Times Agricultural Journal

Both developed and developing countries are finding ways to subvert the WTO regime and thus killing its essential spirit of equality, says Dr.Varsha Varde

For as many as fifty years, India functioned almost as an island unaffected by market forces in the global agricultural economy. Contributing to a huge part of the Indian GDP, agriculture and related businesses operated within a closed system, characterised by productivity, quality and cost at variance with those in the advanced agricultural economies. This half-century old scenario is slated to undergo a revolutionary structural change in the wake of the multi-lateral arrangements made under the World Trade Organisation (WTO). No longer will Indian agri-businesses cater exclusively to the Indian market. They will have to compete with global players. Simultaneously, they will also have smoother access to the global markets. It is, therefore, pertinent at this stage, to look into the major impact the WTO is creating on them. This paper attempts to present a brief outline of the current scenario as it unfolds gradually, in response to the various provisions of the Agreement on Agriculture (AoA) under the WTO.

Partners in Agri-Business
The agri-business sector consists of organisations which:

Supply raw materials to agriculture
Supply capital goods to agriculture
Procure agricultural produce for selling
Procure agricultural produce for processing
Provide services to agriculture

Further, there are two fundamentally different types of players in each of these sub-sectors, namely, Indian companies and multi-national companies (MNCs).

We need to study each of these sub-sectors separately to understand the correct nuances of what precisely WTO means to them and what they ought to do for their survival and prosperity.

Agri-Business Confused
India is a diverse country. It is often described as an example of unity in diversity. The subject matter of this paper is no exception. WTO is perceived differently by different players in the Indian agri-business sector. Sentiments differ. Actual effects on business performance differ. Actions taken by the individual organisations vary.

Some of the concerned organisations perceive the implementation of AoA as an opening up of entirely new opportunities for them on a global canvas. On the other hand, many organisations consider AoA as the biggest threat to their sheer existence. Actually, some organisations have started to gain from the WTO already, whereas some on the other end of the scale, have actually incurred losses that they attribute directly to the WTO. Some companies have initiated actions to expand the scope and dimensions of their activities, while a few others are preparing to close operations.

However, with all these complex variations, a striking similarity across the board is the conspicuous absence of preparedness to face the challenges thrown up by the WTO regime. Consequently, there appears to be a lot of confusion in the minds of the different players in the Indian agri-businesses.

Impact on Different Entities
The time elapsed since the AoA came into effect has been too short to reach firm conclusions. But, already sentiments are running high and they have started influencing business decisions.

When one plans to study the impact of the WTO on agri-businesses, it is not sufficient to consider only the direct members of the agri-business sub-sectors listed above. Two very important constituents of the business chain ought to find prominent place in such an exercise, namely, the Indian farmer and the Indian consumer.

We therefore, note below the current sentiments and perceptions of Indian consumers and farmers, along with those of the typically Indian agri-input businesses, agri-input businesses in India controlled by MNCs, traders in agri-commodities and agri-products, processors of agri-commodities and services providers to farmers and agri-businesses. Impact on the Indian economy and concerned government agencies is also noted.

Consequences for Consumers
On account of the quick liberalisation, leading to easy import of all types of products, there is a scenario shift from a ‘sellers market’ to a ‘buyers market’. As a result, the Indian consumer is witnessing an increased choice of products of superior quality at lower prices. As an immediate reaction, consumers are jubilant. It was always a dream of a section of Indian consumers to touch, feel and use imported goods. But, very few could actually fulfil it. Now, they can feast on foreign made confectionaries, cereals, snack foods and preserves. They can wear foreign apparel and use foreign linen. They can enjoy foreign grown exotic fruits. All these goods are available to them with more value for money due to their perceived better quality, attractive packaging and uniform appearance.

However, a large majority of Indian consumers are wise enough to understand the risk of rejecting Indian products. They are, therefore, cautious in their jubilation. While they want to purchase high quality low priced goods, they would be happier to have this goal fulfilled by the Indian manufacturers and farmers.

If Indian businesses do not survive global competition, there will be an overall recession leading to a sharp decline in the purchasing power of the Indian consumer. Businesses may closedown if their goods are not lifted in the market. Employees will lose their jobs consequently. Unemployed persons cannot continue to be interesting consumers. Further, once the dependence on imported goods reaches an irreversible level, there is an imminent risk of unchecked price escalation by exporting countries. Thus, even though initially the reaction of the Indian consumers is positive, it may turn negative if proper steps are not taken for arresting the closure of Indian businesses leading to total dependence on imported goods.

Farmers’ Fears
Indian farmers are undoubtedly a worried lot. They do not precisely know this animal called the WTO. So, to that extent it is the fear of the unknown. Terms like GATT, Dunkel, the WTO, Genetically Modified Crops, are like swear words to the average Indian farmer. They are trying to understand what it means to live under the WTO regime. They are groping in the dark. They do not lose any opportunity to meet learned persons visiting their neighbourhood to learn about the future of their livelihood. However, most of them are still confused and unfocused. They have not yet achieved clarity on future trends in Indian and international agriculture. Should they continue to grow crops, which have given them adequate returns in the past? Or, should they abandon them and sow newer crops which are being successfully grown in more developed countries? If so, should these be the Genetically Modified ones or conventional seeds? Will the Indian Government permit foreigners to grab the Indian market by virtue of superior quality and competitive prices? Who exactly will help them to reach international standards of quality and cost? These and several related questions plague their minds all the time.

The most heartening observation is that Indian farmers are showing a lot of gumption in wanting to tackle the changing circumstances. In short, they may be down but not out. To combat emerging problems, they are organizing themselves much more keenly than ever before. The agricultural community as a whole is showing a determination to survive and prosper. Just in the course of the last five years, they have attended many meetings with experts in various aspects of farming. More importantly, they are gradually giving up their earlier notion of ‘farming by the farmer and marketing by the Government’. They have not overlooked any opportunity to gain knowledge of market trends and market forces. They are visiting agriculturally advanced countries in larger numbers to acquire a functional familiarity with the latest trends and successful techniques. Progressive farmers are encouraging the young generation to learn not only agricultural technology but also methods of trade and commerce. If one visits these farming families in any part of the country, one invariably comes across commerce graduates, chartered accountants and engineers, as well as agricultural graduates. The younger generation is computer literate and accesses the Internet regularly. They are thus speeding towards bridging the knowledge gap between them and their prospective international competitors.

Impact on Inputs Business
In total contrast is the behaviour of Indian companies engaged in manufacturing and distributing inputs required by agriculture such as, seeds, fertilisers, pesticides, insecticides, other agro-chemicals, water management systems, tractors, diesel engines, pump sets, motors and other equipment. The majority of these inputs businesses of typically Indian origin and ownership did not prepare themselves to face stiff competition from superior players. They were almost in a slumber until the post-WTO circumstances shook them up. The reality in its full seriousness dawned on them too late. As an immediate reaction, they are upset with the Government of India and the WTO for spoiling the game that they were familiar with so long. They have realised that their costs, quality parameters and services are under attack on account of global competition. Many of these companies have actually earned lower profits or have incurred tosses in the last year for the first time. Their survival is at stake.

Some of these businesses have panicked and have embarked upon an instant damage control exercise. Some have downsized their organisations overnight; opted for a merger; or initiated dialogue for entering into a joint venture. Some others have planned to stop manufacturing and to resort only to marketing of imported goods.

Implications for MNCs
Some MNCs entered India during the license raj phase In order to capture a part of the Indian market, it was incumbent upon them to set up manufacturing facilities in India. Import of raw materials was permitted on a limited basis only. These companies faced severe competition from Indian companies, which succeeded in producing similar products at significantly lower costs

All of a sudden, the WTO has come to the rescue of the MNCs in India in the form of a triple booster dose, namely, lifting import restrictions, reducing import tariff and imposition of Intellectual Property Rights (IPR). These MNC firms are naturally euphoric now. AoA and TRIP under the WTO have changed the ground rules for them. They can freely import not only raw materials but also finished goods and they can prohibit their Indian counterparts from reverse-engineering their new innovative products. They can now influence Indian farmers more effectively, with more products in their armoury without fear of imitation. They can, at will, curtail costly local production and directly import from one of their overseas low cost production facilities. They can launch in the Indian market their globally successful products. They can launch their brand new products at the same time as they are introduced in other countries. They can even test-market some of their new R & D ideas. All these possibilities mean tremendous flexibility in the strategic and operational management of their enterprise.

Their windfall gains do not end here. Bruised and battered by unconventional provisions of AoA, TRIP (Trade Related Intellectual Property), SPS (Sanitary and Phytosanitary Standards), NTB (Non Tariff Barriers), TBT (Technical Barriers to Trade), PBR (Plant Breeder Rights) and AMS (Aggregate Measure of Support) under the WTO, traditional Indian companies in this sub-sector of agricultural inputs have become a soft target for MNCs. These homegrown companies may soon become amenable to letting the MNCs use their marketing and distribution network, painstakingly created and developed over decades. MNCs, particularly the new entrants, will find low cost acquisition of these networks extremely useful in facilitating their smooth entry into this vast and diverse market.

Traders tread cautiously
The Indian trading community has shown mixed reactions. There is no panic. They are happy with more opportunities coming in their way, mainly in the area of imports. However, they are also worried on account of emerging global competition, resulting in thinner trading margins.

Traders all over the world are a sharp lot. They sense hostility quicker than the smartest animal in the jungle. Indian traders are no exception. They have been quick enough to realise the implications of the changing rules of the game and have started reorienting themselves to the new era.

In addition to various ‘unwelcome concepts’ under the WTO, new technological advances such as the Internet and e-commerce have challenged the age-old practices followed by Indian traders. This sort of double trouble has actually transformed the working style of some. For instance, they have decided to adopt international trading norms that are characterised by transparency, grading, service orientation and credibility.

‘Stick together’ is one of the survival strategies of the jungle. In line with this thinking, some Indian traders have started checking out the feasibility of defensive measures such as formation of consortia, local mergers and global partnerships.

Processors pleased
Processors, Indian as well as multi-national in India, are generally pleased with the emerging scenario, because they now have access to more sources of raw materials. They enjoy the option to import raw materials of better quality at lower prices. Spinners can import uniform quality contamination-free raw cotton from Australia, USA and Uzbekistan at attractive landed prices. Juice makers can import high quality natural fruit juice concentrates of orange, grape and apple free from preservatives (aseptic) from Europe and South America. Similarly, bakers can import wheat. Oil extractors can import oil seeds. Cashew processors can import cashew nuts. Worldwide sourcing also makes it possible for them to overcome the seasonality problem. They can carry out-processing operations throughout the year.

A natural corollary of this freedom is the worldwide competition for their finished goods. They are equipped to face tough competition from imported finished goods. Imported pure cotton yarn, fabric and garments, processed foods, edible oils can land from the world’s best-known manufacturers. The MNCs active in this area are contemplating direct import of finished products. The processors in India have, therefore, started tightening their belts through reduction in costs, improvement in technology and enhancement of quality.

The most important qualitative and intrinsic implication of this competitive paradigm is the need felt by Indian processors to change their mindset from being mere suppliers to serious market developers. They have realised that they can no longer take the customer for granted by simply making goods available for them to consume. No more monopolies and no more protection mean altogether new roles and responsibilities. Demand driven production will be the mantra of tomorrow. This is where the Indian companies can score over their more resourceful foreign competitors. Understanding evolving customer needs and creating custom made products to please consumers will help win the rat race of the new millennium.

Scope for Service Providers
This sector includes banks, financial institutions, insurance companies, consultancy organisations, and information technology organisations. There is tremendous scope for new services to agri-business in the changing environment.

However, it is observed that the banks, financial institutions and insurance companies have been indifferent so far. Most of these organisations are in the domain of the public sector. They are not visibly trying to grab new opportunities in agri-business in the post-WTO period. It is apprehended that probably many of them consider providing services to agriculture and agri-businesses as a ‘statutory obligation’ and not as a ‘genuine commercial opportunity’. Apathy is the outcome of this outlook. Even progressive farmers have opined that they do not look forward to any innovative services from these organizations although all of them have their physical presence overwhelmingly visible in rural as much as in urban India.

On the other hand, Indian farmers have observed during their study tours of agriculturally more developed nations such as Israel, Australia, New Zealand and the Netherlands that banks and insurance companies play a proactive mutually profitable role in farming and related businesses. A lot of real life knowledge is readily available from banking and insurance service providers in these countries. It will immensely benefit all concerned if Indian public sector organisations shed their existing notions and get busy with innovations in commercially beneficial banking and insurance products. Business potential being truly enormous, foreign organisations with vast experience in this field will lose no time in swamping the Indian terrain under the sleepy eyes of the public sector natives. Indian farmers have very clearly shown that they will take help from anyone who is willing to offer it. Swadeshi organisations will no longer get their exclusive patronage. An MNC invasion is, therefore, imminent.

On the other hand, organisations providing paid consultancy services and information technology services are pro-active. Their visibility is clearly noticeable not only in agri-businesses but also in rural India. Once again, this observation establishes the farmer’s mindset of taking support from all quarters. If good advice comes at a price, he is not averse to paying for it to improve his competitive edge in the era of the WTO. If computer education is the need of the future, he is eagerly encouraging his young to get it. It is amazing to see massive proliferation of computer training schools and cyber cafes in district towns and taluka places. In fact, this growing network is actually paving the way for e-commerce.

Agro-economy on alert
The Indian agricultural economy is characterised by a high cost of indigenous production, inconsistency in quality, poor infrastructure and red tape. These parameters make it a soft target for international players in this field. Various provisions under the WTO are facilitating their foray into Indian agri-businesses.

Already agri-business project imports have declined significantly during the last two years. This is clearly a frightful phenomenon. On the other hand, import of agro-commodities and processed foods has risen albeit from a narrow base. Although the total quantum and value of import of agricultural inputs and finished goods has been marginal during the last two years, well-wishers of India are disturbed at the sight of imported apples in district town mandis. Is this the proverbial tip of the iceberg? Will imports of raw materials and capital goods rise steadily in future? Will imports of processed agri-products increase by leaps and bounds?

At least during the last year, Indian exporters of agri-commodities and agri-products had to export at realisations lower than their costs. Local markets being sluggish, demand was not as much as expected. Resorting to exports to offload stocks was, therefore, a survival need. Consequently, export figures look interesting. But, un-remunerative exports cannot sustain either the producer or the exporter.

At the national level, it is necessary to take special notice of low cost imports from China. The Chinese costing system is not in line with the system followed in free economies. Besides, China is not amenable to the WTO discipline, as it has not yet returned to this multi-lateral trade forum. The country to take note of in future could be Russia, which too does not share the internationally practised principles of costing and accounting and has not yet returned to the WTO. As a result, a red alert situation is in the offing and it has become necessary to carefully watch the import of low cost competitive goods from China and other countries.

Action Implications of the WTO
Progressive farmers: In the current scenario, progressive farmers should stop expecting the government to solve all their problems. They have to play an active role themselves for their survival and growth. They should shift from subsistence farming to market orientation, high yielding and high margin crops. The mindset of the farmers must undergo a change and they must become aware of cost competitiveness, changing market preferences and global trends. They must adopt Farm Management Techniques and run their farms strictly on commercial lines.

Indian agri-businesses: There is no need for Indian agri-businesses to suffer from a WTO fear psychosis. They must realise that India is their own market and only they can understand the Indian market deeply. They must learn to shift the focus from merely supplying goods to developing markets and nurturing customers passionately. The new mantra is global competitiveness and hence if they cannot fight alone, they have to join hands with their die-hard competitors for survival and growth. They must also learn to focus their attention on farmers and marketers strategically. Customer Relationship Management (CRM) will have to be imbibed not just as a tool, but as an intrinsic philosophy. The new motto ought to be ‘Global Competitiveness’. In fact, it is strongly advised that the aim of the typically Indian agri-businesses should be to achieve global competitiveness to combat foreign invasion of goods and services. Having achieved this goal, the next target should be the overseas market. Ultimately, offence is the best form of defence.

Indian Government: The Indian government must speed up infrastructure development and aim for true equality with the rich nations. Nothing substantial will be achieved if the infrastructure remains in pathetic conditions. The Indian government must oppose tooth and nail the irrelevant barriers imposed by the developed nations, which come in the way of our international trade. For example, issues such as environment, child labour, SPS, NTB, TBT, PBR etc. are detrimental to the interests of the developing nations. The government must also support Indian agri-business and farmers to the fullest extent permissible under the WTO. It must also insist on automatic patents for traditional Indian plants and agri-products and ensure clarity on genetically modified agri-products.

The Perspective
Finally, it is essential to put together some uncomfortable realities surrounding the entire canvas of GATT and the WTO. Trade is the subject matter of WTO. Therefore, maximizing volumes of trade and returns from trade is the sole objective of each participating nation. In order to derive maximum advantage of WTO, all nations are planning their strategies. Everybody wants to protect their domestic trade but nobody is known to do it better than the Americans, Europeans, Japanese and Russians. They give massive subsidies to their agriculture and impose severe barriers to agricultural imports into their domains. Agriculture has been the traditional sensitive sector in the world trade ever since the turn of the previous century.

The Under-currents
The developing nations were not allowed entry into the party of the advanced countries until the former gatecrashed the party and forced recognition on an equal footing. The developed countries in return have been busy inventing new concepts and methods to keep out exports from the developing countries and simultaneously to force them to open their markets to let in imports from the developed countries. There is an inherent inequality in the AoA (Agreement on Agriculture). The developed countries are finding clever excuses to discourage agricultural imports under the concepts of eco-labelling, SPS, Super 301, etc. There is also an increasing trend towards bilateral and multi-lateral deals. The developing countries are also bending rules and continue with their traditional massive subsidies. All these actions are killing WTO’s spirit of eventual equality. The real slogan seems to be: “All are equal. But, we are more equal”.

The WTO’s Score Card
The top gainers in the WTO agreements are Australia, New Zealand, East and South-east Asia. The traditional winners are the US, EEC and Japan. The losers are African and other less developed countries. Thus, there is protection to the strong and mighty. In India, a risky complacency is developing namely, “We are safe”. However, India missed the bus that China and South East Asian countries boarded a decade ago. It is imperative that India learns from the strengths and gains of these neighbouring countries and speed up its acts to liberalise, privatise, globalise and reform the agricultural sector.

The author is general manager, Agricultural Finance Corporation Ltd.
Article courtesy: Financing Agriculture