MFN STATUS VS. AGRICULTURE SECTOR

NUSRAT KHURSHEDI
(feedback@pgeconomist.com)
Dec 24 - 30, 20
12

As government rushes towards formalising the most favoured nation (MFN) status for India before next election, the provinces and farmers highlight the post-MFN scenario, now they wanted that government should calculate cost-benefit ratio before taking a decision. In this regard, the Kisan Board Pakistan (KBP) instigate a demonstration near Wagha border on December 24 to lodge their protest against the government decision of declaring India as most favoured nation; allow access to Central Asian States and encouraging liberal trade between the two neighbours, and for this they continue physical blok unless the government reviewed its decision to phase out negative list to be implemented from January, as the new measures would allow India to export 25 categories of products, including gram, lentils, sugarcane, maize, potato, wheat and cotton.

Representatives of farmers from three provinces have made it clear to the government that trade liberalisation of agriculture products was unacceptable as Indian farmers were getting massive subsidies, as Pakistani farmers spend Rs 321 billion more on agriculture as compared to Indian growers. In India, both agriculture and food are massively subsidised. However, in Pakistan, they are heavily taxed. That is the point from where all fears flow for provinces and farmers, who could be potentially direct sufferers. Punjab, being the biggest producer and host of 55 per cent population, is leading the way.

According to farmers, they are not against trade with India but expect to be protected against the highly subsidised agriculture products of India. On average, each agriculture hectare gets a subsidy of $300 per year in India. This works out to be around Rs 11,900 per acre of subsidy or 30 maunds average production of any commodity. Indian farmers have a comparative advantage of Rs 400 per 40kg. The Urea price in India is Rs550 (in Pak-rupee denomination) per bag as compared to Rs1,700 in Pakistan. The DAP costs Rs2,700 in India and Rs4,000 in Pakistan. So the cost of wheat varied, as farmers use three bags of urea and one bag of DAP per acre. He said a Pakistani farmer spends Rs 5,600 on application of urea and Rs 4,300 on DAP per acre. In India, the cost of both fertilisers for wheat crop is merely 2,443 Pakistani rupees. Support price of wheat in Pakistan is Rs 950 per maund, while in India it is 818 Pakistani rupees per maund.

Along this, cotton farmers would face an uphill task to sell their produce to spinners as the cost of cotton production in India is much lower due to huge government subsidies. Indian government is taking only Rs 1,700 per month electricity bill from the farmers for tube-wells and in Pakistan up to Rs 150,000 electricity bill is common. Diesel costs Rs77 per liter in India and Rs115 in Pakistan. Electricity costs Re1 in India and more than Rs8 per unit here.

Due to this difference, Pakistani farmers pay Rs115 billion more than their Indian counterparts on only one crop: sugarcane. Pakistan sows it on 2.4 million acres and the total cost of the crop is Rs200 billion. If on a crop of Rs200 billion, Pakistan farmers have to invest Rs115 billion more than their Indian competitors, what chance do they stand in free trade situation?

India also provides significant subsidies on indirect inputs such as electricity and seeds, both of which are almost free in India; whereas its rates in Pakistan have become extremely unaffordable. Pakistan also levies GST at 16 percent on all agriculture inputs, which are tax exempt in India. India's average duty rate for agricultural goods is as high as 34 percent; whereas Pakistan's average duty rate is half, i.e. as low as17 percent. Thus, India not only provides very large subsidies to help its farmers, but also erects high tariff barriers so that they are protected from competition, including agricultural exports from Pakistan. India maintains a minimum price support programme on 25 agricultural crops; whereas Pakistan has just one such agricultural crop, i.e wheat. Thus, the protection given by Indian government to its agri-sector is significantly greater than Pakistan.

The Ministry of Finance has already expressed its inability to subsidise the local agricultural sector to make it competitive with the list of agricultural items that could be imported from India. At present farmers suffer double disadvantage: massive subsidy amounts that makes input cheaper in India than their international prices and Pakistani farmers paying more than the international prices. The farmers assert that the policies of each state around the world are designed to get three targets:

* ensure sustainable growth (agricultural, industrial and economic);

* keep their cost of living at a relatively acceptable social level

* and take benefit of comparative advantage in production of agriculture and food items.

By opening its borders to India as being conceived and advocated none of any objectives Pakistan would be able to achieve. In its current format, the opening of border would not only hit agriculture but industry (83 per cent of Pakistan industry is directly dependent on agricultural raw material) and also employment situation, as 40 per cent of labour force is surviving on the sector.

Bureaucratic circle claimed that MFN process has been going on for the last two years and the farmers have started making noises only now when it is nearing its conclusion. However, the farmers disagree and insist that they having been raising objections and writing to the ministry of food and agriculture (Minfa) for the last as many years. Unfortunately, as the 18th amendment took hold of governance, the ministry was dissolved. The ministry of commerce is now pushing the decision down their throats instead of initiating new consensus-building initiative by getting stakeholders on board and removing their fears.

They are not agianst any trade relations but they just wanted that in an era of high fuel prices and even higher freight charges, regional trade makes more economic and commercial sense. Pakistani farmers and industrial sector should get same incentives before declaring India as MFN. They simply demanded that granting MFN should be based on three factors:

* results of comparative study of subsidies regime on both sides of the border;

* scrupulously calculated cost-benefit ratio of such an action;

* and finally reciprocity on both sides.

The Pakistani farmers - small, medium and large - are of the opinion that a sudden liberalisation of trade with India, which ignores their legitimate interests and excludes agricultural goods from both the 'negative' and 'sensitive' lists, will prove to be suicidal for agriculture and ultimately the nation's economy. It is in the interest of the government to give attention and support in the following context:

* Government must pursue a fair trade policy, rather than a hastily negotiated one-sided free trade regime with India.

* Agriculture should be forthwith removed from the ambit of this ill-planned trade regime.

Even though India granted the MFN status to Pakistan in 1996, the balance of trade has heavily favoured it because it also imposed non-tariff and tariff barriers to deny access to Pakistani goods. Thus, Pakistan's exports to India could not increase beyond $332 million since 1996-97; while on the other hand, even without being granted the MFN status, Indian exports to Pakistan have increased manifold, i.e. from $158 million to $2.0 billion during the same period. The ratio that was 80:20 in India's favour now stands increased to 85:15. What more has been planned for Pakistan, is quite clear. Therefore, any knee-jerk and reckless opening of trade that does not protect our agriculture will favour India, even more to the detriment of the Pakistani economy.

Moreover, any such opening should occur in a phased and strategic manner to ensure that Pakistan's agricultural and food security is not compromised. However, it is strange that the government is pursuing a reckless path to hasty trade liberalisation with India without consulting the farmers' community.

Government now take decission by keeping these two facts cleary in their mind that if trade doors are opened without taking effective measures, and without negotiating reciprocal treatment and negotiating market access for Pakistan agricultural goods to India, local farmers will be left at the mercy of Indian growers, and in repercussion any anti-farmer move would cost the government heavily in general elections. And no doubt in recent years Indian businesses capturing the agricultural market will rule the roost and will dictate their terms to our public. On the other hand, as two countries have taken several steps in recent months, including the signing of three agreements, to boost bilateral trade to $6 billion by 2014,so bak step cost suffers further Pakistan India relations.

In a nutshell, Pakistan has to move cautiously or otherwise, surge in imports from India could usher in further de-industrialisation which may lead to massive layoffs and social unrest.