below even the MSP of Rs 1,525/quintal or $ 231/tonne.

• Therefore, reduced scope for both exports and hiking of MSPs. Same story in all crops. Also, chances of WTO subsidy caps being breached higher today than during 2004-13. WTO matters!

• End of global commodity price boom not good news for Indian farmers. Protecting rural incomes major challenge for Modi government.

Agriculture’s perfect storm

• Last two years (roughly from May 2014) have seen Indian farmers suffer low prices.

• They have also suffered two back-to-back monsoon failures, resulting in two bad kharif (summer-monsoon) crops. Last rabi (winter-spring) crop was also bad due to unseasonal rains/hailstorm in March. This rabi, too, no better thanks to poor winter rains so far. In all, four successive bad crops.

• This adds up to a ‘perfect storm’ of low prices and failed output. Far cry from 2003-2013!