India Tops in Implicit Taxation of Farmers Among 54 Countries

The Organisation for Economic Co-operation and Development, or OECD’s “Agricultural Policy Monitoring and Evaluation 2024” report says that India implicitly taxed its farmers to the tune of a staggering USD 120 billion in 2023-the highest among 54 surveyed countries. This is an economically huge burden of government policies like export bans and export duties, which keep food prices low for consumers at a huge cost to the agricultural sector.

Relevance:

GS III: Agriculture

Dimensions of the Article:

1. Key Highlights of the OECD Agricultural Report
2. Negative Impacts of Indian Agricultural Policies on Farmers
3. Way Ahead

Key Highlights of the OECD Agricultural Report

• Agricultural Support Trends:
  • From 2021 to 2023, total support for the agricultural sector across 54 countries averaged USD 842 billion per year. Despite a decline in 2022 and 2023 from the 2021 peak, support levels remained significantly higher than those before the Covid-19 pandemic.
  • Market Price Support (MPS), a major component of total agricultural support, fell by USD 28 billion during the same period.
• Impact of Export Restrictions in India:
  • In 2023, India’s export restrictions on commodities like rice, sugar, onions, and de-oiled rice bran resulted in a negative MPS, translating into a USD 110 billion loss for the country.
  • This negative support meant that Indian farmers received less for their produce compared to market conditions without these policies, leading to a substantial reduction in their income.
  • India experienced the highest negative price support globally, constituting 62.5% of all negative price support in 2023. This share has significantly increased from 61% in 2000-02 to 75% in 2021-23, indicating a growing burden on Indian farmers.
• Challenges in Global Agriculture:
  • Ongoing global conflicts and extreme weather events continue to disrupt agricultural markets and challenge production and productivity.
  • The implementation of export restrictions by some countries further distorts international trade in agricultural commodities.
  • There has been a global slowdown in agricultural productivity growth, which poses a threat to meeting increasing global food demands sustainably.
• Socio-Economic Struggles:
  • Increasing farmer protests across various nations highlight the economic and social challenges faced by farmers, reflecting deep-seated issues within agricultural systems.
• Environmental Public Goods Payments (EPGP):
  • Though governments are linking payments to farming practices that support environmental sustainability, EPGP only constitutes 0.3% of total producer support.
  • EPGP funds are allocated towards public goods that benefit the environment, such as climate protection.
• Recommendations for Sustainable Agriculture:
  • Governments are urged to set measurable goals for sustainable productivity and invest in monitoring systems like Total Factor Productivity (TFP) and Agri-environmental Indicators (AEIs).
  • TFP is crucial for measuring the efficiency of agricultural inputs in producing outputs, indicating sustainable agricultural practices.
  • AEIs assess key environmental impacts and risks from agriculture and are essential for understanding agricultural performance and its underlying causes.
  • The report advocates for increased innovation to enhance productivity and a greater proportion of producer support to be allocated towards sustainable farming practices.

Negative Impacts of Indian Agricultural Policies on Farmers

• Negative Market Price Support:
  • Indian agricultural policies have led to negative market price support, particularly notable between 2014 and 2016, with a producer support estimate (PSE) of approximately -6.2% due to a -13.1% in market price support.
  • PSE, a key metric, quantifies the annual value of transfers from consumers and the government to agricultural producers, reflecting the impact of governmental policies on the agricultural economy.
• Export Bans and Quotas:
  • Policies imposing export bans and quotas on essential commodities like rice and sugar restrict market access for producers, driving down domestic prices and reducing farmers’ potential earnings.
• Regulatory Acts:
  • The Essential Commodities Act, 1955, and the Agricultural Produce Market Committee (APMC) Act of 2003 enforce stringent regulations on pricing, stocking, and trading of agricultural commodities.
  • While these acts aim to ensure food security, they often lead to reduced farm gate prices for farmers. This results from price controls and low procurement prices set by the government, which are sometimes below international market rates, creating a price-depressing effect.
• Minimum Support Price (MSP):
  • The MSP mechanism, intended to protect farmers from price fluctuations, has sometimes been set lower than international prices. This discrepancy means farmers earn less than what they might have received in an open market scenario.
• Infrastructure and Transaction Costs:
  • A lack of modern agricultural infrastructure and high transaction costs further reduce the prices that farmers receive for their produce, exacerbating the price suppression problem.
• Inadequate Long-Term Support:
  • Subsidies for fertilizers, irrigation, and electricity provide short-term relief but do not address long-term challenges such as climate change, market access limitations, and a decline in agricultural research. These issues are crucial for sustainable growth and profitability but remain largely unaddressed, hindering long-term development and resilience in the agricultural sector.

Way Ahead:

• Gradual reduction in export bans and quotas, investment in cold storage, transport, and 
• processing infrastructure, aligning MSPs with international market prices to take the edge off competitiveness and the resultant effective compensation.
• The organization should redirect their resources in strengthening the resilience, sustainability, and infrastructure and further reduce supply chain inefficiencies.
• Promote greater integration of state and central policies to ensure better coordination reduce fragmentation, and address sector challenges.
• More promotion towards direct marketing and e-commerce like National Agriculture Market (eNAM) as well connecting farmers to consumers cutting through the traditional dependence on a market.

-Source: Hindustan Times