Ensuring level playing field for farmers
A USAID report released last month substantiates the view of the country’s agriculture lobby that unless a level-playing field is provided to Pakistani farmers, trade with India in farm commodities will be of great disadvantage to them.
One may recall that during an interaction with the federal government in mid-December, the first of its kind since the trade liberalisation talks began, the representatives of the farming community had made it clear that instead of giving protection to specific commodities, Islamabad should subject agricultural imports from India to Rs 400 per 40 kg regulatory import duty or give subsidy of Rs 12,000 per acre to Pakistani growers on various inputs. There was no agreement between the two sides on key issues. Since the grant of Most Favoured Nation (MFN) status to India has been deferred, the prospects of fair farm trade between the two countries remain in limbo.
India charges a customs duty of 100 per cent on wheat, 70 to 80 per cent on rice and 30 per cent on other commodities. In addition, sales tax and cesses are imposed by the states. Against almost closed door for Pakistan’s agricultural commodities in India, Pakistan has almost completely liberalised trade. Commodities like onions, leguminous vegetables, rape or colza seeds and seeds coming from India are totally exempted from customs duty. On other products, the maximum rate of duty is currently 25 per cent. Pakistan had brought down its tariff lines some years ago to comply with WTO requirements which India has not done yet.
According to the USAID report drafted by economist Dr Hafiz Pasha, the MFN status granted to Pakistan by India in 1996 was of little effect because it did not result in liberalising the trade as was expected. The policy of high tariff structure and non-trade barriers (NTBs) negates the very purpose of the MFN. As a result, Pakistan’s farm exports saw little boost. Despite India reducing its South Asian Free Trade Area (Safta) sensitive list, revised in September 2012, it is amazing to note that some of Pakistan’s major exports including rice, cotton yarn, ready-made shirts, bed and table linen continue to be on India’s sensitive list.
The study urges Pakistan government to enter into negotiations with India to seek liberalisation of trade in true sense. At present, 44 per cent of major Pakistani exports are outside the sensitive list, while 58 per cent remain on it. What matters is not the number of items in India’s Safta sensitive list but the nature of the items.
However, the fact remains that Pakistan would badly suffer once it grants MFN status to India and, as a corollary, the trade is liberalised. India will increase, in a big way, its exports of agricultural commodities to Pakistan which being cheaper will capture the market to the detriment of Pakistani farmers. The prices of almost all major farm goods, like moong dal, masoor dal, milk, vegetable ghee, tea, potato, onion and tomato, are higher in Pakistan as compared to India.
In July 2012, according to the study, price of rice in Lahore was higher by a ratio of 1.471 if compared with the price in Delhi. Similarly, price of gram dal was higher by a ratio of 1.088 in Lahore, the price of moong dal by 1.060, masoor dal by 1.042, milk by 1.198, and vegetable ghee by 1.538. The price of loose tea was higher in Lahore by a ratio of 2.289 against its price in Delhi. The situation was same in the markets of Karachi and Mumbai.
The pattern of crops and dietary consumption in the two countries is different. For instance, India produces more rice on a per capita basis than wheat. In Pakistan, it is in reverse. Currently, India supplies about 13 per cent of Pakistan’s requirement of agricultural products which include cotton, soybean oil and seeds . In fact, excluding palm oil, which is imported from Malaysia, India has potential of raising its share substantially.
Pakistan’s livestock sector is more developed than India’s. While the population ratio between India and Pakistan is close to 7:1, the ratio of milk production in 2010-11 was about 3:1 and that of meat 2:1. Regarding fruits, Pakistan has a higher production per capita, especially with respect to mangoes and citrus fruit. Among cash crops, the big change is in cotton. During the last decade, India has gone for bio-genetic varieties and production of cotton has more than trebled. It enjoys a substantial exportable surplus of cotton.
What the farming community in Pakistan has been seeking is a fair solution to the problem of vastly different cost of production that Indian and Pakistani farmers have to bear with respect to all crops. The inputs like fertiliser, diesel and electricity are subsidised in India but in Pakistan these are private expenditures. The Indian government also has in place support price mechanism for 25 crops. A similar mechanism of support price also exists for wheat in Pakistan and the farmers are quite satisfied with it. Our farmers can compete with their Indian counterparts if the prices of inputs are also subsidised. Currently, they buy them at market rates.
Under the prevailing situation, trade with India will remain flawed and detrimental to the interests of Pakistani farmers. Some analysts are of the view that allowing free trade with India amounts to serving the interests of Indian farmers, not Pakistani farmers. They are of the view that Pakistan should also regulate trade through tariff and non-tariff barriers (NTB) as is being done by India. And that Pakistan should also devise a mechanism to regularly review trade aspects of farm produce.
In fact, the farmers do not oppose trade with India because such trade is essentially in their interests and ensures a bright future for them and the country only if it is pursued in a fair manner and on an equal footing.—Ashfak Bokhari