India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

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Output Price Support Policies The Agricultural Prices Commission (now known as the Commission for Agricultural Costs <strong>and</strong> Prices) was created in 1965 by the central government to set MSPs for major commodities. 54 Today, direct domestic support for agricultural production continues through MSPs for 25 products, including grains, pulses, oilseeds, <strong>and</strong> cotton. MSPs are implemented by various central <strong>and</strong> state government agencies, <strong>of</strong>ten linked to changes in production costs for farmers. 55 The Food Corporation <strong>of</strong> <strong>India</strong> (FCI) is the implementing agency for wheat <strong>and</strong> rice procurement. In conjunction with state <strong>and</strong> union territory (UT) procurement agencies, the FCI purchases all wheat <strong>and</strong> rice that is <strong>of</strong>fered for sale by <strong>India</strong>n farmers (<strong>and</strong> meets prescribed specifications). By purchasing at the notified MSP, the FCI ensures a stable market for these two crops. 56 The National Agricultural Marketing Federation (NAFED) operates price supports for rapeseed, mustard, <strong>and</strong> corn. 57 The Cotton Corporation <strong>of</strong> <strong>India</strong> (CCI) <strong>and</strong> NAFED undertake price support operations for cotton, <strong>and</strong> the Department <strong>of</strong> Agriculture <strong>and</strong> Cooperation within the Ministry <strong>of</strong> Agriculture implements price support operations for pulses <strong>and</strong> oilseeds. 58 The <strong>India</strong>n government steadily increased MSPs for most covered commodities over the last five years; MSPs for staple crops such as rice, wheat, corn, <strong>and</strong> millet all increased more than 60 percent over the period. Much <strong>of</strong> that increase occurred in the last two years <strong>and</strong> was directly related to increasing fertilizer <strong>and</strong> energy costs. 59 For crops other than rice <strong>and</strong> wheat, open-market prices are typically higher than the support price, <strong>and</strong> therefore the impact <strong>of</strong> the MSP program on <strong>India</strong>’s agricultural production is somewhat limited (box 4.2). 60 For agricultural commodities not covered under the MSP scheme, the Department <strong>of</strong> Agriculture <strong>and</strong> Cooperation implements the Marketing Intervention Scheme (MIS), which operates only on request from state <strong>and</strong> UT governments <strong>and</strong> typically procures products that are perishable, such as horticultural goods. 61 The MIS is designed to protect growers from making distress sales in the event <strong>of</strong> a bumper crop that drives prices below the cost <strong>of</strong> production. With a few exceptions, financial losses incurred under the MIS are shared equally between the central <strong>and</strong> state governments <strong>and</strong> limited to 25 percent <strong>of</strong> the total procurement cost. Pr<strong>of</strong>its are retained by the procuring agencies, typically NAFED <strong>and</strong> state-designed agencies. Procurements made under the MIS are very small relative to procurements under the MSP scheme, totaling $43.5 million during FY 2008/09. 62 54 Panagariya, <strong>India</strong>: The Emerging Giant, 2008, 73. 55 Jha et al., <strong>India</strong>n Wheat <strong>and</strong> Rice Sector Policies, May 2007, 5. 56 Government <strong>of</strong> <strong>India</strong>, Department <strong>of</strong> Food <strong>and</strong> Public Distribution, Annual Report 2008–09, 32. 57 When crop prices are at or below the MSP in the marketplace, NAFED procures crops directly from the farmers through its cooperative network, using m<strong>and</strong>is (see explanation <strong>of</strong> m<strong>and</strong>is in chapter 7). 58 Government <strong>of</strong> <strong>India</strong>, Economic Survey 2008–09, 180. 59 Ibid., 178. 60 Government <strong>of</strong>ficial, e-mail message to the Commission, July 22, 2009. 61 Government <strong>of</strong> <strong>India</strong>, Economic Survey 2008–09, 180. 62 Ibid., 180–81. 4-10
BOX 4.2 Does the Minimum Support Price Program Really Affect U.S. Exports To the extent that minimum support prices (MSPs) force <strong>India</strong>’s internal market prices above the corresponding world price, they may encourage U.S. exports, particularly for goods that the United States produces in large volumes for export markets. For those MSP crops that the United States might ship to <strong>India</strong> under a free trade scenario—wheat, corn, <strong>and</strong> lentils—<strong>India</strong>n market prices were as much as 60–120 percent above the MSPs for corn <strong>and</strong> lentils for 2008 <strong>and</strong> the first half <strong>of</strong> 2009. a (Rice was not considered as a possible U.S. export because <strong>India</strong> imports virtually no rice <strong>and</strong> remains a significant net exporter.) Therefore, MSPs for corn <strong>and</strong> lentils were not affecting <strong>India</strong>n domestic prices. This leaves only wheat. Although market prices for wheat tracked the MSP for wheat during 2008 <strong>and</strong> the first half <strong>of</strong> 2009 <strong>and</strong> therefore appear to have affected <strong>India</strong>n domestic prices in an upward direction, prices <strong>of</strong> U.S. wheat exports to thirdcountry markets during this 18-month period were significantly higher than <strong>India</strong>n domestic prices (by 30– 100 percent). b (Quality differences may account for most <strong>of</strong> the price difference; the United States typically produces <strong>and</strong> exports high-quality wheat.) Therefore, it appears that the United States already sells wheat in third-country markets at higher prices than those found in <strong>India</strong>. Consequently, <strong>India</strong>n MSPs, by themselves, are unlikely to encourage U.S. exports in a free-trade environment. However, higher levels <strong>of</strong> government support for rice <strong>and</strong> wheat encourage their production at the expense <strong>of</strong> other commodities, such as pulses. c This may discourage imports <strong>of</strong> rice <strong>and</strong> wheat <strong>and</strong> encourage imports <strong>of</strong> other agricultural commodities from all sources. ______________ a Commission staff chose representative <strong>India</strong>n market prices for wheat, lentils, <strong>and</strong> corn (maize) from large producer states, in this case Uttar Pradesh, Madhya Pradesh, <strong>and</strong> Maharashtra, respectively. Government <strong>of</strong> <strong>India</strong>, Ministry <strong>of</strong> Agriculture, Agmarknet database. b <strong>India</strong>n agricultural prices sometimes vary significantly between states: in 2008, the price <strong>of</strong> wheat in Punjab <strong>and</strong> Madhya Pradesh differed by as much as 20 percent. At all price points, however, <strong>India</strong>n prices were lower than U.S. export prices. Government <strong>of</strong> <strong>India</strong>, Agmarknet database; Philip, “High Food Prices in <strong>India</strong>,” 2. c Industry representatives, interviews by Commission staff, New Delhi, <strong>India</strong>, May 26, 2009, <strong>and</strong> Mumbai, <strong>India</strong>, May 28, 2009. Input Support Programs <strong>India</strong>’s farmers benefit from input support on fertilizer, irrigation water, electricity, diesel, <strong>and</strong> seeds. In each case, these programs lower the price <strong>of</strong> inputs to the farmer, thereby encouraging their overuse. Farm support, particularly for fertilizers, was introduced to promote the government’s goal <strong>of</strong> self-sufficiency in food grain production. 63 Farm support is also intended to boost farmers’ income by lowering the cost <strong>of</strong> production. Government expenditures for these goods are costly, however, crowding out public investment in agricultural research, extension services, irrigation infrastructure projects, <strong>and</strong> other rural infrastructure. Research indicates that <strong>India</strong>’s public expenditure patterns in agriculture have not maximized long-term, sustainable economic growth. 64 Fertilizer Support Programs Fertilizer support programs are traditionally the largest among the agricultural input supports funded in the central government’s budget. The government controls the prices at which fertilizers are sold to farmers, paying the difference between controlled prices <strong>and</strong> market prices to fertilizer producers <strong>and</strong> importers; payments include an extra amount to cover transportation costs. Estimated expenditures for FY 2008/09 total Rs. 758.5 billion ($16.5 billion); this estimate excludes “<strong>of</strong>f-budget” special bonds issued by the government to provide fertilizer companies with funds to meet their capital 63 Mittal, Tripathi, <strong>and</strong> Tripathi, “Reshaping Agriculture Trade Policy,” 2008, 83. 64 Persaud <strong>and</strong> Rosen, “<strong>India</strong>’s Consumer <strong>and</strong> Price Policies: Implications for Food Security,” February 2003, 34–35. 4-11
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United States International Trade C
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U.S. International Trade Commission
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Abstract This report describes <str
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TABLE ES.1 India:
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U.S. agricultural products face str
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U.S. Foreign Direct Investment U.S.
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CONTENTS Page Abstract ............
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CONTENTS―Continued Chapter 6 <str
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CONTENTS―Continued Figures 1.1. <
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ACRONYMS AND TERMS AAY Antodaya Ann
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ACRONYMS AND TERMS—Continued RGGV
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TABLE 1.1 India: A
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FIGURE 1.1 India:
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India’s central
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Despite their weak economic pr<stro
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Page 61 and 62: more likely to have been exposed to
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Page 67 and 68: are expected to see income growth <
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Page 89 and 90: known as zamindars, have doubled or
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Page 99 and 100: sensitive. They include vegetable f
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Customs Procedures India</s
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Corruption Interests within <strong
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TABLE 6.2 India: E
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Bibliography American Apparel <stro
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Mattson, Jeremy W., Won, W. Koo, <s
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———. 2009 National Trade Esti
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TABLE 7.1 India: C
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First Point of Sal
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Private mandis Som
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approximately 65 million households
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7-10 TABLE 7.2 India</stron
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poor communications infrastructure
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limited popularity with farmers bec
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The lack of infras
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found that 39 percent of</s
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Bibliography Banerjee, A. Dairying
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Tiwari, Shri Rajendra Kumar. “Pos
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FDI Regulations and</strong
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TABLE 8.2 India: A
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Food Processing and</strong
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There is not necessarily a strong l
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For processing of
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BOX 8.3 Restrictions on Foreign Joi
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Under certain circumstances, FDI ca
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commenced. States tend to be quick
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Bibliography Bahn, Niti, an
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International Center for Alcohol Po
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Structure of the <
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BOX 9.1 The UPOV System for Plant V
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that the public sector in I
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Whether this situation will soon ch
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The U.S.-India Bus
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eggplant, which began field trials
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Maskus, Keith E. “Intellectual Pr
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APPENDIX A REQUEST LETTER
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The Honorable Sham L. Arano
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cprice-sewell on PRODPC61 with NOTI
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APPENDIX C HEARING WITNESSES
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ORGANIZATION AND WITNESS: Tuttle Ta
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Summary of Views <
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advertising and pr
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highest in the Asia-Pacific region.
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to U.S. exports to India</s
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transparent sanitary regulations th
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hotel and catering
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Western Pistachio Association 26 In
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APPENDIX E POTENTIAL FOR U.S. AGRIC
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E-4 TABLE E.1 India</strong
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APPENDIX F INDIAN AGRICULTURAL PROD
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TABLE F.1 India: A
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FIGURE F.1 India:
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is in nonirrigated areas with yield
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Consumption India
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efrigeration. This characteristic i
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70 percent of tota
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eportedly preferred in southern <st
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Cotton During MY 2003/04-2007/08, <
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Government of <str
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APPENDIX G UNION AND STATE/UNION TE
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certain agricultural goods in the p
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Bibliography Chaulan, Shri U.K. “
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Simulation Framework The effects <s
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Producers determine the optimal sup
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Applied ad valorem tariff equivalen
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We considered the possibility that
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Estimation of <str
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Bibliography Anderson, Kym, Mariann
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