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Agricultural trade liberalisation and domestic market reforms in Indian agriculture
Project ID
ADP/2002/089
Project Country
Commissioned Organisation
University of Melbourne, Department of Economics, Australia
Project Leader
Professor Sisira Jayasuriya
s.jayasuriya@latrobe.edu.au
Phone:
03 9479 1719
Fax:
03 9479 1654
Project Budget
$399,824.00
Start Date
01/01/2005
Finish Date
31/12/2007
Extension Start Date
01/01/2008
Extension Finish Date
30/06/2008
ACIAR Research Program Manager
Dr Simon Hearn
Related publications
Overview Objectives
Social aspects of market reforms, together with trade implications and market deregulation for greater efficiency are under examination, to:
determine through review the main institutional and regulatory interventions in selected agricultural sectors,
analyse marketing system constraints in selected agricultural sectors and their impacts on prices, production, income, consumption, trade and efficiency through in-depth case studies,
identify, evaluate and quantify the impact of domestic market and international trade policy reform options on agricultural prices, production, income, consumption, trade and efficiency, and
develop and disseminate a set of policy recommendations for more efficient markets to key stakeholders.
Project Background and Objectives
Economic growth in India has not delivered benefits across the population, particularly in agriculture. Instead the importance of agriculture has been diminished, including in its capacity to contribute to food security and rural poverty alleviation. In part extensive regulation, both through central and state governments has hampered agricultural growth. Domestic regulation can have widespread implications, socially and economically. Interventions in commodity markets, such as through state trading enterprises limit competition. Social implications relating to market-access also impact widely, such as in limiting opportunities for poor farmers to venture into markets delivering price premiums. In the case of India the potential of poorly performing markets or limited access to impact on tens of millions of people is very high.
Regulation of domestic markets can also distort international trade, particularly where prices are not set by the market. Australia has substantial expertise and experience in implementing domestic market reforms, and in developing efficient agricultural commodity markets. The export focus of many of these markets also provides relevance for managing trade implications and ensuring compliance with various international trade agreements.
Progress Reports (Year 1, 2, 3 etc)
Year 1:
The Project start was delayed several months due to delays associated with Indian government approval. However, once approval was given the project was initiated with a survey of the relevant Indian and international literature. An Advisory Committee was formed comprising researchers and government officials: Ms. Jyoti Gujral, IDFC; Mr. P.K. Agarwal, Joint Secretary, Ministry of Agriculture, GOI; Professor Mruthyunjaya, NATP; Mr. Bharat Desai, Reliance Industries Limited; Mr. Ishwar Singh Dagar, Government of National Capital Territory (NCT) of Delhi; Mr. R. Gopalan, Mr. R. Gopalan, Joint Secretary, Ministry of Commerce,GOI; Professor Susan Thomas, Indira Gandhi Institute of Development Research (IGIDR). A Project Implementation workshop and and an Advisory Committee meeting were held in May 13 2005 at NCAER in Delhi. The preliminary findings from the literature review and initial general equilibrium analysis were presented.
In line with comments and suggestions made at the workshop, it was decided to focus the research on the following sectors: rice, wheat, cotton and pulses (tur/arhar, and possibly groundnut). A detailed research programme was developed and further consolidated during a visit by Dr Chadha, Indian Team Leader, to Melbourne in July, 2005.
This programme comprises the following activities:
1. An analysis of the market system constraints in the identified agricultural sectors and their impact on prices, production, consumption, trade and efficiency, including field surveys of far-households, traders and government officials involved in selected markets in the states of Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu, Uttar Pradesh and West Bengal.
2. Commission study on experience of market reforms - selected markets - by Susan Thomas, IGIDR
3. Commission study of Australian experience with possible implications for India by Scott Davenport, NSW Department of Primary Industry
4. Implement an econometric study of market integration within India and Indian states and world markets
5. Extension of STE models developed by MacLaren and McCorriston to incorporate specific characteristics of selected markets in India (drawing on literature as well as field surveys)
6. Extend CGE model, use STE model estimates and explore impact of policy reforms
At end of December 2005, all identified outputs in project document had been achieved. But due to delayed start several activities - projected to go on for some time through 2006 - may require some additional time than indicated in project documents for completion.
Year 2:
2006 was the second year of this Project. The project team met all its stated objectives except for holding the mid-term workshop in Melbourne sometime close to the middle of the year 2006. This would now be held in Melbourne in February 2007. This delay was partly because we were able to hold a project-related workshop in New Delhi in February 2006 (and a project Advisory Committee meeting) using funds obtained by NCAER from Foreign and Commonwealth Office of the British High Commission in New Delhi. This was a very successful workshop, showcasing initial results before a large group of senior government officials, corporate sector representatives, academics and representatives from both Australian and British High Commissions, including both High Commissioners. The workshop elicited much discussion and very useful feedback.
These additional funds also enabled the project team to undertake a larger primary survey of the farmers and the agricultural markets than was originally envisaged; 675 farm households and 18 regulated marketing yards in 6 states covering 4 major crops (cotton, groundnut, paddy and pulses (tur)) were surveyed.
Partial equilibrium models of an importing and an exporting STE were developed to model government intervention in the marketing of rice in India through state trading enterprises (STEs). The research team came up with some initial estimates of the likely distortions arising from state trading in the Indian rice and wheat markets and highlight issues to be addressed in further developments of this project.
A version of the GTAP CGE model was used to analyse the impact of complete liberalisation trade barriers by the high-income countries through complete dismantling of the three pillars of agricultural trade barriers. India and many other developing countries would reap welfare gains more from getting market access for exporting primary and processed agricultural goods to the high-income countries rather than from removal of domestic and export subsidies by the high-income countries. Further, India and other developing countries would also reap welfare gains when they dismantle their own import tariff barriers. However, there would be allocative effects on factors of production. An important result is that India would become relatively competitive in animal husbandry and meat products.
Econometric analysis was undertaken for the first time in India to study the impact of post-1990 reforms on market integration both across different states of India and between domestic and international markets in rice and wheat. (This work has now drawn Dr Jae Kim, Monash University, into the project research team.) Initial results indicate that reforms have enhanced integration with international markets. The research would be extended to further study price transmission in both rice and wheat markets, and to assess if integration is quicker and more complete in states which have implemented deeper policy reforms. A related analysis evaluates the experience of existing Indian commodity markets to determine if, and to what extent, market instruments can substitute for state trading interventions and direct regulatory interventions to achieve price and farm income stability.
[6 papers based on project outputs have been prepared, and were presented at a project workshop in 8 Feb 2007 in Melbourne, and also in a special session on 14 February 2007 at the Australian Agricultural and Resource Economics conference in Queenstown, New Zealand.]
Project Outcomes
This project was conceived and designed to contribute to the policy challenge of devising reforms to improve efficiency in Indian agricultural markets consistent with major national goals of achieving sustainable improvements in rural incomes, poverty alleviation and food security. Its specific aims were: (a) to examine the nature and impact of interventions in selected agricultural markets (rice, wheat, cotton and pulses) with special attention to the role of state trading enterprises, (b) to analyse marketing system constraints, to identify, evaluate and quantify the impact of domestic market and international trade policy reforms and, (c) to develop and disseminate appropriate policy recommendations. A particular focus was on the interaction of trade liberalisation (reforms at the 'border') with internal ('behind the border') reforms. The research process was guided by and conducted in close interaction with a Research Advisory Committee comprising senior government officials, academics, policy analysts and private sector representatives and used a combination of case studies and sector specific and economy-wide models and analyses.
Research results, presented in a series of rigorous analytical papers and reports which were discussed in several national and international fora, confirmed that though post-1991 reforms have improved market performance and the integration of some internal agricultural markets (such as the rice market) with global markets, there remain significant market inefficiencies, resulting in high marketing costs and wastage. Analyses demonstrated that opening up of India's agricultural markets, particularly when processed product markets are liberalized, brings welfare gains. But effects of any given reform depend critically on the overall policy and institutional context. Research identified complementary reforms to price regulations and trade regime needed for pro-competitive reforms to have positive effects. Further, some groups gain while others lose from the immediate impact of reforms, requiring sensitive handling of the reform process. India's federal constitution which devolves much power over agricultural policies to state governments poses specific implementation challenges.
A key achievement of the project was to highlight the need for undertaking trade and internal market reforms in combination with the establishment of a strong competition policy framework and to prepare the ground for policy implementation along these lines. The interactive research process enabled a dialogue to be established between the research team and senior policy makers/government officials, facilitating dissemination of research findings leading to deeper recognition of the need for and potential gains from market reforms. Project research findings persuaded senior policy makers/officials to request a complementary project specifically targeted on formulating feasible and concrete measures to implement regulatory reforms and establish appropriate competition policy settings drawing on relevant Australian experience. An ACIAR sponsored project was launched in June 2008, which will undertake this task in close interaction with government and private sector agencies including the Competition Commission of India. This makes it highly likely that project research findings will be translated into concrete policy action and implementation.
This project also raised new issues and identified knowledge gaps. The period of research was one of rapid policy and institutional changes and the research programme was modified as appropriate to focus on emerging priority issues ensuring continuing policy relevance. In particular, recent global food price increases and policy responses demonstrated the need for new research in which risk and uncertainty of farmers' incomes are explicitly analysed as very little is known about the effects of market structure on the variability of prices and incomes. The response of policy makers to price volatility and its political consequences has already led to some reversals on the reform front and to major difficulties in the Doha round negotiations. Research to identify effective market based instruments to address price stability and food security is essential if policy makers are to be persuaded to implement deeper policy liberalisation.
Location
There are no project locations defined for this project.
